How To Make Your Vote Count — Your Guide To Creditors’ Meetings

Introduction

Creditors’ meetings are important. When a company decides to go into voluntary liquidation, the creditors’ meeting may be the only opportunity for creditors to question the directors of the company and to make decisions about who will be appointed liquidator.  Creditors frequently fail to comply with the procedures, with the result that their votes do not count.

How are creditors’ meetings convened?

Creditors’ meetings are convened in accordance with Section 587 of the Companies Act 2014 (“the Act”). Creditors are entitled to receive at least 10 day’s notice of a creditors’ meeting.  The notice summoning a creditors’ meeting is required to be advertised in at least two daily newspapers circulating in the district where the registered office of the company or principal place of business of the company is located.

Who can attend a creditors’ meeting?

A creditor may attend a creditors’ meeting in person, as a representative for and on behalf of a company or by proxy.  Creditors are often represented by proxy at creditors’ meetings.  When served with notice of a creditors’ meeting, creditors will also receive the standard general proxy form and special proxy form.  The form of general proxy and special proxy is governed by Order 74 Rule 44 of the Superior Court Rules.

Both proxy forms allow a creditor to nominate either the chairman of the creditors’ meeting, or such other person as the creditor wishes to appoint, as a proxy to vote on his behalf.  A general proxy does not specify in which way that nominated person shall vote and accordingly, the nominated person is free to choose how to vote.  However, a special proxy does allow a creditor to direct how their nominee shall vote on his behalf.

The importance of completing your proxy form properly

1. If a creditor does not return the proxy form within the time stated in the notice of the creditors’ meeting, it is invalid and a creditors’ nominee will not be entitled to vote on that creditors’ behalf.
2. If a proxy form is not properly executed, it will be declared invalid.
   • For an individual, valid execution is simply a matter of signing your name.
   • For a company, valid execution requires that the proxy form is executed under the company seal (which means affixing the company seal and bearing the signature of two directors of the company or the signature of one director of the company and the signature of the company secretary).  If the form is not executed under the company seal, the person signing the proxy should be a “duly authorised officer of the company”.  This phrase should be clearly stated on the proxy form under the signature of the person executing the form on behalf of the company.
   • For a partnership, valid execution of the proxy form requires that the form is signed by a partner who should sign the firm’s trading name and add “by [Name of the Partner], a partner in the said firm”.
3. It is important to clearly identify the nominated person to act as proxy on behalf of a creditor.  If, for example, the chairman is appointed as proxy, but the name of a person other than the chairman is mistakenly inserted, who is not the chairman, this will invalidate the proxy form on the basis of uncertainty.

Appointing a liquidator: making your vote count

When a company determines that it cannot by reason of its liabilities continue, a resolution is passed determining that the company shall be wound-up and that a named liquidator shall be appointed.

The proposed liquidator is then put to creditors at the creditors’ meeting, who have an opportunity to nominate an alternative liquidator instead of the company’s proposed liquidator, if they so choose.

The normal rule, on voting at a creditors’ meeting, is that a resolution is deemed passed by a majority in number of those present in person or by proxy, and entitled to vote.  However, on the question of the creditors’ nominee as liquidator of the company, there is a different rule. In effect, voting is weighted according to the amount due to each creditor.  Accordingly, a resolution is deemed to be passed when a majority, in value only, of the creditors present personally or by proxy vote in favour of the appointment of the creditors’ nominee as liquidator.

What have we learned from case law on the validity of proxies?

• Compliance with the Superior Court Rules as to the form of proxy and method of execution is mandatory.
• If a proxy form is not validly executed, it should not be accepted by the chairman of the creditors’ meeting.
• If an invalid form is accepted by a chairman of the creditors’ meeting, the appointment of the liquidator may be subject to challenge.
• If a proxy is executed by a corporate creditor, the person executing the proxy must state that they are “a duly authorised officer of the company”.  It will not be sufficient to sign the proxy form as “Joe Bloggs, Director” or “Joe Bloggs, duly authorised signatory”.
• If a proxy is executed on behalf of a partnership, the partner executing the form should state that he is either “Joe Bloggs, Partner of JB & Company” or “Joe Bloggs, a partner in the said firm” but only in circumstances where the firms trading name has already been referred to in the proxy form.

Conclusion

The winding-up of a company is an anxious time for directors, members and creditors alike. The validity of a proxy form is key to making your vote count. It is extraordinary how often simple rules are not followed.

For further information contact Elaine McGrath emcgrath@reddycharlton.ie