Creditors Meeting - From a Directors Perspective

With the rate of insolvencies returning to pre-pandemic levels, many companies are coming to the realisation that their business is no longer a going concern and are faced with the prospect of liquidation or a Creditors Voluntary Liquidation (CVL). One of the first items a company must to do when entering a CVL is the convening of a creditors meeting. The statutory requirements around convening a creditors meeting are covered in S.587 of the Companies Act 2014. However, the scope of this article is to outline the responsibilities and risks from the perspective of the company directors.

The creditors meeting has three purposes:

1. To lay before the meeting a Statement of Affairs (SOA) of the company;

2. To allow the creditors to nominate an alternative liquidation;

3. To allow the creditors to appoint a committee of inspection.

At least one director is required to attend the creditors meeting. Even in cases where there is more than one director, it is common practice for one director to attend the meeting. The more directors that attend, the more questions can be asked about the statement of affairs, creating more opportunities for error or for the meeting to be derailed.

Creditors meetings can be contentious as the creditors stand to lose significant amounts in unpaid debts and are justifiably annoyed. They will have questions for the directors about the management of the company which resulted in liquidation. Creditors may want to appoint their own liquidator or a committee of inspection to oversee the liquidators’ activities. In some cases, creditors or their proxy may use the creditors meeting as an opportunity to “catch out” the directors by getting certain questions and answers on the recorded minutes of the meeting. These answers may then form the basis for whether a person shall be restricted from acting as a director. Alternative liquidators may also use the creditors meeting to lobby creditors to appoint themself as liquidator.

It’s essential for the director chairing the meeting to be reminded of their fiduciary responsibilities and potential questions they may be asked during the creditors meeting.

We have prepared a guide of over thirty questions that directors may be asked during a creditors meeting. These questions have been compiled based on numerous creditors meetings we’ve attended.

The questions generally fall into three categories:

1. Accounting Records

   • Every company is required to maintain adequate accounting records. Therefore, it is a criminal offence for company director to fail to take all reasonable steps to ensure compliance with this requirement.

   • Creditors will ask questions to determine if the company has maintained proper accounting records and if the company has failed to meet its requirements.

2. Trading Activity

   • A director of an insolvent company can be held personally responsible (without limitation of liability) for a company’s debts if found liable for reckless and/or fraudulent trading (Section 610-611 Companies Act).

   • Creditors will want to determine if a company has traded recklessly at the expense of creditors. Questions around the trading activity will seek to determine if the directors knew that the company was insolvent but continued to trade anyway.

3. Directors Conduct 

   • A company director who acts in breach their fiduciary duties and benefits or profits from the company’s property, information or opportunities for personal benefit will be liable for any loss or damage resulting from that breach.

   • These questions will aim to determine if the company director misused company funds for their own personal benefit at the expense of creditors.

It is important for the director chairing the meeting to remember the purposes of the creditors meeting, that is:

1. To lay before the meeting a Statement of Affairs (SOA) of the company:

2. To allow creditors to nominate an alternative liquidation:

3. To allow creditors to appoint a committee of inspection:

A creditors meeting can be easily derailed if the director chairing the meeting does not understand the procedure and order of business. That is why directors need to obtain sound advice at the beginning of the liquidation process so that they are well prepared for the creditors meeting and avoid being restricted from acting as directors in the future.