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Creditors – New laws for replacing a liquidator explained

Liquidators have a duty to act independently and in the best interests of the creditors of a company. However, creditors and liquidators may see things differently at times.

But do creditors have the power to remove a liquidator, if they feel it’s warranted? If so, what is the process for removing a liquidator and getting another one appointed?

New amendments to the Corporations Act 2001, contained in the Insolvency Practice Schedule (Corporations) 2016 and the Insolvency Practice Rules (Corporations) 2016, have made it easier for creditors to change liquidators, as well as providing a range of other new powers. These are explained below.

Amended laws for replacing a liquidator

A dispute with a liquidator may arise from a proposed business and asset realisation strategy, intended action in respect of recovery claims, or a perceived lack of independence following appointment by directors.

In the past, creditors were able to replace a liquidator appointed by the company only at the first meeting of creditors or by court application at their own expense.

As a result, few liquidators were ever replaced.

However, the new laws give creditors the right to request an appointed liquidator to call a meeting to consider their replacement at any time, as well as further powers to request information.

How can a liquidator be replaced now?

A resolution to consider a liquidator’s replacement can only be considered and passed at a meeting of creditors.

For a proposed resolution to be passed, a majority in both number and value of creditors voting at the meeting need to be in favour.

Under the changes, liquidators are generally not required to hold creditor meetings unless requested by creditors. Voting on remuneration and other procedural matters can now be done by correspondence.

What will you need to replace a liquidator?

In addition to creditors requesting the appointed liquidator to call a meeting of creditors to consider a resolution for their replacement, they will need:

  • A Consent to Act, and
  • A Declaration of Independence, Relevant Relationships and Indemnities (DIRRI) from an alternative Liquidator

Who can request the liquidator to call a meeting?

Under the new laws, a liquidator will be required to call a meeting of creditors to consider their replacement when:

  1. Creditors pass a resolution directing the liquidator to call a meeting. Such a resolution would be proposed by the liquidator, either in correspondence or at a meeting of creditors.
  2. A creditor or creditors request the liquidator to do so in the following circumstances:

i. Within 20 business days of the liquidator’s appointment to a Creditors’ Voluntary Liquidation, unrelated creditor/s representing at least 5% in value of creditors.

ii. At any time if:

a. The creditor/s represent at least 25% of total creditors.

b. The creditor/s represent 10 to 25% of total creditors and they provide security for the cost of holding the meeting.

Are there any other new powers for creditors?

The new laws cover more than the process for replacing a liquidator. Creditors also have powers to:

1. Request information from a liquidator, which the liquidator must provide within five business days unless otherwise agreed, where:

i. It is relevant to the liquidation.

ii. Providing the information does not result in the liquidator breaching their duties.

iii. It is reasonable for the liquidator to provide the information.

2. Appoint a ‘reviewing liquidator’ to review:

i. A liquidator’s remuneration which was approved within the previous 6 months; and/or

ii. An expense incurred by the Liquidator in the previous 12 months.

Creditors can seek for a reviewing liquidator to be appointed by:

i. Applying to ASIC.

ii. Applying to court.

iii. Passing a resolution proposed by the liquidator at a meeting or by correspondence.

iv. One or more creditors without a proposal, provided the liquidator agrees with the appointment

The reviewing liquidator’s costs are paid from the assets of the company in liquidation, except where the appointment is made by one or more creditors with the agreement of the liquidator (i.e. without passing a resolution), in which case the creditors bear the cost.

How can creditor powers be best utilised in liquidation?

Changing a liquidator may not be the silver bullet creditors are hoping for. Liquidators have duties to act independently and can be constrained by available funds, and replacing liquidators increases costs. So it’s best to use the rules in a structured way as follows:

  1. Request particular information from the appointed liquidator. If the response received is unsatisfactory, consider further steps.
  2. If concerns only relate to the amount of remuneration charged, consider the appointment of a ‘reviewing liquidator’.
  3. If genuine concerns still exist, then discuss the liquidator’s replacement with other creditors, and approach the liquidator to call the requisite meetings.

If you’re a creditor of a company in liquidation and have any queries about your rights under the new laws, do not hesitate to get in touch.

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