Think you have a validly convened COI? Think again…

For many years it has been the practice of voluntary administrators to call for nominations for a committee of inspection (COI) at the second meeting of creditors.  If nominations were received, the administrator would then propose that the nominated creditors be appointed to the COI. 

Administrators considered that this process was sufficient to validly convene a COI, and administrators were right, until the recent decision of Pritchard J of the Supreme Court of WA in Re The Bell Group Ltd (in liq); Ex parte Woodings1 (Bell).

The facts of Bell required consideration of the application of section 548 of the Corporations Act 2001 (Cth) (Act) in relation to a court ordered winding up (as opposed to a voluntary administration/creditors voluntary liquidation).  Section 548 (relevantly) states:

(1)  The liquidator of a company must, if so requested by a creditor or contributory, convene separate meetings of the creditors and contributories for the purpose of determining:

                          (a)  whether a committee of inspection should be appointed; and

                          (b)  where a committee of inspection is to be appointed:

(i)  the numbers of members to represent the creditors and the contributories, respectively; and

(ii)  the persons who are to be members of the committee representing creditors and contributories, respectively.

Her Honour stated (relevantly) at:

[37] In my view, on its proper construction s 548(1) means that the liquidator must hold separate meetings of the creditors and of the contributories to determine whether a COI should be established, the number of members of that COI, and the identity of the members of that COI…

[51] …a failure by a liquidator to hold separate meetings of the creditors and contributories to determine if a committee of inspection should be established, and its membership, constitutes a contravention of s 548(1) of the [Corporations] Law.

While the facts in Bell did not concern a COI appointed in a voluntary administration/creditors voluntary liquidation, Her Honour considered the position in relation to a creditors voluntary liquidation in any event, stating:

[45] Furthermore, in the case of a creditors’ voluntary winding up, s 497(10) of the Act20 permits a meeting of the creditors to determine the matters referred to in s 548(1)(a) and (b) of the Act. That meeting is taken to be a meeting of the creditors under s 548 of the Act. However, s 497(10) does not eliminate the need for a meeting of the contributories, which remains a requirement under s 548.

[46] In my view, to construe the Law as permitting the establishment of a COI other than in accordance with s 548 of the Law would be to ignore the clear legislative intent to ensure that the views of both creditors and contributories be taken into account, other than where the legislation expressly provides otherwise.  For these reasons, I respectfully disagree with the reasoning of Greenwood J in Re Rivercity Motorway.

The upshot being that in Pritchard J’s view in order to validly convene a COI practitioners must hold both a meeting of creditors and a meeting of contributories (which includes all shareholders). 

Bell creates significant legal uncertainty as to the correct manner in which a COI should be appointed in a voluntary administration/creditors voluntary liquidation.  This uncertainty arises because of the fact that:

  • Bell is a decision of a single Judge of the Supreme Court of WA.
  • In Bell, Pritchard J disagrees with the decision of a single Judge of the Federal Court of Australia in Rivercity2;
  • Bell did not consider a creditors voluntary winding up (Rivercity2 did), and as such, Pritchard J’s view, is not binding precedent for creditors voluntary liquidations (however it is likely to be highly persuasive).

Lavan Legal comment

As a result of the Bell decision we consider that there is significant risk that administrators / liquidators who have appointed COIs without holding a meeting of contributories have not validly established COIs.  COIs that have not been validly established (and all acts performed by these COIs) can be validated by an application pursuant to section 1322(4) of the Act.

The decision in Bell represents a significant departure from the accepted general practice and as a result the Act may need to be amended.  However, until such amendments take place practitioners should ensure that they convene both a meeting of creditors and a meeting of contributories in order to establish a COI.


1 Re The Bell Group Ltd (in liq); Ex parte Woodings [2015] WASC 88

2 Re Owen (in their capacities as joint and several administrators of Rivercity Motorway Pty Ltd) (admns apptd) (recs and mgrs apptd) [2014] FCA 1008

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.