Think you have a validly convened COI? Think again…

(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.