Overview Of Can A Creditors’ Committee Control A Liquidator
Can A Creditors’ Committee Control A Liquidator? Creditors should not be able to control a Liquidator. The position of a Creditors Committee is no different.
A Creditors’ Committee’s role is not to control a Liquidator; it is to assist the Liquidator by virtue of Rule 17.2 of the Insolvency (England and Wales) Rules 2016 for the benefit of creditors as a whole.
The Liquidator’s function is to get in, realise and distribute the assets. The Liquidator enters office as a stranger and may therefore often benefit from information creditors can provide.
If creditors are unhappy and wish to remove a Liquidator then there are specific procedures to do this but that is not the function of the Creditors’ Committee.
What Is A Creditors’ Committee?
A Creditors’ Committee is a group of creditors of between three and five creditors who may serve. Without a minimum of three creditors being willing to serve on a Committee then it will not be established.
A Creditor’s Committee is entitled to reports regularly from the Liquidator. Under Rule 17.23 of the Insolvency (England and Wales) Rules 2016 the Liquidator must report to the Committee at least once in every six month period and when directed to by the Committee provided such requests are not frivolous, unreasonable or too costly.
Creditors’ Committee Control Over A Liquidator
Creditors who look to use a Creditors’ Committee to control a Liquidator are likely to be disappointed.
A Liquidator’s duties mean he or she has a duty not to be controlled by creditors because he or she is required to be independent of creditors. The duty of a Liquidator is to creditors as a whole or as a class, not to them individually. It is not the role of a Liquidator to act as the hired gun of creditors.
The Liquidation is controlled by a Liquidator, not a Creditors’ Committee.
Control and influence are not the same thing. A Creditors’ Committee may properly be able to exert influence but not instruct or direct the Liquidator.
Creditors’s Committee Control Of Liquidator’s Remuneration
A key function of a Creditors’ Committee is to approve the basis of the Liquidator’s remuneration.
As a result, one of the ways in which a Creditors’ Committee might look to exert some influence perhaps is in its ability to vote on a Liquidator’s remuneration. However, the role of a Liquidator is to fulfil their functions notwithstanding matters relating to remuneration.
Whilst a Creditors’ Committee may reject the basis of a Liquidator’s remuneration which may be thought to be a position carrying influence, nevertheless it is a statutory right that a Liquidator is entitled to remuneration by virtue of Rule 18.16 of the Insolvency (England and Wales) Rules 2016. How that remuneration is calculated is another matter but the underlying principle is that an entitlement exists as a matter of law.
If however, creditors do not approve the basis of the Liquidator’s remuneration then within 18 months of being appointed a Liquidator can apply to the Court under Rule 18.23 of the Insolvency (England and Wales) Rules 2016. It is also possible if a Liquidator seeks to amend the basis of remuneration which is rejected by creditors for the matter to be addressed also by an application to the Court under Rule 18.29 of the Insolvency (England and Wales) Rules 2016.
It is generally preferable to avoid a dispute over remuneration with the potential delays and costs associated with an application to the Court. As a result, a Liquidator may choose to negotiate the position on their remuneration with the Creditors’ Committee.
