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Overview Of Creditors’ Committee

A Creditors Committee is a number of the creditors of the insolvent company or individual that in effect represent all of the creditors.

Purpose Of A Creditors’ Committee

The purpose of a Liquidation Committee is to assist the Insolvency Practitioner (“IP”) in their work and to approve the basis of the IP’s remuneration. A creditors committee can therefore monitor the level of fees that are being incurred by the IP.

Insolvency is a process that exists for the benefit of all creditors as a body. The Liquidation Committee represents all creditors and can be therefore used as a sounding board by the IP to take into account the view of the creditors.

What Is A Creditors' Committee?

Joining A Creditors’ Committee

Any creditor may join provided their appointment has been approved by a vote taken from the general body of creditors.

Composition

The Committee must have at least two members but not more than five creditors appointed.

Conflict Of Interest

In some cases, a creditor who is serving as a member may have interests that conflict with those of the general body of creditors and in such instances, they will be unable to vote on the issue at large to ensure that creditors’ interests are not prejudiced.

Reporting To A Creditors’ Committee

An IP has a duty to report to the Creditors’ Committee every six months after it has come into existence except if the committee determines otherwise.

The information rights of Creditors’ Committee members are set out in Rule 17.23 of the Insolvency (England And Wales) Rules 2016 which include the following provisions:

(1) The relevant rule applies in relation to a Creditors Voluntary Liquidation, a Compulsory Liquidation and a Bankruptcy.

(2) The Insolvency Practitioner must deliver a report to every member (as appropriate) containing details of:

(a) the position generally in relation to the progress of the proceedings; and

(b) any matters arising in connection with them to which the Insolvency Practitioner considers the Creditors’ Committee attention should have.

(3) The Insolvency Practitioner has to at the request of the Creditors’ Committee deliver any report or supply information requested provided the request is not frivolous and or unreasonable and or the cost of complying would be excessive, having regard to the relative importance of the information and or there are insufficient assets to enable the Insolvency Practitioner to action the request.

(4) More than 28 days after the appointment of the Insolvency Practitioner, he or she must make a summary report to the members of the Committee on his or her activities since taking office and must answer such questions as the Creditors’ Committee may put to the Insolvency Practitioner.

(5) A person who becomes a member of the Committee at any time after its first establishment is not entitled to require a report under this rule by the Insolvency Practitioner of any matters previously arising, other than a summary report.

(6) Nothing in this rule disentitles any member of it, from having access to the Insolvency Practitioner’s record of the proceedings, or from seeking an explanation of any matter within the Committee’s responsibility.

Can A Creditors’ Committee Control The Insolvency Practitioner

Whilst it might be believed that a Creditors’ Committee can control the Insolvency Practitioner this is incorrect.

It is not the function of a Creditor’s Committee to control the Insolvency Practitioner. The Insolvency Practitioner’s role is to fulfil their role to creditors as Office Holder for the insolvent estate, not to delegate their functions to the Creditors’ Committee.

It is the function of such a Committee to help (Rule 17.2 of the Insolvency (England and Wales) Rules 2016) not instruct the Insolvency Practitioner.

An Insolvency Practitioner should remain independent and impartial from creditors irrespective of the existence or otherwise of a Creditors’ Committee.

The Committee can fix the basis of the Insolvency Practitioner’s remuneration. The Committee therefore may have some influence but not control over the Practiitoner. However, the Practitioner should not be too readily swayed by matters affecting their remuneration.

Creditors not happy with an Insolvency Practitioner may be better served by considering if they wish to change an Insolvency Practitioner instead of attempting to use the Committee as a mechanism to control the Practitioner who might be at odds with it in some way.

Author: Elliot Green
Last Updated: May 20, 2024

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Disclaimer: Creditors’ Committee Guide

This page is not legal advice and is not to be relied upon as such. This article Creditors’ Committee Guide is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

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