Overview Of Liquidation Committee

A Liquidation Committee is a number of the creditors of the company in Liquidation that in effect represent all of the creditors.

Purpose Of A Liquidation 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.

Joining A Liquidation 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 Liquidation Committee

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

The information rights of Liquidation 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 Liquidator 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 Liquidator considers the Liquidation Committee attention should have.

(3) The Liquidator has to at the request of the Liquidation 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 Liquidator to action the request.

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

(5) A person who becomes a member of the Liquidation Committee at any time after its first establishment is not entitled to require a report under this rule by the Liquidator 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 Liquidator’s record of the proceedings, or from seeking an explanation of any matter within the Committee’s responsibility.

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