Reviewed: 18th February 2016
When a company is unable to pay its bills, directors generally seek professional advice as to the best way forward. If a Creditors’ Voluntary Liquidation (CVL) is decided upon, two meetings are called – one for company members, and the other for creditors.
The members’ meeting involves passing a resolution to formally enter liquidation, and vote on the appointment of a liquidator. This is followed by the Section 98 creditors’ meeting (referencing section 98 of the Insolvency Act, 1986), during which an explanation is given of the company’s financial position.
From the date of the members’ meeting, there is a limit of 14 days in which to hold a Section 98 meeting, and a minimum of seven days’ notice must be given to creditors by post to allow as many people as possible to attend.
Creditors receive two other forms, along with notice of the meeting. These are a Proof of Debt form, and a Form of Proxy for limited companies who are required to nominate an individual to represent them.
Here’s a general run-down of what happens at a Section 98 meeting of creditors:
Creditors can agree the appointment of the insolvency practitioner nominated by members, or put forward and vote on an alternative. Sometimes a liquidation committee is also appointed at this meeting, consisting of between three and five creditors.
The liquidation committee ensures that creditor interests are well-represented, and they can assist the liquidator with certain duties. The initial meeting of the liquidation committee is usually immediately after the creditors’ meeting.
One of the company directors chairs the meeting, and they or the liquidator present a statement of affairs explaining the company’s financial position, and the reasons why liquidation has become necessary.
Creditors should also receive their own written copy, and are entitled to ask questions of the director(s) and insolvency practitioner to clarify their understanding of events and learn what will happen next.
Questions usually cover the company’s trading position and non-payment of invoices, as well as what the directors plan to do once the company has gone into liquidation.
Once the meeting is over, the liquidator is obliged to provide creditors with a summary of what happened, and what was agreed. A report must be sent to creditors within 28 days of the section 98 meeting, along with a copy of the statement of affairs.
In reality, it is often the case that Section 98 creditors’ meetings are not well-attended, and directors generally face few questions.