Insolvency Meetings during COVID-19 lockdown

POSTED BY Karl Stolberger
Stephanie Nicolson
15 April 2020

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Encorefx (NZ) Limited) v RG Logan, AP Nitkins and SA McCallum [2020] NZHC 674

Following their appointment, administrators must call a first creditors’ meeting to decide whether to appoint a creditors’ committee (and if so appoint the members) and to decide whether the appointed administrators should be replaced.

The first meeting must be held within eight working days of an administrator’s appointment, with not less than five working days’ notice being given. At the first creditors’ meeting an interests’ statement must be tabled.

The administrators must also give notice of the watershed meeting to creditors, together with a copy of their report and statement. The watershed meeting must be convened within 20 working days after the date of appointment, unless the Court extends the convening period. Notice must be given five working days before the watershed meeting.

Clearly this presents a challenge given the current Covid 19 lockdown.

Section 290ADO of the Companies Act allows the Court to make appropriate orders about how Part 15A (Voluntary Administration) of the Act is to operate in relation to a particular company. The overriding principle is that the Court should only exercise this power to ensure that the objectives of Part 15A are maintained in the case of a particular company i.e. maximise the chances of the company’s business continuing in existence, or if that isn’t possible, to create a better return for the company’s creditors and shareholders than one resulting from an immediate liquidation of the company.

The administrators of Encorefx were appointed on 30 March 2020 and immediately applied on a without notice basis for orders permitting service of notices by posting on the company’s website and by email to the email addresses by which Encorefx normally communicated with its creditors and allowing the first creditors’ meeting to be held by video link with electronic voting .

In granting the application, the Court found that:

    • a without notice application was appropriate;
    • an affidavit which had been remotely sworn and electronically filed could be read;
    • although it didn’t apply to Part 15A, clause 1 of Schedule 5 of the Act provides that a meeting of creditors may be held by means of audio, or audio and visual communication, and by conducting a postal ballot, allowing a creditors’ meeting to be convened in this way would be consistent with the objectives of Part 15A;
    • postal delivery of notices was not feasible in the present circumstances as it could give rise to delays and health and safety risks;
    • notice of meeting and provision of the administrators’ statement by email and on the company’s website was appropriate;
    • meeting by audio or visual link would allow the meeting to go ahead, and would allow effective participation by creditors in that meeting; and
    • voting by electronic means was also appropriate, particularly given that postal votes are already allowed under clauses 1 and 7 of schedule 5 of the Companies Act.

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this document does not constitute legal advice and it is not a substitute for receiving legal advice from us. Please get in touch if you wish to discuss your particular circumstances.

POSTED BY Karl Stolberger
Stephanie Nicolson
15 April 2020

VIEWED 69 TIMES

PERMALINK