What happens at a Meeting of Creditors?
People may refrain from proposing an IVA to their creditors for fear of what may occur at the Meeting of Creditors, which decides if the IVA is approved or rejected.
What actually occurs at a Meeting of Creditors may surprise many who are unfamiliar with the process. In the vast majority of cases, there is no actual physical meeting of creditors as such. The debtor applying for an IVA is not obliged to attend the Meeting either but needs to be contactable during the day on which the meeting is scheduled and particularly at the time of the meeting. Usually it is sufficient to be available by phone so that the chairman of the meeting may communicate the progress of the meeting or clarify issues that may be raised by creditors.
Who attends the Meeting of Creditors and what happens at it?
Generally the Meeting Of Creditors is chaired by the Insolvency Practitioner (IP) who is the debtor’s Nominee in respect of his or her IVA proposal. However the IP may authorise a suitably qualified and experienced member of staff to chair the Meeting. Meetings are typically virtual and are not an occasion of confrontation and dispute between debtor and creditors.
The wishes of the creditors are often conveyed to the chairperson of the meeting by way of written communications. These are usually transmitted to the chairperson by mail, by fax or by e-mail including e-mail attachments. These communications mainly consist of proofs of debts, modifications to the proposals which creditors require and proxy forms which empower the chairperson to vote for or against the proposal in accordance with the stated instructions of the creditor.
In recent years, many creditors instruct and authorise agents to act on their behalf in regard to the Meeting Of Creditors and these agents do the voting. The IP has duties and responsibilities in the conduct of the Meeting. One of these duties is to communicate any modifications which creditors require to the debtor. The debtor will be allowed sufficient time to consider such modifications. These modifications may have to do with the monetary contributions which the debtor is proposing to make in the IVA. If, for example, the debtor’s equity in his or her property is not addressed in the proposal, creditors may put forward a modification requiring him or her to do so during the term of the IVA, which is usually a five year term. If the debtor has already offered to address such equity, a creditors’ modification may require an increase in the proposed amount to be contributed. Occasionally creditors may request an extension in the proposed duration of the IVA. The creditors will require the IP to vote against the IVA proposal if the debtor does not agree to accept their proposed modifications.
The IP therefore has a lot to do but will act as an honest broker in all dealings with the creditors and the debtor. For example, different creditors may propose different and conflicting modifications and the IP has to reconcile such modifications, communicate with the debtor and the creditors, while allowing all parties sufficient time to consider their position and decide whether to accept the modifications or not. Over 75% of voting creditors, as measured by the amount of their debt, must vote to accept the IVA before it can be deemed approved at the Meeting Of Creditors. All creditors do not exercise their right to vote, but more than 75% of those who do must accept the IVA for it to be approved. The debtor on the other hand may not be willing to accept the modifications and can withdraw the IVA proposals. The IP may adjourn the Meeting for up to two weeks to see if an agreement can be reached not just between the debtor and the creditors but also between one creditor and another where conflicting modifications have been proposed. Such adjournments occur frequently and provide time for creditors to consider the terms of the IVA proposal and for the debtor to consider the modifications. Details of such adjournments are communicated in writing. To avoid confusion and in line with best practice, most Insolvency Practitioners obtain written agreement from the debtor that he or she understands and accepts the modifications.
At the conclusion of the Meeting of Creditors or adjourned Meeting, the IP has four days to prepare and distribute what is called The Chairman’s Report of the Meeting of Creditors. This is sent to all creditors, the debtor and the relevant court which has jurisdiction in relation to the Meeting. This report records the decision of the Meeting and shows how creditors voted. It also lists the modifications and their projected effect on e.g. the dividend which creditors may expect to receive.
The best firms of IVA providers achieve approval levels for their IVA proposals in excess of 95%, in spite of the proliferation of creditors’ modifications in recent years. All that remains for the debtor to do then is to comply with the terms of the IVA under the supervision of an IP, who is frequently the same IP as acted in the matter until the conclusion of the MOC. The debtor can look forward to being debt free and will also have gained invaluable experience in managing his or her finances.