Rights and Powers of a Creditor in an External Administration

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By Connie Tam and Liyan Tay

Liyan Tay Insolvency & Reconstruction

The Insolvency Law Reform Act 2016 introduced a suite of changes to insolvency law.  One of the key components of the reform was to improve the role, standing and power of creditors in an external administration.  An overview of some of the changes are outlined in this article.

Right to request information

Creditors now have a right to request information, reports and documents at any time during an appointment.  Upon receiving the request the external administrator will have to comply with the request if it is reasonable, relevant and does not cause any breach of the external administrator’s duties.

An external administrator may deem a request ‘unreasonable’ on the following circumstances:

  • Complying with the request would prejudice the interests of a creditor or a third party;
  • The information sought is subject to legal professional privilege or provision of the documents would be a breach of confidence;
  • There are insufficient funds in the matter;
  • The information has already been provided; or
  • The request is vexatious having been made within 20 days of a previous request.

If the request is reasonable the external administrator must provide the information to the creditor within 5 business days of receiving the request, unless a longer period is agreed upon.

Right to give directions to the External Administrator

Creditors by resolution at meeting may also give directions to an external administrator in relation to an administration.  The external administrator must have regard to the direction given by the creditor but is not obliged to comply with those directions.  If the external administrator chooses not to comply with a direction, the external administrator must make a written record and detail reasons for not complying with the direction.

Right to appoint a reviewing Liquidator

Creditors by resolution at meeting may appoint a reviewing Liquidator to conduct a review the external administrator’s remuneration.  A review will be limited to the 6 months prior to the appointment.  The reviewing Liquidator’s costs forms part of the expenses of the administration.

Right to remove and replace the External Administrator

Creditors by resolution at a meeting have a right to remove and replace an external administrator.  Such a meeting can occur following 5 business days’ notice given to creditors.  Any replaced external administrator has the right to make an application to Court to seek reappointment.

Right to direct that a meeting be convened

Creditors will be able to direct an external administrator to convene a meeting of creditors either by resolution of creditors, via a committee of inspection or if written request is received from a sufficient number of creditors.  The external administrator must comply with the direction if it is ‘reasonable’.

Assignment of legal action

An external administrator also now has the right to assign their rights of action to third parties.  These rights to sue will enable creditors the opportunity to take on claims such as voidable transaction claims, insolvent trading claims or any other matters that may be identified during the course of the investigations.  This amendment may see an increase in recovery actions taken as creditors may be in a position to bear the risks of such actions where an external administrator cannot.

The increased power to creditors will enable creditors to participate in a more meaningful and functional way throughout the administration process.

Want to know more?

If you would like to know more about the role, standing or power of creditors in an external administration please contact Liyan Tay, our Insolvency & Reconstruction Associate Director, for assistance.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

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