Increasing numbers of applications are being received for extensions of time for holding annual meetings of creditors and members in voluntary liquidations (Section 105 Insolvency Act 1986 and Section 594 of the Companies Act 1985) without any explanation as to why the application is being made. Many more are received where the only reason given is that no realisations have been made during the previous year.

The lack of activity in a liquidation can be of as much concern to creditors as successful realisations and distributions. The Service considers that annual meetings should be held within the usual time limits in all but the most exceptional circumstances, eg where it is expected that the final meeting will be held within six months of the date upon which the annual meeting should be held, or where the liquidation remains open for some particular protracted reason which has already been notified to the creditors and members.

In future, applications will be refused unless the practitioner provides a full and acceptable explanation of why the extension is considered necessary. Applications must be made at least 42 days before the meeting is due to be held.

In response to a request from the insolvency practitioners Joint Liaison Committee ("IPJLC") we have been considering the scope for developing the extension mechanism set out in Section 105 of the Insolvency Act 1986. Section 105 provides that if a voluntary winding-up continues for more than one year, the liquidator must summon a meeting of creditors at the end of the first year and of each succeeding year, or within 3 months from the end of the year or such longer period as the Secretary of State may allow.

The IPJLC made the point that in certain circumstances compliance with the Section seemed to serve no useful purpose, and at times because of the expense of summoning a meeting it appeared to operate to the detriment of creditors. The IPJLC suggested that it would assist practitioners if guidance could be given as to the circumstances in which the Secretary of State would be likely to exercise his discretion and extend the time for holding the meeting.

The Secretary of State’s discretion is wide, but only enables him to delay a meeting, not to dispense with a meeting altogether. Indefinite extensions until the occurrence of a future event would not be within his power. The intention of the legislation is that meetings should be held in order that creditors have the opportunity to be fully aware of the progress in a voluntary liquidation.

Each application is judged on its merits so we cannot offer definitive guidance. We have, though, commented on the following situations, suggested by the IPJLC.

1. Where there is no dividend likely and the creditors are aware of the fact:

The Secretary of State would normally refuse such an application for extension since if there are no funds the case should be closed. Accordingly an application in this scenario should give sound reasons for the case remaining open.

2. Where a case is dormant

As in (1) above, a dormant case should be closed.

3. The expense of calling a meeting exceeds monies in hand or is out of proportion to the assets:

Again, we would be looking for reasons why the case cannot be closed. If there are assets it might be reasonable for a liquidator to seek an extension for a reasonable time to enable him to realise sufficient funds.

4. Where the creditors agreed to the liquidator applying to the Secretary of State for an extension:

This is only one factor to be considered and should be supported by other reasons for extension.

5. Where there are only a small number of creditors (e.g. in an inter-group situation), and all the creditors agreed to the application for an extension.

This would be similar to (4) above. In addition, the date of the agreement would be relevant, i.e. normally just before the application for extension.

6. On a second application for extension the liquidator could state the grounds on which the original extension had been granted, and confirm that the circumstances remain the same, exhibiting the original application for ease of reference.

This seems reasonable but would depend on the reason for the extension. We would need to be satisfied that the previous meeting although delayed was eventually held.

7. Blanket extension

This is not possible. Extensions may be up to the statutory 3 months following the expiration of the "first year" and each "succeeding year". A blanket extension would deprive creditors of their statutory right to attend a meeting each year in order to ascertain how the liquidation is progressing.

Practitioners are reminded to admit Inland Revenue proofs of debt for voting purposes regardless of the claim being based on an estimated assessment.

Although the Revenue’s proof of debt may be based on an estimated assessment, the tax is still legally due and payable on the due date. It is final and conclusive unless an appeal has been made within the statutory 30 day period. In normal circumstances, it should accordingly be accepted as part of the Revenue’s claim for voting purposes. This does not affect the Chairman’s right to reject proofs of debt not considered to be valid.

It has come to our attention that on occasion the notice placed in the London Gazette of the meeting of creditors does not fully comply with the requirements of section 98 of the Insolvency Act 1986.

Practitioners will be aware that section 98(1)(a) requires notices of the meeting to be advertised once in the Gazette and at least once in two newspapers circulated in the locality of the company's principal place of business. That notice must comply with section 98(2) which provides:

"The notice of the creditors' meeting shall state either -

1. the name and address of a person qualified to act as an insolvency practitioner in relation to the company who, during the period before the day on which that meeting is to be held, will furnish creditors free of charge with such information concerning the company as they may reasonably require; or
2. a place in the relevant locality where, on the two business days falling next before the day on which that meeting is to be held, a list of the names and addresses of the company's creditors will be available for inspection free of charge."

Although the company, not the practitioner, is responsible for advertising the meeting, we hope practitioners will appreciate the purpose behind the provisions of section 98(2), and ensure that advertisements comply fully with the legislation.

An area of discussion both within the Service and at the CAU User Group meetings has been the requirement for practitioners to notify the OR under rule 4.125(4) and 6.137(4) of the Insolvency Rules 1986 of their release from office, and the requirement to submit a final receipts and payments account to CAU under regulations 14(3) and 28(3) of the Insolvency Regulations 1994. Notice of whether or not the practitioner has been released is required to be given to the OR under Rule 4.125(4) and 6.137(4) by the practitioner sending the OR a copy of the notice of the final meeting of creditors which the practitioner is required to give to the court under these rules. Problems have arisen when the practitioner has sent the OR a copy of this notice, but has not submitted his final receipts and payments to CAU, or vice versa.

In order to deal with any possible problems with compliance, and to ensure the accuracy of information held by the Service, practitioners are asked to send a copy of the notice to the court of the final meeting of creditors (form 4.42 in the case of liquidators and form 6.50 in the case of trustees) to the Central Accounting Unit, PO Box 3690, Birmingham B2 4UY and, if practicable, to send it with the final receipt and payment account submitted under the Regulations. If a copy of the notice is sent to CAU, this will be treated as complying with the requirements in Rule 4.125(4) and 6.137(4) to send a copy to the OR. However, practitioners are of course free to send a copy of the notice to the court of the final meeting of creditors to the OR, rather than to the CAU, if they so wish.

General enquiries should be directed towards EAD Enquiries
Telephone: on 0121 698 4275 email: EAD.Enquiries@insolvency.gov.uk

6. Insolvency Practitioners’ declining cases after appointment at meetings of creditors

The Insolvency Service is aware of a number of recent occasions where an insolvency practitioner has declined an appointment, having been nominated by proxy for a case at a meeting of creditors. In these cases no representative of the insolvency practitioner has attended the meeting and a resolution for the appointment of the insolvency practitioner has been passed on the basis of proxies alone.

Following the meeting, on being notified of the outcome, the insolvency practitioner has asked for further details of the case and has declined to take the appointment.

This practice results in an unnecessary use of resources for the Official Receiver’s Office concerned in holding the meeting, and necessitates seeking an appointment by the Secretary of State or a further meeting of creditors, resulting in further costs to the estate.

Where an insolvency practitioner has been nominated by a creditor, by proxy, the insolvency practitioner should generally be aware of the nomination. In such situations insolvency practitioners are asked to contact the relevant Official Receiver and undertake their enquiries into the case at an early stage, to establish whether they would be willing to accept the case.

In the event that an insolvency practitioner is not willing to act as trustee/liquidator, the nominating creditor(s) should be informed in advance of the meeting, in order that they may submit a revised proxy. Where the insolvency practitioner holds a general proxy allowing him/her to vote at his discretion, an alternative insolvency practitioner may be nominated.

Where a creditor does not submit a revised proxy prior to the deadline for submission, or no alternative insolvency practitioner is nominated, that creditor’s proxy be will not be admitted for voting purposes.

Any enquiries regarding this article should be directed towards Chris Phillips, IP Policy Section, 3^rd Floor Zone B, 21 Bloomsbury Street, London, WC1B 3QW; telephone: 020 7637 6544; email: Chris.Phillips@insolvency.gov.uk

General enquiries may be directed towards IP Policy Section, 3^rd Floor Zone B, 21 Bloomsbury Street, London, WC1B 3QW; telephone: 020 7291 6772; email: IPPolicy.Section@insolvency.gov.uk