The Corporations Act 2001 (Cth)
("CA") provides for calling and holding
creditors meetings for insolvency external administrations. A
corporate creditor can appoint a natural person as its proxy to
attend and vote at a creditors meeting on the company's
Vero Insurance Ltd v Kassem  NSWSC 838 (30 July
2010) ("Vero Insurance") demonstrates
that it is vital the proxy form (Form 532) is validly signed by the
company in accordance with section 127 CA or by power of attorney.
If not, the proxy form will be rejected and the creditor's vote
denied. As creditors meetings can only be adjourned in very limited
circumstances, meetings cannot be adjourned to allow a creditor to
prepare a new proxy form.
Vero Insurance case
In Vero Insurance a deed of company arrangement
("DOCA") was approved at a section 439A
CA meeting of creditors. The chairperson, Mr Barnden, rejected the
proxy form of Vero Insurance Limited
("Vero"), interalia, as it was
incorrectly executed. As Mr Barnden refused to adjourn the meeting
to enable Vero to prepare another proxy form, Vero was denied a
vote. The other six creditors voted unanimously in favour of the
Vero sought Court orders that the DOCA be terminated arguing its
proxy vote was improperly denied.
Vero's Claim as Creditor
Under Corporations Regulations (2001) (Cth)
("CR") regulation 5.6.23 a creditor
cannot vote in respect of an unliquidated claim unless a "just
estimate" of its value has been made. The Court considered
Vero's unliquidated claim had doubtful merit and accordingly
attributed a nominal value to Vero's claim. Therefore even if
Vero had voted via its proxy, Vero's vote would have been
defeated by other creditors. On this basis the Court ordered
judgment in favour of the defendants.
Notwithstanding this, the Court still considered the validity of
Vero's proxy and the refusal to adjourn the meeting.
Validity of Vero's Proxy
A proxy must be properly executed on behalf of a company, in
accordance with section 127 CA or by power of attorney. Section 127
CA requires two directors to sign, or one director and one company
secretary to sign, or the sole director/sole secretary of a
proprietary company to sign. Section 127 CA also provides for the
proper witnessing of the fixing of the company seal to documents as
a means of execution.
The Court considered Vero's proxy (signed by an expressed
"Executive Manager") was not properly executed under
section 127 CA. The office of executive manager (or similar office)
does not imply any particular authority to bind a company. As the
proxy was not validly appointed by Vero, he had no power to vote on
behalf of Vero at the creditors meeting. The Court held Mr Barnden
was correct to reject Vero's proxy.
Adjournment of Creditors Meetings
Vero argued Mr Barnden should have adjourned the creditors
meeting to allow Vero to prepare a properly executed proxy.
Section 439B(2) CA allows a section 439A CA meeting to be
adjourned. Under regulation 5.6.18 CR, a chairperson must adjourn a
creditors meeting if directed by the meeting, or may adjourn a
creditors meeting with consent of the meeting. According to case
law, the latter confers discretion on a chairperson which must be
exercised in good faith and for a proper purpose.
Apart from regulation 5.6.18 CR, case law also gives a
chairperson power to unilaterally adjourn a creditors meeting if
there is disruption and disorder. The Court rejected Vero's
submission that a chairperson has a general residual discretion to
adjourn creditors meetings. The Court held Mr Barnden had no
authority to adjourn the creditors meeting.
Companies must ensure they are familiar and comply with the
statutory requirements for proper execution of proxies. A new proxy
form properly completed and signed is required for each creditors
meeting. Many, indeed most, proxies are not properly executed and
companies risk being denied the opportunity to vote at creditors
meetings due to this oversight.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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