Harneys Corporate Recovery Services Guides to The Insolvency Act 2003 - Part 4

GUIDE 8: MALPRACTICE & DISQUALIFICATION ORDERS 

8.1 Introduction

Parts IX and X of the Insolvency Act introduce a new regime in BVI law for dealing with delinquent directors and others involved with a company that goes into liquidation. Part IX, headed Malpractice, will allow a liquidator to recover assets of the insolvent company or recoup its losses under three statutory provisions: section 254 (Summary remedy against delinquent officers and others), section 255 (Fraudulent Trading), and section 256 (Insolvent Trading). These provisions are modelled on the Misfeasance, Fraudulent Trading and Wrongful Trading provisions found in 212, 213 and 214 of the UK Insolvency Act 1986 respectively.

Part X of the Act will introduce a new regime for disqualifying directors, insolvency practitioners and others concerned in the running and management of companies, where they have been involved with an insolvent company. The provisions allow for the court to make a Disqualification Order for a maximum of 10 years or for the delinquent person to give a Disqualification Undertaking to the Official Receiver, and they are closely modelled on the UK Company Directors Disqualification Act 1986 as amended by the UK Insolvency Act 2000.

The Malpractice provisions have certain common features that should be noted at the outset for they will greatly narrow the scope of their application. First, the provisions will only apply if the company goes into insolvent liquidation.

They cannot be invoked if the company goes into any other insolvency regime e.g. administration or administrative receivership, and only a Liquidator has the power to make applications to court under these provisions.

Second, insolvent liquidation has a very narrow meaning for the purposes of these provisions: it is confined to the balance sheet test i.e. that the company’s assets are insufficient to pay its liabilities at the time it goes into liquidation³²⁷. The provisions do not require the basis or ground for liquidation to have been balance-sheet insolvency but only that when a liquidator is appointed, its liabilities exceed its assets. Thus, if it has cash-flow problems such that it is unable to pay its debts as they fall due (which will generally be the most common ground for liquidation invoked by creditors), and it goes into liquidation, these provisions would apply if it was also balance-sheet insolvent at the time.

Third, for the purposes of Part IX and X, "directors" has an extended meaning and includes those who would be known in the UK as "shadow directors" i.e. persons in accordance with whose directions or instructions a director or the board of a company may be required to act or is accustomed to so act³²⁸. However, a de facto director i.e. a person who exercises or controls (or is entitled to exercise or control) the powers normally vested in the board, is not within the definition of "director" for the purposes of Part IX and X³²⁹, although such a person may never the less become liable under section 254 or 255.

Fourth, any money or assets recovered by the liquidator are deemed to be the assets of the company available to pay unsecured creditors of the company³³⁰. This is a helpful and welcome clarification but it also has important consequences when it comes to the costs of the liquidator in bringing the application. By deeming the recoveries to be assets of the company, it allows the liquidator to recoup his costs and expenses of the proceedings out of the company’s assets (including the recoveries) on the basis that he has recovered "assets of the company", and this would reverse the position under English law³³¹. However, to ensure that the recoveries do not fall within the scope of any security over the company’s assets as a result of this deeming provision, the Act makes it plain that the recoveries are available for the unsecured creditors (which is in line with the position under English law)³³².

This provision re-enacts section 191 of the Companies Act (Cap 243) but with wider scope of application for section 191 only applies to liquidators or officers, and does not apply to breaches of duty in relation to the company generally. The new section 254 allows the court to make orders where a person has misapplied or retained, or become accountable for any money or assets of the company in insolvent liquidation, or has been guilty of misfeasance or breach of any fiduciary duty or other duty in relation to the company³³³.

The orders can be made against a wide class of person: an officer of the company, its liquidator or other insolvency practitioner (such as an administrator, administrative receiver, supervisor or interim supervisor) or any person concerned in the promotion, formation, management, liquidation or dissolution of the company³³⁴. The court can order such a person to repay, restore or account for the money or assets, or pay compensation for any misfeasance or breach of duty, and to pay interest³³⁵. Although headed "summary remedy", a defendant must be given the opportunity to be legally represented and to call evidence³³⁶, and the section does not create any new liability but only provides a simpler statutory procedure for the recovery of assets or compensation in liquidation³³⁷.

This provision applies where the company’s business has been carried on with intent to defraud its creditors or the creditors of any other person, or for any fraudulent purpose. The court can order any person who was knowingly a party to the carrying on of the business to make such contribution to the company’s assets as it considers proper. The persons who are liable need not be officers of the company and indeed need not have any connection with the company itself³³⁸, and the court is not confined to making compensatory orders but can also include a punitive element³³⁹ to reflect any dishonesty on the part of the defendants.

This provision is based on the Wrongful Trading provision contained in section 214 of the UK Insolvency Act 1986 and, unlike the previous two sections, only applies to directors³⁴⁰ or former directors of the company that goes into insolvent liquidation. The court can order a director to contribute to the company’s assets³⁴¹ where he knew or ought to have known at any time before the commencement of liquidation that there was no reasonable prospect of the company avoiding insolvent liquidation³⁴², and he failed to take every step reasonably open to him to minimise the loss to the company’s creditors³⁴³.

In judging the director’s knowledge and the steps that he ought to have taken to minimise the loss to the creditors, the court must consider both the actual knowledge, skill and experience of that director, as well as a more objective element namely the knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as the director³⁴⁴. The subjective and object standards are additive in this sense that if a director was lacking in knowledge, skill or experience such that they were below those reasonably expected of a director carrying out his function, he will not be judged by his own low standards but by the objective standard. Conversely, if a director’s actual knowledge, skill and experience is above average, then he will be judged by his own higher standards³⁴⁵. However, the court will have regard to the company and its business so that the knowledge skill and experience to be expected may be less extensive in a small company with a modest business and simple accounting systems than a larger, more complex business³⁴⁶.

The powers of the court under section 256 will be primarily compensatory rather than penal³⁴⁷.

The limitation period for Insolvent Trading claims is not specified in the Act. In England, a 6- year limitation period has been held to apply to a claim under the equivalent provision of Wrongful Trading because it was a "claim for the recovery of any sum recoverable under any enactment" within section 9(1) of the UK Limitation Act 1980³⁴⁸ (which is equivalent to section 4(1)(d) of the BVI Limitation Ordinance (Cap 43)). The 6-year period runs from when the company goes into insolvent liquidation. The BVI court is likely to follow that decision.

The scheme of Part X for Disqualification Orders and Disqualification Undertakings is as follows. An application to the court for a Disqualification Order is made by the Official Receiver³⁴⁹ but must be brought within 6 years of the company concerned becoming insolvent³⁵⁰. Insolvency has a wide meaning i.e. the company goes into administration or administrative receivership, a liquidator is appointed at a time when the company is balance-sheet insolvent, or a liquidator is appointed on the public interest ground³⁵¹.

If the court is satisfied of one of the many grounds set out in section 262 (see below), it can make a Disqualification Order. Such an Order prevents a person from carrying out a "prohibited activity" i.e. acting as a director of a company, voluntary liquidator, receiver of assets, insolvency practitioner, or taking part directly or indirectly in the promotion, formation or management of a company, for a specified period, and it is an offence to breach a Disqualification Order³⁵².

The maximum period of disqualification is 10 years³⁵³ and the period starts to run from a date specified in the Order which must not be later than 28 days from the date of the Order³⁵⁴.

A feature of the Act is that the Official Receiver can accept undertakings (called Disqualification Undertakings) from a person instead of seeking a Disqualification Order if he considers that there is a reasonable prospect that an application to court in respect of that person would be successful, and it is expedient and in the public interest to accept that offer³⁵⁵. The maximum period for a Disqualification Undertaking is also 10 years³⁵⁶. Such undertakings have proved very popular in England and the majority of disqualification proceedings are disposed of in this way.

The grounds for Disqualification are specified in section 262 and are extensive and include when a person:

• has been convicted on an indictment of an offence in connection with the promotion, formation, management or dissolution of a company that is or becomes an offence, or any offence under the Insolvency Act relating to a company that is or becomes insolvent;

• against whom an order has been made for Fraudulent Trading (under section 255) or Insolvent Trading (section 256);

• who is a director, voluntary liquidator or receiver (but not an administrative receiver) of a company that is or becomes insolvent and he has been guilty of fraud or misfeasance or breach of duty to the company;

• whose conduct as a director, voluntary liquidator or receiver of a company that is or becomes insolvent (whether alone or together with his conduct in relation to other companies) makes him unfit to be concerned in the promotion, formation or management of companies.

In deciding his unfitness the court is to have regard to a number of factors³⁵⁷, such as any misfeasance or breach of duty to the company; any misapplication or retention of company money or property; the extent of his responsibility for the company entering into any Voidable Transaction under Part VIII of the Act; if he is a director and the company has persistently failed to comply with Companies legislation, the extent of his responsibility for such failure; the extent of his responsibility for the causes of the company becoming insolvent or its failures to supply goods or services that have been paid for; and his failure to comply with any obligation imposed on him by the Act. If any of the grounds are made out, the court has a discretion whether or not to make a Disqualification Order.

It is an offence for a person to carry out a prohibited activity in breach of a Disqualification Order or Undertaking. If he does so without the leave of the court, he will also incur personal liability for the debts of a company where he acts as a director or is concerned, whether directly or indirectly, or takes part in the management of that company³⁵⁸. He is only responsible for the debts incurred by the company during the period in which he acted whilst disqualified. His personal liability could be to the liquidator, if that company goes into liquidation, or to a creditor of that company³⁵⁹.

The court can vary a Disqualification Order or Undertaking on the application of a disqualified person e.g. by reducing the period for which they are in force³⁶⁰. A common use of such a provision could be to allow a disqualified person leave to act as a director of a company for limited purposes e.g. to approve and sign off its audited financial statements. The Official Receiver must be served with such an application at least 14 days before the hearing³⁶¹.

The practical difficulty of the Official Receiver having sufficient information to decide whether or not to bring disqualification proceedings or to accept a Disqualification Undertaking from a person is overcome by imposing an obligation upon Office Holders (i.e. Liquidators, Administrators or Administrative Receivers) to prepare a report on the conduct of directors or former directors of the company if they consider that the latter’s conduct makes them unfit³⁶². The Official Receiver can also require them to provide him with information, documents and book or records³⁶³.

The Office Holder must not disclose the report to the creditors committee or any other person except the Official Receiver³⁶⁴, and the report enjoys absolutely privilege from defamation in the hands of the Official Receiver in the absence of fraud or malice.³⁶⁵

The Insolvency Act will introduce another new feature into BVI legislation, namely the ability for a company to enter into a compromise with its creditors through the mechanism of a Creditors’ Arrangement contained in Part II of the Act. Currently, the only mechanism for affecting arrangements is in s.82 of the IBC legislation (Cap 291), but this provision does not cover compromises with creditors and is really intended for corporate restructuring where the scheme is first approved by the directors and then by the Court.

By contrast, Part II of the Act provides a relatively simple procedure for a company that is insolvent to bind all its creditors with an arrangement for compromising its debts (including creditors who dissent or who do not vote) if the majority of its creditors approve the arrangement. The arrangement has to be supervised by a Supervisor, who must be an insolvency practitioner. The procedure can be used when the company is in administration or in liquidation. However, the rights of secured creditors cannot be compromised in an arrangement without their written consent.

Creditors’ Arrangements are modelled on Company Voluntary Arrangements (CVAs) found in Part I of the UK Insolvency Act 1986 but with significant differences in scope, procedure, and effect on creditors. Principally, there is no Court involvement in the BVI procedure, approval of the arrangement does not appear to require a 75% majority in 101

value of the creditors (unless the Insolvency Rules specify otherwise), thus making them easier to achieve in practice than in the UK, and the arrangement is binding on all creditors and not just those who had notice of the meeting or were present or represented at it.

CVAs have not been popular in the UK (although, by contrast, the equivalent for individuals i.e. Individual Voluntary Arrangements, are popular), and it will be interesting to see how Creditors’ Arrangements fare in the BVI.

Only BVI incorporated companies can enter into Creditors’ Arrangements – foreign companies cannot³⁶⁶ - and the company must be insolvent³⁶⁷. It can enter into them even if it is in Administration or in Liquidation³⁶⁸, and in fact there are certain advantages for a company to go into Administration first before entering into a Creditors’ Arrangement. The reason is that the Act does not impose any moratorium on debts or creditors’ rights in favour of a company that is in the process of entering into a Creditors’ Arrangement. Such a moratorium can only be achieved in Administration and it is therefore advantageous to apply for an Administration first for that very reason. The Act contemplates this very scenario happening because one of the statutory purposes for 102 which an Administration Order can be made is the approval of a Creditors’ Arrangement under Part II³⁶⁹.

The key to a Creditors’ Arrangement is a proposal for an "arrangement" which is a compromise between the company and its creditors, the implementation of which is to be supervised by a Supervisor³⁷⁰.

The arrangement can be very flexible and can include provisions for cancelling or varying the company’s liability, varying the rights of creditors or the terms of their debts; varying or cancelling interest; or postponing debts³⁷1. Indeed, almost any provisions can be included provided that the arrangement amounts to a "compromise" with the creditors.

In the UK, the proposals can be for either a "composition" or a "scheme of arrangement"³⁷² which means something less than the release or discharge of debts and can include a moratorium³⁷³. Although the BVI legislation does not have such a provision, it is not thought that this will have any significant impact, for the BVI legislation is flexible in what may be included in a proposal. A proposal may, by varying the rights of creditors e.g. by postponing their debts and providing that they cannot enforce the debt in the meantime, achieve a moratorium (or any other type of scheme of arrangement). However, there are limits on what an arrangement can include. A secured creditor is protected: an arrangement cannot affect his rights to enforce his security, or vary the debt or liability that is so secured, without his written agreement³⁷⁴. Similarly, they cannot result in a preferential creditor receiving less than he would in liquidation without his written consent³⁷⁵.

The procedure for entering into a Creditors’ Arrangement has a number of discrete steps (some with strict time limits) that need to be complied with. Only an outline of the procedure is set out here, which involves the following key elements:

• a proposal for an arrangement

• the appointment of an Interim Supervisor; and

• a creditors’ meeting to approve the arrangement and the appointment of a Supervisor to implement the arrangement.

If the company is not in administration or liquidation, it is the company’s board that may propose an arrangement by passing a resolution approving a written proposal for an arrangement (which must contain the information prescribed in the Rules), nominating an eligible insolvency practitioner to be appointed as Interim Supervisor, and stating that in its belief the company is insolvent³⁷⁶. The proposal, the resolution and a statement of affairs must be sent to the nominated insolvency practitioner who must accept within 5 business days from the date of the resolution (rather than its service upon him), otherwise the resolution lapses³⁷⁷.

If the insolvency practitioner accepts, he is appointed Interim Supervisor³⁷⁸, and his main duty is to call a meeting of creditors³⁷⁹ to consider the proposal together with his own report³⁸⁰ on the arrangement, and the proposal, his report, the statement of affairs, and a notice calling the meeting must be sent to each creditor. He must also file a notice of his appointment with the Registrar³⁸¹ (and with the FSC if the company is the holder of a prescribed financial services licence)³⁸². The meeting must be held within 28 days of his appointment³⁸³ and he must cause the meeting to be advertised³⁸⁴. He must also notify the members and directors of the meeting, although there is no separate meeting of members³⁸⁵. The board can amend the proposal up to the time of the creditors meeting. The creditors’ meeting must approve or reject the proposal, or adjourn the meeting for not more than 3 months³⁸⁶. If they wish to modify the proposals, the meeting needs to be adjourned unless all the creditors are present or represented at the meeting or the amendments are minor³⁸7. If the creditors’ meeting does not do any on the above three things, the proposal is deemed rejected³⁸⁸.

As presently drafted, approval of the arrangement appears to require only a simple majority in value of the creditors present or represented at the meeting to vote in favour of it, making it much easier for companies to enter into them. This is in marked contrast to the UK legislation which requires a majority of 75%³⁸⁹, and explains why relatively few CVAs have been entered into there. However, it remains to be seen whether the Insolvency Rules will specify a higher majority for approval.

If the proposal is approved, the Supervisor, who is appointed pursuant to it to supervise the implementation of the arrangement, must file a notice of his appointment with the Registrar (and the FSC if the company is a regulated person)³⁹⁰, while the chairman of the creditors’ meeting must send a report to every creditor informing him of the outcome of the meeting, and this must also be filed with the Registrar³⁹¹.

If the company is in Administration or Liquidation, it is the Administrator or Liquidator who puts forward the proposal³⁹², and he can nominate himself to act as Interim Supervisor³⁹³.

Members and directors can attend the creditors’ meeting but they cannot vote at it³⁹⁴.

The Act defines in section 15 that an arrangement is a compromise between the company and its creditors. It is in effect a form of statutory contract that binds the company, its members, and its creditors including dissenting creditors and those who did not vote on it, for they too are treated as parties to it³⁹⁵.

Thus, the effect of an arrangement on creditors is a question of construction of the arrangement in accordance with ordinary contractual principles, in order to determine questions such as when and how the debts are compromised, the extent of any compromise, and whether there has been a failure of the arrangement.

Once a proposal is approved at a creditors’ meeting, section 34 makes the arrangement binding on all creditors of the company. Creditors for this purpose mean those persons who have an admissible claim against the company if the company had gone into liquidation at the time of approval of the arrangement³⁹⁶. This definition excludes post- Creditors Arrangement creditors who are therefore not bound by its terms (and will retain their right to enforce their full debt against the company)

Section 34 is of fundamental importance for it has the effect of binding the creditors who voted against the proposals and those who did not vote at all. It also binds those creditors was were not present or represented at the creditors’ meeting or, indeed, who did not even have notice of the meeting. Of course the failure to notify a creditor of a meeting may mean that the Interim Supervisor³⁹⁷ (and possibly the directors as well, if they failed to inform the Interim Supervisor of all the creditors³⁹⁸) may be guilty of an offence. But this does not affect the position of the creditor who did not receive notice of the creditors’ meeting – he will be bound and his debts will be compromised in accordance with the arrangement. The creditors may, however, have redress on the grounds of unfair prejudice (see below).

This provision is different from the UK legislation where the arrangement only binds those creditors who in accordance with the Rules had notice of, and were entitled to vote at, the creditors’ meeting³⁹⁹. In the UK the result is that a creditor who did not have notice of the creditors’ meeting, as he was not bound by the arrangement, was free to pursue his debt against the company including winding-up the company and thereby torpedoing the CVA.

Secured creditors and preferential creditors are protected under the Act. Formally, they would be bound by the arrangement if approved by virtue of section 34(1) because they are within the definition of creditors who have admissible claims⁴⁰⁰. However, as noted above, an arrangement cannot prejudice their position without their written agreement e.g. it cannot affect a secured creditor’s rights to enforce his security, and it cannot result in preferential creditors receiving less than on liquidation⁴⁰¹. Further, to strengthen their protection, if the creditors’ meeting passes a resolution approving a proposal that fails to comply with this, the Act renders the resolution invalid and of no effect⁴⁰².

The position then is that the debts of secured creditors will in practice not be affected by the compromise provisions in a Creditors Arrangement unless they agree in writing to them. If they do not agree, in writing, the result will be that their debts will not be compromised and, in the case of secured creditors, they may be able to appoint administrative receivers. Further, if the Creditors’ Arrangement is successfully concluded, the secured debts owing to secured creditors, would still remain owing.

In England there was some uncertainty on the position of third parties such as co-debtors or sureties who were liable for the same debt as the company but where that debt was compromised in a CVA proposal. Was such co-debtor also released from the debt even though he was not a party to the arrangement? It was held at first instance that a codebtor could be released expressly or by necessary implication in the proposal in exceptional circumstances, provided that was made plain on the face of the proposal⁴⁰³. The English Court of Appeal has subsequently held in another case that there is no reason why a term in the proposal could not have the effect of releasing a co-debtor depending on the construction of the proposal, the surrounding circumstances and any terms that could be implied⁴⁰⁴. Although this clarified the law, the reference to surrounding circumstances and implied terms means that it cannot always be said with certainty whether a particular arrangement does discharge a co-debtor.

The BVI legislation avoids such uncertainty by providing that a co-debtor or surety is not released unless expressly provided for in the arrangement⁴⁰⁵.

The primary function of the Supervisor is to implement the arrangement in accordance with its terms (although, curiously, this is not stated in the Act) which can include the carrying on of the company’s business if the arrangement so provided. The directors (or the Administrator or Liquidator) must take all necessary steps to put the Supervisor in possession of the assets included in the arrangement⁴⁰⁶.

The capacity in which he holds those assets will be determined by the arrangement. In the definition of arrangement, section 15(1) of the Act states that it is a compromise between the company and its creditors the implementation of which is supervised by a Supervisor "…acting as a trustee or otherwise." If under the arrangement the Supervisor is to receive payment from the company for distribution among the creditors, he is likely to be acting as trustee for the creditors and the funds in his hands will be impressed with a trust in their favour⁴⁰⁷. He is unlikely, in that situation, to be acting in some other capacity e.g. as agent for the company. This may have important consequences for the funds in his hands in the event that the Creditors’ Arrangement is prematurely terminated and the company goes into liquidation (see below).

The Supervisor has a number of statutory duties. He must discharge any sums due to an Administrator or Liquidator under the Act or the Rules⁴⁰⁸, and where the company was in liquidation at the time it entered into a Creditors’ Arrangement he must discharge any sums due to preferential creditors⁴⁰⁹. Further, the legislation specifically provides that any outstanding remuneration of an Administrator or Liquidator, and any obligations properly entered into by them for the benefit of the company, shall be discharged out of the assets that are included in the arrangement⁴¹⁰. It also gives preferential creditors, Administrators and Liquidators charges over such assets⁴¹¹. The Supervisor also has extensive duties to keep accounts and file reports in accordance with the Act⁴¹².

He can also apply for the administration or liquidation of the company⁴¹³. When a Creditors’ Arrangement is completed or it terminates prematurely, the Supervisor must file a notice of completion (or termination as the case may be), and send such a notice to each creditor and member of the company⁴¹⁴. He also has to prepare a report that must explain any material differences between the proposals as approved and their implementation⁴¹⁵.

A Creditors’ Arrangement compromises the debts owing to creditors in accordance with the terms of the arrangement, and if it is successfully completed, then those debts will have been successfully discharged.

However, if the Creditors’ Arrangement fails (e.g. because the company has not made the payments it agreed to make in the arrangement) then two question arise: (a) what happens to the debts of the creditors; and (b) what happens to any assets in the hands of the Supervisor?

These questions are not answered by the legislation and it is likely that BVI law will follow English law. Thus, on the failure of a Creditors’ Arrangement, creditors may be able to prove in any subsequent liquidation but must give credit for any sums received under the Creditors’ Arrangement⁴¹⁶ (assuming that the debts have not become statute barred in the meantime in the situation where a Creditors’ Arrangement runs for a number of years but then subsequently fails: a Creditors’ Arrangement does not stop time running for limitation purposes).

The termination of the Creditors Arrangement, and any subsequent liquidation or administration of the company, will not necessarily terminate any trust upon which the Supervisor may be holding assets – whether it does so terminate will depend, once again, on the terms of the arrangement and effect must be given to those terms⁴¹⁷. If the arrangement does not provide what is to happen to the assets, then in general the trust will continue notwithstanding the failure of the Creditors’ Arrangement, or any subsequent liquidation or administration, and the trust must take effect according to its terms. In that event, a subsequent Liquidator⁴¹⁸ (or Administrator or Administrative Receiver⁴¹⁹) will not be entitled to those assets.

As has been noted above, the Court is not involved in the approval of a Creditors’ Arrangement, but there are a number of instances provided for in the Act when the assistance of the Court can be sought. However, and fundamentally, a Creditors’ Arrangement is a statutory contract between creditors and the company, and there is nothing in the Act which gives the Court any powers to modify or vary the terms of the arrangement.

Applications can be made for directions from the Court by a wide class of persons i.e. creditors, directors, members, sureties, co-debtors, the Supervisor, Administrator or Liquidator, and by persons affected by the arrangement, and the Court has very broad powers in such cases: it can give directions, or confirm or reverse any action taken by the Supervisor, or make such order as it thinks fit⁴²⁰. However, the Court cannot give directions that are inconsistent with the terms of the arrangement.

Another important provision relates to unfair prejudice. If an arrangement unfairly prejudices the interests of members, creditors, sureties and co-debtors, or there has been a material irregularity in relation to the meeting at which the arrangement was approved, they can apply to the Court for relief⁴²¹. Others who can also apply for relief are the Supervisor or Interim Supervisor, Administrator, Liquidator, or the FSC if the company is a regulated person⁴²². The Court can revoke or suspend any approval of an arrangement or any decision taken at a creditors’ meeting, and it can make directions for further meetings.

What is the position of a creditor who did not have notice of the creditors’ meeting at which an arrangement was approved? As noted above, he will still be bound by the arrangement, but he can complain to the Court on the unfair prejudice ground, and the legislation extends the time in which such an application can be made: he can even apply after the Creditors’ Arrangement was terminated if was unaware of it when it terminated⁴²³.

The Court can also review or fix the Supervisor’s remuneration on an application by a Liquidator, Administrator, the Supervisor or Interim Supervisor, and in doing so make the Supervisor account for any excessive remuneration that he has received⁴²⁴. The Act also specifically states that excessive remuneration for a Supervisor is capable of amounting to unfair prejudice⁴²⁵.

The Court can also replace or substitute a Supervisor or Interim Supervisor if he failed to comply with his duty, and such an application may be made by the board, or an Administrator or Liquidator if the company is in administration or liquidation⁴²⁶. It can also replace or substitute a Supervisor (or Interim Supervisor) where it is impracticable or inappropriate for him to continue, and such an application can be made by the Supervisor (or Interim Supervisor) as well as the board, Administrator or Liquidator⁴²⁷.

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.