Godknows Hofisi

In simple terms, liquidation refers to the winding up of an insolvent debtor entity (juristic person such as a company) or an insolvent estate of a natural person.

It usually involves the sale of the insolvent debtor’s assets, payment of liquidation costs and payment (usually in part) of the creditors’ claims.

Voting at meetings of creditors

Voting at creditors’ meeting is conducted in terms of section 54 of the Insolvency Act (Chapter 6:07) (or “the Act”) as explained below.

According to section 54(1) of the Act every creditor of an insolvent estate who has proved a claim against the estate is, subject to subsection (3), entitled to vote at a meeting of creditors of the estate.

The question which begs an answer is whether creditors entitled to vote should be those who have merely proved their claims in terms of section 66 of the Act or those whose claims have been examined by the liquidator in terms of section 67.

Liquidated claims must be proved in terms of section 66(1), admitted at a meeting of creditors in terms of section 66(2) and examined by the liquidator.

According to the construction of section 66 especially 66(2) proving of claims can be interpreted to mean submitting the claim with evidence and in required format.

After a creditor has proved (submitted) a claim it has to be admitted (received) if the claim satisfies the meeting’s presiding officer.

Further, the liquidator should then examine the claim in terms of section 67(2) to ascertain whether the insolvent estate in fact owes the claimant the amount claimed.

In my respectful view, it may be ideal for creditors whose claims have been examined and accepted by the liquidator to vote.

Voting based on merely proven (submitted) claims may be susceptible to manipulation for example if a creditor overstates a claim which has not yet been examined.

In terms of section 54(2) a creditor may vote on all matters relating to the administration of the estate, but may not vote on matters relating to the distribution of the assets of the estate or the payment of costs of liquidation.

According to section 54(3) a creditor may not vote:

In respect of any claim which was ceded to him or her after commencement of liquidation proceedings or notice of intention to pass a liquidation resolution (section 9) has been given, or

On the question as to whether steps should be taken to contest his or her claim or preference.

Section 54(4) provides that voting by creditors takes place according to the value of claims except where the Act provides otherwise.

In terms of section 54(7) a secured creditor is entitled to vote on the full value of his or her claim in respect of any matter affecting his or her security or on the election of a liquidator.

It is important to note that in terms of section 54(8) a secured creditor may vote only if he or she had placed a monetary value on his or her security when proving his or her claim, or the liquidator has obtained a valuation of the security, or the security has been realised (dealt with to the benefit of the creditor), the creditor may vote on the amount by which his or her claims exceeds proceeds of the realisation of the security.

For example a creditor owed $ 100 000, who has realised $ 80 000 from the security, may vote on the balance of $ 20 000.

However, section 54(10) provides that if the security has not been realised, the secured creditor may vote on the amount by which his or her claim exceeds:

The value placed by him or her on the security, or

The valuation of the security obtained by the liquidator, whichever is greater.

A creditor may vote personally or through an agent appointed thereto by him or her by power of attorney.

According to section 54(13) every resolution taken at a meeting of creditors and the result of the voting on any matter must be recorded in the minutes of the meeting and if the resolution contains a directive to a liquidator, it is binding on the liquidator.

Section 54(14) provides that any directive of creditors that infringes the rights of any creditor may be set aside by the Court on application by the creditor, or by the liquidator with consent of the Master of the High Court, within 90 days or such period as the Court may allow.

It is significant to note that, in terms of section 54(15) no resolution of creditors that a specific attorney, auctioneer or any other person be employed in connection with the administration of an insolvent estate is binding upon the liquidator.

However, creditors may by resolution recommend the employment of any such person and if the liquidator does not accept the recommendation the Master’s decision in respect of such employment is final.

Disclaimer

This simplified article is for general information purposes only and does not constitute the writer’s professional advice.

Godknows Hofisi, LLB(UNISA), B.Acc(UZ), CA(Z), MBA(EBS,UK) is a legal practitioner / conveyancer with a local law firm, chartered accountant, insolvency practitioner, registered tax accountant, consultant in deal structuring, business management and tax and is an experienced director including as chairperson. He writes in his personal capacity. He can be contacted on +263 772 246 900 or [email protected].