Dictionary

  • Committee of inspection (in the context of company liquidation)

    A Committee of Inspection (COI) is a committee appointed from among the creditors of a liquidation and contributories of a company to advise and superintend the trustee or liquidator of a bankrupt estate or a company in liquidation.

    The committee also monitors the conduct of a liquidator, approves fees and in limited circumstances approves the use of some of the liquidator’s powers on behalf of all creditors.

    The law that regulates the appointment and powers of COI’s to companies is found in Schedule 2 of the Corporations Act 2001 (Cth), known as the “Insolvency Practice Schedule” (IPS). The IPS is also found in Schedule 2 of the Bankruptcy Act 1996 (Cth) and effects COI’s to the extent of the administration of a bankrupt’s estate.

    Set out below are some of the relevant rules that relate to company COI’s:

    Appointment

    • Section 80-15 – a member of a COI can be appointed or removed by creditors, by resolution, of a company in relation to the external administration of the company;
    • Section 80-20 – a large creditor (or group of creditors) of a company (at least 10% of the value of creditors) may appoint a member to a COI;
    • Section 80-25 – if an employee is a creditor of the company and represents 50% of the value of entitlements owed, can appoint a member to a COI.

    Functions

    • Section 80-35 (1) – Functions of COI
      • To advise and assist the external administrator if the company;
      • To give directions to the external administrator of the company;
      • To monitor the conduct of the external administration of the company;
      • Such other functions as are conferred under the Corporations Act;
      • To do anything incidental of conducive to the performance of any of the above functions.
    • Section 80-35 (2) – Functions of COI
      • An external administrator of a company must have regard to any directions given by the COI, but the external administrator is not required to comply with the directions.
    • Section 80-35 (3) – Functions of COI
      • If an external administrator does not comply with a direction, they must make a written record of that fact, along with written reasons.

    Obligations

    • Section 80-55(1) – deriving profit or advantage
      • A member of a COI must not directly or indirectly derive a profit or advantage from the external administration of a company.
    • Section 80-55(2) – Examples of deriving profit or advantage
      • Transaction (including sale or purchase) entered into for or on account of the company.
      • Profit or advantage derived from another creditor.
      • A related entity or family member derives profit or advantage.

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