Insolvency Meetings - Casting a Shadow Over Voting Rights

The economic impacts of the COVID-19 pandemic are far reaching and significant. Whilst the Federal Government has announced a number of temporary reforms to address these impacts in the context of insolvency, the guiding principles relating to the chair’s casting vote in insolvency related meetings remain unchanged. Meetings of creditors can still occur, and it is expected that they will be held electronically. These are all good reasons to understand the issues that can arise at contested meetings where companies are under external administration, so effective strategies can be implemented.


Formal meetings involving public and private companies, partnerships and strata schemes are an integral part of business and commercial life, and for many their personal lives too. What may surprise some is that the rules governing meetings for different entities will vary depending on the legislation relevant to each type of entity and its establishment and governance documents.

These rules are often complicated and even experienced business people can fall foul of construction and interpretation intricacies when preparing for and attending meetings that sometimes deal with significant assets and rights. In our practice here at Bartier Perry we are often called upon to advise and guide our clients through difficult meeting issues, whether it be in the general commercial, property and strata or insolvency contexts.

In this bulletin, we explore the important issue of the chair’s casting vote which often arises in insolvency related meetings, and as you will see, sometimes leads to litigation in order to determine whether the chair acted appropriately in the circumstances.

Creditors Meetings

The meeting of creditors is an important mechanism for creditors to have a say in relation to the affairs of a company that has been placed into external administration.

For a creditor to be entitled to vote at a creditors meeting:

  • they must lodge a proof of debt form which sets out the details of the debt; and

  • the chair of the meeting must accept the debt or claim for voting purposes. If the chair has doubts with respect to whether to accept a proof of debt, the creditor is allowed to vote, subject to the vote being declared invalid at a later time.

Pursuant to rule 75-115(1) of the Insolvency Practice Rules (Corporations) (IPR) a resolution is passed at a meeting of creditors if:

  • a majority of the creditors vote in favour of the resolution; and

  • a majority in value of the creditors vote in favour of the resolution.

On the other hand, pursuant to IPR rule 75-115(2), a resolution is not passed at a meeting of creditors if:

  • a majority of creditors vote against the resolution; and

  • the majority in value of the creditors vote against the resolution.

Further, pursuant to IPR rule 75-115(5), if a resolution relates to the removal of an external administrator of the company:

  • the external administrator may exercise a casting vote in favour of the resolution, in which case the resolution passes; or

  • the external administrator can abstain from exercising a casting vote, in which case the resolution is not passed.

With these rules in mind, creditors should not underestimate the importance of voting at a meeting of creditors in circumstances where resolutions passed may have a significant impact on the dividend they ultimately receive.

For example, if a major creditor with a substantial claim has a lack of confidence in the appointed liquidator or administrator, they may propose a resolution that the current liquidator or administrator be replaced. Having said this, while a replacement liquidator or administrator may be appointed to the creditor’s satisfaction, this change may lead to a duplication (or escalation) of costs and may not enhance the effectiveness of the liquidation or administration. These matters will impact on the dividend payable at the end of the process.

The Power of the Casting Vote

Understanding your rights at a meeting of creditors is fundamental in executing any strategy regarding the liquidation or administration particularly where there are significant differences of opinion between creditors.

If voting between creditors results in a deadlock, the chair, who in this context is generally the liquidator or administrator has, subject to IPR rule 75-115(5), three options being:

  1. exercise a casting vote in favour of the resolution which means that the resolution is carried;
  2. exercise a casting vote against the resolution which means that the resolution is not carried; or
  3. not exercise a casting vote which means that the resolution is not carried.

Glenfyne and the Glenfyne Appeal

A key decision which looks at this issue is the NSW Court of Appeal matter of Glenfyne International Holding Limited v Glenfyne Farms International AU Pty Ltd (in liquidation) (the Glenfyne Appeal). The Court of Appeal was required to determine:

  • whether Steven Gladman (chair) was right to exercise his casting vote against the appointment of liquidators which were suggested by a creditor;

  • whether Mr Gladman was still the chair and administrator at the time of the vote regarding appointment of liquidators; and

  • whether the Court should pass the resolution appointing the creditor’s preferred liquidators (Resolution) pursuant to section 75-43 of the Insolvency Practice Schedule (IPS), which allows it to order that a proposed resolution was taken to have been passed at a meeting of creditors.

In the initial Glenfyne judgment, the Court interpreted rule 75-115(5) to mean that Mr Gladman was not allowed to vote against the Resolution. However, in the Glenfyne Appeal, the Court recognised that the Resolution was for the appointment of joint liquidators, in contrast to a resolution seeking to remove an external administrator. Therefore rule 75-115(5), which only applies to casting votes in respect of resolutions relating to “the removal of the external administrator” was not enlivened.

The Court decided it was appropriate to make an order pursuant to section 75-43 of the IPS that the Resolution should be taken as passed, thereby allowing for the appointment of Jason Porter and Fabian Micheletto as joint liquidators of the Company.

The decision provides clear guidance on the Court’s power to assess failed creditor resolutions due to the exercise of a chair’s casting vote and clarifies when a chair is entitled to exercise its casting vote.

Other Instances of Issues regarding Casting Votes

These issues often come before the courts. In the matter of Iris Diversified Property Pty Ltd (in liquidation) [2018] NSWSC 834 (Iris), the liquidator exercised his discretion to vote against a resolution to remove himself as liquidator. In the judgment, Black J found that the liquidator “did not have power to vote against the resolution to remove him as liquidator by reason of rule75-115(5) and that resolution was not passed”. Interestingly, his Honour further noted that the liquidator’s “error in considering that he was permitted to exercise that casting vote against that resolution (as distinct from his decision to do so) appears to have reflected the legal advice he had received”.

Takeaways and Tips

Given the COVID-19 climate and the likelihood that meetings will be held electronically and the decisions in Iris and the Glenfyne Appeal, there are a number of important takeaways for insolvency practitioners, creditors and lawyers in relation to any meeting of creditors for companies in external administration:

  1. When proposing or voting on a resolution at a meeting of creditors, a creditor should be mindful of the overall ramifications that the resolution may have, especially in relation to the cost and timeliness of the process and dividends that may be ultimately payable.

  2. During the course of a meeting of creditors, it is important to consider what resolutions have previously been passed prior to voting on current resolutions as this may impact on the creditor’s or chair’s ability to vote on certain resolutions (this is especially important to consider if a creditor is effectively pre-voting by way of proxy). If an administration has ended and a resolution passed for a company to be wound up, then the status of the chair may have changed and he or she will be at liberty to vote against resolutions that otherwise he or she could not have.

  3. When a resolution is made proposing the removal of an external administrator, the casting vote cannot be exercised by the chair to vote against their removal if they are also acting as the external administrator of the company.

  4. Given his Honour’s comments in Iris about the legal advice provided to the liquidator, insolvency and legal practitioners should all ensure they are familiar with the IPS and the IPR and how the authorities dictate the legislation should be applied.

Author: Gavin Stuart, Max Mikha and Emma Boyce