Friday, January 22, 2016

Rule 8.6 – a reminder

We are seeing more attempts to take appointments off the floor at S98 meetings. We are already aware of the glitch in the legislation that requires the outgoing members’ liquidator to produce a progress report for his brief tenure, but the voting at the meeting can have its problems, as we saw recently.

A client recently approached us about a proxy they had received for a section 98 meeting.  The proxyholder was an IP at another practice, but it contained no voting instructions, such that it was a general proxy.  The proxyholder duly attended the meeting and attempted to use the proxy to vote for another IP in their practice to take the appointment.  However, as you are aware, rule 8.6(1) states that “a proxyholder shall not vote in favour of any resolution which would “directly or indirectly” place him, or any associate of his, in a position to receive any remuneration out of the insolvent estate, unless the proxy specifically directs him to vote in that way”.  The proxyholder had argued to our client that since the meeting was only considering a resolution to appoint a liquidator and not a fee resolution then the proxy could be validly used. 

The problem with that argument is where rule 8.6 uses the words “directly or indirectly”.  Using the proxy to pass a resolution to appoint an IP in the practice as liquidator would indirectly put them in a position to receive remuneration, since the expectation is that the liquidator would be remunerated for acting as such.

Given the increasing number of “contested” section 98 meetings we expect to see this arise more often, but it led us to consider what you should do if that happens.  It is easier to see a solution if the proxyholder represents overwhelming voting power and you are certain to lose the appointment.  If it is that clear-cut, then we think that the safest solution would be to notify the creditor as soon as you receive the proxy and point out that if they want the proxy holder to vote for an IP from his firm, they need to specify that in the relevant space on the proxy form.   Even if they fail to correct that proxy and the proxyholder is prevented from voting for his own colleague, our view is that it is probably best to avoid a subsequent challenge or request for your removal and instead use other attendees, or the chairman’s own general proxies to achieve the same outcome.

Unfortunately, most cases are not so straightforward and the chairman may simply have to disallow the proxy and take the vote, or adjourn the meeting to allow the creditor to submit a revised proxy and then conduct the full vote on another day.   Closing the meeting without addressing the matter will only lead to complications and unnecessary cost.