Committee of Inspection: Powers and Decisions

What a Committee of Inspection Does

A statutory committee gives creditors a smaller forum for examining the administration and asking the officeholder to explain proposed work. Its authority comes from the Corporations Act and the applicable rules. An informal creditors committee has the mandate its participants give it. Calling that group a committee of inspection does not confer statutory powers.

For example, an informal group can collect creditors’ questions and send a joint letter. A properly constituted committee can exercise the statutory request and approval powers applicable to its administration. Keep its formation record beside the decision file so later readers can establish which body acted.

Check the Appointment and Membership Basis

Identify the company, officeholder and administration type before accepting a nomination. A committee can operate in ordinary court and creditors’ voluntary liquidation. The simplified liquidation process excludes it, as ASIC’s liquidation guide explains.

Division 80 of the Insolvency Practice Schedule excludes a company under restructuring or with an unterminated restructuring plan. Pooled groups have a separate formation route. Record those distinctions before using a single-company appointment form.

In voluntary administration, creditors can form a committee at the first creditors’ meeting. That oversight role is separate from creditors’ decision about the company’s future. The ASIC voluntary administration guide describes that distinction.

For a company outside a pooled group, the appointment routes are as follows.

• Creditors resolve to form the committee and appoint members.
• A creditor or group holding at least 10% in value of creditors’ claims can appoint a member.
• Employees holding at least 50% in value of employee entitlements can appoint a member to represent employees.

The appointing capacity matters. Sections 80-15 to 80-25 restrict using another appointment route after exercising one of these rights. Preserve the claim calculations and voting record so the same creditor’s participation can be traced.

Rule 80-5 permits a creditor, its attorney under a general power of attorney or a person authorised by the creditor in writing. It also permits a Commonwealth representative in the specified employee-assistance circumstances. A corporate member can authorise an individual in writing to attend committee meetings.

Retain the formation resolution, nominations, written authorities and underlying debt evidence. Separate the creditors’ formation vote from later committee votes. Removal and replacement must follow the relevant appointment route and rule 80-10. That rule also addresses signed resignations, vacancies and continued action where at least two members remain.

Manage Duties, Conflicts and Benefits

Members must approach committee decisions for the creditor interests they represent, with conflicts disclosed before the relevant business. A continuing supplier relationship needs examination. It does not establish an automatic disqualification or permission to profit.

Section 80-55 prohibits direct or indirect profit or advantage from the administration, subject to its exceptions. These include creditor permission, permission under another law and court leave. The affected member cannot vote on the creditor resolution permitting the benefit. Section 80-60 separately restricts a qualifying appointing creditor’s purchase of company property.

Record who benefits, how the benefit arises and whose permission is required. A declaration in the committee minutes cannot substitute for the required creditors’ resolution or court leave. Where a member abstains, retain the reason and assess whether the remaining participation supports a valid decision.

The Corporations Act, Schedule 2 supplies these appointment, function and benefit rules. Read the actual provision against the proposed arrangement before treating disclosure as a complete solution.

Request Information and Review Proposed Decisions

Match each proposed action to its authority before putting it to a vote. Information requests under section 80-40 differ from general directions under section 80-35. The officeholder must consider general directions, but can decline them with written reasons.

A committee can direct a creditors’ meeting under section 75-15, subject to the reasonable-direction rules. Specialist advice under section 80-50 requires the officeholder’s or court’s approval before expenses arise. A member cannot commit the estate to advice merely because the committee wants it.

Remuneration approval has its own hierarchy under section 60-10. Outside a members’ voluntary winding up, a committee can determine remuneration where creditors have not done so. Time-based remuneration needs a cap. A forecast, a valid approval and an actual payment are different records. ASIC’s fee approval guide explains the supporting information creditors need.

A Fictional Recovery Proposal

Suppose a liquidator asks the committee to consider $12,000 of further remuneration for investigating a possible $80,000 recovery. Both figures are invented. The $80,000 is a disputed claim, not available cash. The remuneration proposal states a $12,000 cap inclusive of GST. Separate legal-cost estimates also include GST.

An agenda for the meeting records appointment and attendance checks first, then conflict disclosures. The liquidator presents the cash reconciliation and recovery assumptions before members consider the remuneration resolution. Unanswered questions remain on the agenda for follow-up.

A Source-Linked Receipts-and-Payments Schedule

The reconciled cash is $27,000 before the proposed payments. Allowing for both proposed amounts leaves $9,000 before other commitments. If the claim produces nothing, that cash position still needs to fund the remaining administration.

Ask what work the $12,000 covers, which work has already been approved and what evidence supports collectability. The committee also needs the litigation budget, adverse-cost exposure and expected timing. An attractive claim value cannot answer those questions by itself.

FinTrace handles the bank-statement analysis behind such a review, returning a searchable ledger and findings tied to source PDF filenames and pages. Insolvency practitioners can follow the receipts and transfers without repeating the statement review. The officeholder prepares the proposal, the authorised body decides fees and solicitors advise on the recovery.

Make and Record a Valid Committee Decision

Check the notice and procedure adopted for the committee, the authority of attendees and any applicable court orders before voting. Avoid treating an email exchange as a completed meeting resolution without a lawful basis.

Under rule 80-5, a majority of members must be present and a majority of those present must support the action. These are member counts, unlike creditor claim-value calculations. The Insolvency Practice Rules (Corporations) govern these procedures and information-request exceptions.

For the fictional proposal, assume five valid members, four attending and no disclosed interest affecting this resolution. Three support the proposal and one opposes it. A completed decision record can read as follows.

Preserve the full wording with the vote. A minute saying “fees agreed” leaves the covered work and financial limit unclear. If further information is required before approval, record an adjournment or deferred decision instead of implying consent.

Verify Minutes, Implementation and Review Options

Compare the final minutes with the resolution and supporting records before relying on the result. ASIC states that committee minutes must be prepared and lodged within one month. Retain the lodgement receipt and any required circulation record alongside corrections to the minutes.

Compare later fees drawn with the approved work and cap. Follow up a missing report through a defined information request. Rules 80-15 to 80-25 address unreasonable requests and the reasons the officeholder must give. Privilege, confidentiality and disproportionate prejudice can justify refusal. Funding the request can overcome the specified insufficient-property or already-provided exceptions, subject to security where required.

A reasonable request ordinarily requires a response within five business days, with an agreed later period or a permitted written extension. Keep the request, response and reasons together so a dispute concerns an identifiable refusal.

For unresolved issues, distinguish the remedy sought. Section 80-70 concerns court inquiry into committee conduct. Division 90 concerns review of the administration, while section 60-11 addresses remuneration determinations. A disappointing commercial recovery does not itself establish misconduct. Identify the disputed act and supporting evidence before selecting the review route.