The Importance of Completing a Proxy
This article covers, the age old question of “What is a proxy?”; and aims to convince you all that whenever you, or your client, receives one, you should complete it and return it, because a failure to do so could mean the difference between a healthy return or no return at all.
What is the definition of a proxy?
A proxy is defined as “the authority to represent someone else, especially in voting”.
In the context of insolvency & business recovery work, a proxy is sent to a shareholder or a creditor, in order to get their vote on specific resolutions listed on the proxy form (or sometimes within the report attached to the proxy).
What are insolvency proxies seeking to obtain a vote on?
The resolutions which the insolvency practitioner (“IP”) requires to be passed will usually be in relation to gain consent to one of the following:-
- The insolvency process proposed;
- The appointment of an insolvency professional;
- The agreement of fees and/or disbursements;
- The distribution of funds; or
- As case specific task such as consent on which way to exit the process.
How do you provide a vote by Proxy?
This can be done either by post or in person although in some instances, only a postal vote is requested by the insolvency practitioner in order to save the costs of calling a physical meeting. Therefore, in the first instance, check whether a meeting has been called. If a meeting has been called, you can either attend the meeting and give your voting instructions in person, or you can return your proxy form, indicating that you will not be attending but still give how you wish to vote on each resolution (e.g. for or against).
If just a postal vote has been requested you can only vote by returning your completed proxy form by post but you can request for a meeting to be called if there is enough votes in favour of a meeting (usually 10% of the total value of creditor claims must request this).
What is required to gain acceptance to the resolutions?
Insolvency & business recovery resolutions are usually either special or ordinary resolutions, which require a different percentage of the people who vote to pass them.
Special resolutions (such as shareholders consent to wind up a company) must have more or equal to 75% of the shareholders who vote to vote in favour of the resolution. However, in addition to this percentage, if there is more than one shareholder at least 2 shareholders must vote in order to gain consent (this is then called quorum)
An ordinary resolution (such as a creditors consent to ratify the decision of the shareholders to wind up a company) only required more or equal to 50% of the people who vote.
Why should I complete my proxy?
It is vitally important to always provide a proxy form, for the following reasons:-
- Consent to the process – The process may not be accepted if no one votes and therefore, in the case of an insolvent company, it may remain dormant until such a time as it is struck off or a creditor petitions for its winding up.
- Consent to the right IP – The IP you want to be appointed to the case may not be able to be appointed if you do not nominate them or consent to their proposed appointment. This is important because you may believe that independent investigations are required (because the proposed IP’s appear to close to the directors of the insolvent company) or simply that you wish for better value IP to be appointed rather than an expensive one (to improve dividend prospects).
- No Committee – A creditors committee should be formed (either to be reported to more regularly on investigative issues, progress or fees) but cannot because sufficient votes in favour of a committee may not have been received.
- High costs – If the correct votes are not received, in some instances, the IP is then instructed to seek directions from the Court, which in my experience incurs costs which are not in the interests of creditors.
- Progress – A failure to obtain consent to come resolutions can stunt the progress of the case or can mean that an investigative issue or asset realisation issue is not pursued to its best route (e.g. consent requested to utilise some monies to pursue a legal claim which if won would warrant a better distribution).
Can an IP complete a proxy on behalf of me or my client?
Yes we can, and we can even attend the meetings on your behalf if we think it is appropriate which is beneficial when there appears to have been some wrongdoing by the directors or if there is a possibility to take over the appointment on your behalf.
If you are one of the majority creditor or if you are aware of who they are, give us a call and we can give you the right advice on your options and help complete the proxy so that your vote is not thrown out.
It also goes without saying that you should not just ignore them as you’ll only kick yourself when you see great asset realisations but no distribution because they have been eaten up in IP costs, or fraudulent director not being brought to account. You have been warned.