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When trading conditions are challenging, all businesses are at risk of extending credit to a client that won’t have the capacity to pay. There are a few steps that business owners can follow to try to avoid this situation, however the reality is that in a highly competitive market, you may well still make that sale on credit terms, and find yourself preparing to attend a creditors meeting.

Before we consider what’s involved in fronting up to a creditors meeting, let’s review the top 4 tips to avoiding that situation.

  1. Have a documented process for extending credit terms that is followed consistently by all staff.
  2. Ensure that you have legally drafted Terms of Trade addressing any PPSR registrations, goods in transit or storage and retention agreements.
  3. Promptly and regularly follow up payment once an invoice becomes overdue.
  4. Swift action and communication of payment demands, and cease supply of additional goods on credit.

If as a business owner you find yourself in a situation where a client becomes insolvent, you’re likely to be called to attend a creditors meeting. Preparing for a creditors’ meeting can be a daunting prospect during the insolvency process, for a business owner who is owed money by a client.  Business owners often receive a notice of meeting and are unsure if they need to attend, what they need to bring, and the purpose of the meeting.

There are a few main areas business owners should be aware of in the lead up to a meeting.

What is the purpose of a creditors' meeting?

Creditors’ meetings are held for a variety of reasons, and the purpose of the meetings is usually dependent upon the type of appointment, such as a liquidation or a voluntary administration. Some of the meetings held are a requirement of the Corporations Act 2001.

Do I need to attend a creditors meeting?

Attendance at creditors’ meetings is not compulsory, and non-attendance will have no impact upon the validity of your claim against the company, or whether you will receive a return (dividend). Furthermore, you do not need to attend the meeting in person in order to participate. Telephone facilities can be arranged for creditors to attend the meeting via telephone. Alternatively, you may appoint a proxy to attend the meeting on your behalf (see more information below on Proxies).

What to bring to a creditors meeting?

Prior to the meeting of creditors’, you should ensure that the following items are submitted to the relevant Liquidator/Administration or a specialist representing your interests as a creditor.

  • Proxy Form

A proxy form is specific to each meeting; you should receive a form with the notice of   meeting issued by the Liquidator/Administrator. The proxy form allows a creditor to appoint a proxy, who may be the liquidator/administrator or any other ‘real’ person the creditor wishes to have represent them at a meeting. If you do not wish to attend the meeting in person and do not have anyone to attend on your behalf, it is quite common for creditors to appoint the Chairperson as their proxy to vote on their behalf.

  • Proof of Debt

In order to vote at a creditors’ meeting you must have a valid claim against the company. You should lodge details of your claim with the liquidator / administrator prior to the meeting by completing a ‘proof of debt’ form.

Evidence supporting your claim should be attached to the form, and include items such as copies of outstanding invoices.

Hanrick Curran Advisors are well placed to assist business owners to get the right procedures in place to minimise the risk of extending credit for goods and services that can’t be collected. However, if you find yourself in that situation, we can also assist in connecting you with the right professionals to represent your interests to assist with a commercial recovery. Please contact your usual Hanrick Curran Adviser on 07 3218 3900 to review your preventative measures to avoid non-paying clients.

Thanks to SV Partners for contribution to content.