A meeting of creditors does not automatically occur in every summary bankruptcy and consumer proposal filing in Canada. In fact, they are a relatively rare occurrence. In our practice, we see a meeting of creditors in less than 1% of our consumer estates.
Creditors Meeting In a Bankruptcy
In a summary administration bankruptcy a meeting of creditors is only held if it is requested by a least 25% in value of proven creditors. A summary administration bankruptcy is a filing with less than $15,000.00 in realizable assets. The vast majority of consumer bankruptcies fall into this category. In an Ordinary Administration a meeting of creditors is automatically called.
Creditors Meeting in a Consumer Proposal
There is no meeting of creditors in a consumer proposal unless 25% in value of proven creditors request one be held.
Purpose of First Meeting of Creditors
The Bankruptcy and Insolvency Act sets out very specific purposes of the first meeting of creditors:
- To consider the affairs of the bankrupt
- To affirm the appointment of the trustee or substitute the trustee
- Appoint inspectors of the estate
- To give directions to the trustee as creditors may see fit with regard to the administration of the estate
Where and Who Attends a Meeting of Creditors
The meeting of creditors is normally held at the trustee’s office, but it can be held in another location. The chairman of the meeting is the Official Receiver or his nominee. That nominee is usually the Licensed Insolvency Trustee. However, there are circumstances where the Official Receiver will chair the meeting. If the Official Receiver is the chair of the meeting, the trustee must still be in attendance to provide information on the administration of the estate. The chairman of the meeting decides any questions or disputes and casts the deciding vote in the case of a tie.
The Licensed Insolvency Trustee, the bankrupt/ debtor and creditors will be in attendance. The Official Receiver may also attend.
The trustee will review the Preliminary Report that they have prepared with the bankrupt and the creditors. The report gives background information on the debtor, the causes of bankruptcy, details any reviewable transactions and estimates the realization available to creditors.
What Can Creditors Ask?
After the affairs of the bankrupt have been reviewed, the creditors have the opportunity to ask questions to the bankrupt
The bankrupt is required to attend the meeting and to answer truthfully the questions posed them. Failure to attend a meeting of creditors is an offence under Section 198(2) of the Bankruptcy and Insolvency Act unless sickness or other sufficient cause prevents the bankrupt from attending.
The creditors can ask questions in regard to the bankrupt’s past, present and future finances. If it is not related to this, the bankrupt does have the right to refuse to answer. However, if is a reasonable question, answering is a good idea to help creditors understand the situation.
If a creditor asks an improper question, the chair should advise they are out of order and direct the debtor not to answer.
A bankrupt is entitled to be represented by legal counsel at the meeting of creditors. However, this does not typically occur. It is important to understand that the trustee is not a lawyer and does not represent you.
Voting at Meeting of Creditors
If any decisions need to be made at the meeting a creditors, a vote will be conducted.
Creditors not in attendance may appoint the trustee as proxy to vote on their behalf.
There are many rules surrounding voting at meetings of creditors, but most matters are decided by the majority of votes – an “ordinary resolution”. One dollar in claim equates to one vote.
Attending the meeting of creditors is a duty required under the Bankruptcy and Insolvency Act. It is however,a duty which most consumer debtors never have to fulfill as meetings of creditors are rarely called in consumer bankruptcies. If you have filed for bankruptcy and there is a meeting of creditors, discuss with your trustee the reasons why this has occurred.