Committee of inspection: what significant creditors gain when the builder collapses

What changes when you join the committee

A committee of inspection may be formed to assist and advise the liquidator, monitor the conduct of the liquidator, approve certain steps in the liquidation and give directions to the liquidator. Ordinary creditors receive statutory reports and can request information, but they do not see what the committee sees.

The committee can approve the liquidator's remuneration, direct the liquidator to convene a creditors' meeting, request the liquidator to give information or provide a report or produce a document, and obtain specialist advice about the conduct of the liquidation with prior approval of the liquidator or court. If you are owed a substantial sum, these powers let you influence how the liquidation proceeds and what the liquidator prioritises.

Who can sit on the committee and how appointment works

All creditors are entitled to stand for committee membership. The committee may be formed by resolution passed at any meeting of creditors called for that purpose. A creditor representing at least 10 per cent in value of the creditors, or a group of creditors who together represent at least 10 per cent in value of the creditors, may appoint a person as a member of a committee of inspection.

If a creditor is a company, the creditor can nominate, in writing, an individual to represent it on the committee. This means you do not need to attend every meeting personally. You can appoint someone with the time and knowledge to engage with the liquidator on your behalf. The committee represents the interests of all creditors, not just the individual members.

Source: Official guidance

How the committee reviews fees and decisions

The fees cannot be paid until the amount has been approved by creditors, a committee of inspection or the court. Where creditors have not passed a resolution approving fees, a committee of inspection can approve an external administrator's fees, and in doing so the members of the committee represent the interests of all creditors or employees, not just their own individual interests.

If you are asked to approve fees at a meeting of a committee of inspection, the liquidator must give you a report with sufficient information to help you assess whether the requested fees are reasonable, and this should be given to you at the same time as the notice of the meeting. Generally, if a committee of inspection approves fees and you wish to challenge this decision, you may apply to the court for review of the fees. Committee members see cost breakdowns and task summaries before approving payment.

The limits of what the committee can direct

The liquidator must have regard to, but is not always required to comply with, such directions. If the request to convene a meeting or provide information is not reasonable, the liquidator does not have to comply with the request, and the same rules about when a request is not reasonable apply to directions given to a liquidator by a committee of inspection.

A direction is not reasonable if the liquidator, acting in good faith, thinks that holding the meeting would cause substantial prejudice to the interests of creditors or a third party and the prejudice outweighs the benefits, or there is insufficient money available. The liquidator retains control of the process. The committee exercises influence through information access, questioning and approval authority, not through command.

Secure your nomination before the meeting

The liquidator will notify creditors of meetings where a committee may be formed. Contact the liquidator's office immediately and state that you wish to be nominated. If your company is owed a significant sum, consider whether you will attend personally or appoint a representative in writing. Speak to other large creditors to understand whether they plan to nominate and whether you can coordinate to ensure creditors with commercial construction experience sit on the committee.

A member of the committee of inspection must not directly or indirectly derive any profit or advantage from the liquidation of the company unless creditors resolve to allow it or a court grants leave to derive the profit or advantage, and deriving a profit or advantage can arise during ongoing trading with the company after the liquidator is appointed. If you hold a committee seat, you gain access to information and decisions ordinary creditors do not see. Use it to ask questions, review fees and understand what the liquidator is pursuing. Contact CRP to discuss your position if you are a significant creditor and the builder has entered liquidation.