Committee of inspection

3 Key Takeaways

• A committee of inspection is typically formed by unsecured creditors.
• Its role is to supervise the insolvency practitioner’s actions and decisions.
• The committee can request information, approve fees, and provide guidance to the insolvency practitioner.

What is a Committee of Inspection?

A committee of inspection is a body of creditors or their representatives, appointed during a company’s insolvency proceedings. It is primarily responsible for overseeing the actions and decisions of the insolvency practitioner (the liquidator or administrator) who is managing the process. The committee acts in the best interests of the creditors as a whole, ensuring that the insolvency proceedings are conducted fairly and transparently.

Importance of a Committee of Inspection

• Creditor Representation: The committee provides a platform for creditors to voice their concerns and interests during the insolvency process.
• Supervision and Accountability: It holds the insolvency practitioner accountable for their actions, ensuring they act in accordance with the law and in the best interests of the creditors.
• Decision-Making: The committee has the authority to make certain decisions, such as approving the insolvency practitioner’s remuneration and expenses.
• Transparency: The committee helps ensure transparency in the insolvency process by requesting information and updates from the insolvency practitioner.

How a Committee of Inspection Works

The committee is typically formed at the first meeting of creditors after the company enters insolvency. Creditors who wish to be on the committee can nominate themselves, and the committee members are then elected by a vote of the creditors. The size of the committee can vary, but it usually consists of three to five members.

The committee meets regularly with the insolvency practitioner to discuss the progress of the insolvency proceedings, review reports, and make decisions on key matters. The committee’s powers and duties are prescribed by law and may vary depending on the jurisdiction and the type of insolvency proceedings.

Examples of Committee of Inspection Decisions

• Approving the sale of company assets
• Authorizing legal action against directors or other parties
• Agreeing to compromise settlements with creditors
• Sanctioning the insolvency practitioner’s fees and expenses

Real-World Applications

Committees of inspection play a crucial role in ensuring the fair and efficient administration of insolvent companies. They help protect the interests of creditors, provide oversight of the insolvency practitioner, and promote transparency in the process. In complex insolvency cases, the committee’s expertise and guidance can be invaluable in achieving the best possible outcome for all stakeholders.