Can a Liquidator Refuse to Call a Meeting if Requested by Creditors?

Key takeaways

• Disagreement with creditors is common: Insolvency practitioners frequently encounter situations where creditors disagree with their decisions or challenge their appointment.
• Creditors have the right to request a meeting: Under the Insolvency Practice Schedule (Corporations) (the Schedule), a creditor (or creditors) may call a meeting of creditors in certain circumstances. Resolutions that can be passed at that meeting can include the replacement of an appointee.
• Liquidators may refuse to convene a meeting under certain conditions: The Insolvency Practice Rules (the Rules) specify circumstances in which a practitioner can refuse to hold such a meeting.

These provisions were recently considered by Justice Black in In the matter of Balamara Resources Limited (in liquidation) [2025] NSWSC 618, where the liquidators of Balamara sought directions from the Court confirming they were justified in declining to convene a meeting requested by certain creditors.

In this short TurkAlert, we examine the legislative framework governing creditor-requested meetings, explore how these provisions were applied in Balamara, and outline the practical implications for insolvency practitioners.

Legislative framework

As practitioners will recall, the power to call a meeting to remove an appointee was introduced to avoid the need to involve the Court and 'remove a significant barrier to removing an unjustifiably expensive or poor performing practitioner'¹.

The starting point is therefore s.90-35(1) of the Schedule which states:

(1) The creditors may: 

(a) by resolution at a meeting, remove the external administrator of a company; and 

(b) by resolution at the same or a subsequent meeting, appoint another person as the external administrator of the company.

In that regard, section 75-15 of the Schedule relevantly provides as follows:

External administrator must convene meeting in certain circumstances

(1) The external administrator of a company must convene a meeting of the creditors if…

(c) at least 25% in value of the creditors direct the external administrator to do so in writing; or

(d) both of the following are satisfied:

(i) less than 25%, but more than 10%, in value of the creditors direct the external administrator to do so in writing;

(ii) security for the cost of holding the meeting is given to the external administrator before the meeting is convened.

(2) However, the external administrator need not comply with the direction if the direction is not reasonable.

(3) The Insolvency Practice Rules may prescribe circumstances in which a direction is, or is not, reasonable.

(4) For the purposes of paragraphs (1)(c), (d) and (e), the value of the creditors is to be worked out by reference to the value of the creditors’ claims against the company that are known at the time the direction is given.

The IPR then goes on to state at rule 75-250:

Directions to external administrator to convene a meeting — when reasonable and not reasonable

(1) This section is made for the purposes of section 75-15 of the Insolvency Practice Schedule (Corporations).

Unreasonable directions

(2) A direction to the external administrator of a company to convene a meeting of the creditors is not reasonable if the external administrator, acting in good faith, is of the opinion that:

(a) complying with the direction would substantially prejudice the interests of one or more creditors or a third party and that prejudice outweighs the benefits of complying with the direction; or

(b) the direction for the meeting is vexatious.

(3) Without limiting paragraph (2)(d), a direction may be taken to be vexatious if it is given within 20 business days after a similar direction was given.

Reasonable directions

(4) A direction to the external administrator to convene a meeting of the creditors is reasonable if subsection (2) does not apply to the direction.

In this case, it is important to note that the parties proceeded on the basis that the relevant creditors met the 25% threshold. As such, the relevant dispute was not whether that threshold was met, but rather whether the direction to hold the meeting itself was not reasonable.

Judgment

In a concise judgment, Justice Black distilled a number of difficult issues into a series of easily digestible statements of principle, including as follows:

• Although the creditors sought the removal of the liquidators, there was no evidence that the liquidators were poorly performing practitioners as contemplated by the second reading speech².
• If a creditor seeks the removal of an appointee, it should put forward some evidence³. In this case, the creditor put forward no evidence as to why the appointee should be removed⁴.
• In that regard, whether a direction is reasonable or not is to be assessed in consideration of the nature of the resolutions to be put at the meeting⁵ and its timing.
• Rule 75-250 provides an exhaustive list of criteria for assessing reasonableness, similar to rule 75-15(2), which deals with refusal to provide documents⁶.
• Case law in that regard also assists in determining whether the request for the meeting is vexatious⁷.
• Issues of good faith need not be established or determined by reference to acting in bad faith, or in fact whether the decision was correct or preferable. Rather, in order to establish good faith, a practitioner should establish that his or her opinion was based upon a reasonable basis, or where it was honestly made or possibly based on a proper attempt to inform themselves of and consider relevant matters⁸.
• A notice issued by an appointee as to why he or she has determined that a direction is not reasonable is summary in nature and need not set out the entirety of his or her reasons⁹. 

Based on these considerations, Justice Black held that the practitioners were justified in not complying with the direction to call the meeting.

Implications

Based on this decision, practitioners should note the following:

1. Not all directions from creditors to call a meeting of creditors must be agreed to;
2. Practitioners should exercise their independent judgment of the direction, including as to the purpose of the meeting and the impact that it will have on the administration;
3. Practitioners should carefully record the reasons for their determination in a file note and a response to the relevant creditors; and
4. To avoid doubt, a practitioner is entitled to apply to Court to seek directions as to the appropriateness of that determination.

If necessary, practitioners should seek legal advice at the earliest opportunity when faced with a request to convene a meeting of creditors.

Turks has a number of Partners and Solicitors who are experts in insolvency and are ready to assist with any enquiries in this area.

Co-authored by Annie Hoad, Lawyer. 

[1] Second Reading Speech in respect of the Insolvency Law Reform Bill 2015 (at page 1468)
[2] At [24]
[3] At [15] and [18]
[4] At [18]
[5] At [8], [25]
[6] At [33]
[7] At [34]
[8] At [37] – [38]
[9] At [48]