Question

Justify the following statement.

When a company is in a financial difficulty, it may call a meeting of creditors.

Answer 1

Meaning : The creditors of the company include debentureholders, depositors, company bankers, lenders and other financial institutions. Etc. A meeting arranged and held with creditors for discussion and taking decisions on certain problems relating to the terms and conditions of loans which affect their interest is called creditors’ meeting.

Purpose of creditors’ meeting: The creditors’ meeting is usually held:

1. to make compromise in disputes with its creditors
2. to alter the rate of interest
3. to alter the terms of security
4. to modify the rights of creditors such as debentureholders, depositors and other creditors, etc.
5. to get support of the creditors When a company passes through a financial crisis.
6. To compute the amount payable by the company to creditors and contributors when a company goes into liquidation or adjudicated insolvent by the court.

Legal provisions : The procedure of holding creditors’ meeting is laid down by the Companies Act, 2013. Similarly, the rules and procedure for holding such meeting are usually provided in the trust deed, e.g. debenture trust deed.

Frequency : Creditors’ meetings are held whenever the decisions affecting their interest are to be taken. Such a meeting is very rarely arranged and it is normally convened in the case of the Winding-up of the company.

Types : Creditors’ meetings are classified as meeting of debentureholders, meeting of depositors and meeting of other creditors such as trade creditors, suppliers, loan creditors, etc. A creditors’ meeting may be arranged class wise for discussion and solving varied problems of Creditors.