Insolvency - formal arrangements Flashcards
What is a Company Voluntary Arrangement (CVA)?
An agreement where creditors agree to part payment of debts or a new timetable for repayment
A CVA is supervised by an insolvency practitioner while the company’s directors remain in their positions.
Who supervises and implements a CVA?
An insolvency practitioner
The company’s directors continue to manage the company during the CVA.
What is the process for setting up a CVA?
- Directors draft a CVA proposal and appoint a Nominee
- Director submits proposal to nominee
- Nominee decides whether to call creditors within 28 days
- Nominee gives 14 days’ notice to creditors
- Meeting of members within 5 days of meeting
How much notice must the Nominee give to creditors before the meeting?
14 days
What is required for a CVA proposal to be approved?
75% of unsecured creditors, 50% of unconnected creditors, and 50% of members must approve
What happens if the CVA proposal is approved?
The Nominee reports to the court, and becomes the supervisor to implement the proposals
Who is bound by a CVA?
All unsecured creditors (including those who did not vote/voted against it)
Secured or preferential creditors are NOT bound unless they unanimously consent to the CVA (disadvantage for the company)
What can a creditor do if they feel treated unfairly in a CVA?
Challenge the CVA within 28 days of approval on the grounds of unfair prejudice
What are the responsibilities of the supervisor in a CVA?
Agree creditors’ claims, collect unsecured funds for dividends, and ensure compliance with terms
What is required for a Restructuring Plan to be approved?
It requires court approval, which is called a sanction.
How do creditors and members vote on a Restructuring Plan?
They are divided into classes, and each class votes on the plan.
What is the approval requirement for a Restructuring Plan?
The plan must be approved by at least 75% on value of those voting in each class.
What happens if one or more classes vote not to approve a Restructuring Plan?
The court can still sanction a plan even if one or more classes do not approve.
Can the court exclude creditors and shareholders from voting on a Restructuring Plan?
Yes, the court can exclude them if they have no genuine economic interest in the company.
What is an advantage of a Restructuring Plan?
- It can bind secured creditors if sanctioned by the court.
- It can compromise the rights and claims of secured creditors and claimholders (CVA can’t do this)
