Module 7.1: CVAs

Question 1

In a CVA, can debts be ranked in a different priority to other insolvency proceedures?

Answer 1

Yes - may be varied by agreement (subject to not causing unfair prejudice), although in practice usually will apply same ranking.

Question 2

Who can propose a CVA?

Answer 2

Directors
Administrator
Liquidator

Question 3

What can’t an office holder do in a CVA?

Answer 3

No ability to challenge prior transactions

No ability to cut down or block incomplete execution or attachments ( Although recovery proceedings may not be commenced or continued by creditors, once bound by the arrangement terms

No ability to investigate and penalise malpractice before and during CVA

Although false representations by the proposer are an offence, and supervisor obligated to report criminal offences

Question 4

What are the effects of a CVA on secured creditors?

Answer 4

 Proposals cannot change rights of secured creditors with out their consent
 Can not vote for proposals except for amount of unsecured claim
 Bound by proposals once approved unless underlying default on underlying obligation

Question 5

What are the effects of a CVA on creditors?

Answer 5

 Approve/ approve with modifications/ reject
 Binding on all creditors (including those with no notice of proposals)
 Company cannot be wound up
 No legal action without court authority
 Bound creditors cannot enforce security or repossess goods while CVA terms are adhered to
 However, no impact on creditors incurred after the process has begun

Question 6

What are the effects of a CVA on contracts?

Answer 6

 Contracts continue unless option to terminate
 Proposals need to deal with existing contracts, new contracts and potential impact of breach of contract
 Timing of liability becomes very important  Pre-CVA debt can be compromised
 Post-CVA debt is part of ongoing trading
 Protection of supplies of goods and services (CIGA inserted provisions preventing supplier from terminating or requiring
payment of arrears as a condition of continuing supply)

Question 7

What are effects of CVA on employees?

Answer 7

 Contracts continue - no change to employer company
 Proposals need to deal with existing employees, new employees and any anticipated redundancies
 Again, timing important
 CVA is recognised insolvency event for the purposes of employee claims and the proposal may make provision for redundancies, which will trigger employee’s rights to claim via the Redundancy Payments Service

Question 8

Who may propose a CVA?

Answer 8

 the directors - but not if the company is in administration or liquidation
 the administrator
 the liquidator

NOTE There is no process for creditors to initiate a company voluntary arrangement

Question 9

Who prepared a CVA proposal?

Answer 9

Directors if not in other insolvency proceedings, otherwise administrator or liquidator.

Question 10

When is a statement of affairs required for a CVA?

Answer 10

Required at same time as proposal:

Either by directors - at a date not earlier than two weeks before the date of the proposal.

-However the nominee may allow the statement to be made up to an earlier date (but not more than two months before the date of the proposal) where that is more practicable.

Where the statement is made up to an earlier date, the nominee’s report to the court on the proposal must explain why.

Or liq/ administrator may use the SA from the existing insolvency proceedings. (query 2 month restriction?)

Question 11

A When is a nominee’s report required?

B How long does a nominee have to consider a CVA proposal and report to the court?

Answer 11

A Where proposed by the directors or liquidator/ administrator is proposing a different IP act as Supervisor

Ie: When the nominee is not the liquidator or administrator of the company

B 28 days

Question 12

What must a nominee’s report to the court contain?

Answer 12

a) whether, in his opinion, the proposed voluntary arrangement has a reasonable prospect of being approved and implemented,
b) whether, in his opinion, the proposal should be considered by a meeting of the company and by the company’s creditors, and
c) if in his opinion it should, the date on which, and time and place at which, he proposes a meeting of the company should be held.

Question 13

What type of decision procedure should be used for decision whether to accept a CVA?

Answer 13

Qualifying decision procedure

Question 14

What do creditors receive?

Answer 14

Copy of proposals
SA including list of creditors
Nominee’s report
An explanation as to how creditors may propose modifications

If not by hard copy then copies to be made available within 5 business days of request.

Question 15

When do the creditors and members decisions have to be held? (no moratorium)

Answer 15

Not less than 14 days from date of delivery of the notice, and not more than 28 days from the date on which nominee’s report lodged.
(7 days if a physical meeting requisitioned in response to notice.)

The decision date for the creditors’ decision procedure may be on the same day as, or on a different day to, the meeting of the company.

2) But the CREDITOR’S DECISION on the proposal must be made before the members’ decision.

3) The members’ decision must be made NOT LATER THAN FIVE BUSINESS DAYS after the creditors’ decision.

Question 16

What is the requisite majority for approval of CVA (creditors)?

Answer 16

 A decision approving a proposal or a modification in a proposed CVA is made when three-quarters or more (in value) of those responding vote in favour of it
>= 75%

 In a proposed CVA a decision is not made if more than half of the total value of the unconnected creditors vote against it
+ 50%

Question 17

How does a creditor or member appeal against the decision of the convenor/ chair?

How long to appeal?

Answer 17

Court

28 days of first report being lodged in court

Question 18

How do members consider CVA proposal?

Answer 18

Meeting - nominee must have regard to convenience of members when setting venue.

(But can also be by correspondence.)

Question 19

What is the requisite majority for approval of CVA (members)?

Answer 19

Majority in value (unless articles provide otherwise).

A resolution is not passed by correspondence unless at least one member has voted in favour of it.

Question 20

How long does convenor have to lodge the report to the court on the outcome of the meetings?

Answer 20

4 business days

Question 21

When does a report have to be filed with CH?

Answer 21

If CVA approved.

Question 22

When does a CVA take effect?

Answer 22

at the time of the creditors’ qualifying decision procedure

Question 23

What happens if CVA follows liquidation or administration?

Answer 23

Stay or sist any existing winding up proceedings or provide for the appointment of an administrator to cease to have effect
 Give directions as to the future conduct of those proceedings

Question 24

What are the grounds for challenge of CVA decision?

Answer 24

 Unfair prejudice to the interests of a creditor or member

 Material irregularity at or in relation to the meeting of the company or the creditors’ decision procedure