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CVA procedure, introduced with
the Insolvency Act 1986, is a flexible procedure
for insolvent companies, and can be a useful alternative
to liquidation. An insolvent debtor company may formulate
proposals to its creditors, normally with the
assistance of an Insolvency Practitioner who is
appointed Nominee by the debtor. The company sets
out its history, its assets and liabilities, its
actual and projected profitability, and the manner
in which it is proposed to deal with creditors. Typically partial payment of liabilities over a three year period is proposed.
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In some circumstances the company can be protected from
creditor enforcement action while proposals are being formulated. The Nominee files in Court a
report stating whether in his
opinion meetings of shareholders and creditors
should be called to consider and vote on the proposals.
The Nominee then sends the proposals to shareholders
and creditors and invites them to separate meetings.
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shareholders and creditors may accept or reject
the proposals, or negotiate amendments with the
Board of Directors acting on behalf of the company. The
company must convince affected parties that the
proposed outcome will be more favourable to them
than the alternatives of seizing assets or liquidation.
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At
the Creditors Meeting the creditors vote on whether
to accept or reject the company's proposals, which
may be modified by agreement. For the proposed
Arrangement to be accepted, 75% of voting creditors
by value must be in favour. The Nominee
is normally appointed Supervisor of the CVA, with
duties from then on to ensure that the terms of
the proposals are complied with, to distribute
funds to creditors, and to report periodically
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The
Supervisor will declare the Arrangement a success
when all of its terms have been complied with.
In the event of failure, the Supervisor is often
obliged to petition the Court for liquidation
of the company subject to availability of cash
with which to fund petitioning costs. |
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This
information is written in general terms and cannot
be fully comprehensive. Its application to particular
circumstances will depend on specific facts. The
views and suggestions set out are not intended
to constitute professional advice or to be a substitute
for specific advice. |
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IP Services Ltd
Registered in England No. 03602204
Director: Peter O'Duffy F.C.C.A. R3
Licensed in the United Kingdom by ACCA, 29
Lincolns Inn Fields, London WC2A 3EE
Address & Registered Office: 9 Woodhill Road, Portishead,
BS20 7EU
V.A.T. Registration No: 728812614 |
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