A Guide to Company Voluntary Arrangement

The Procedure

This procedure allows a financially troubled company to reach a binding agreement with its creditors about payment of all, or part of, its debts over an agreed period of time. Before the proposal is made, an application can be made to court for a moratorium which prevents creditors from taking action against the company or its property for up to 28 days, although if an administrator is in office the company will already be covered by the moratorium arising from the administration. Neither creditors nor shareholders can propose a CVA.

When the arrangement has been proposed, a nominee (who must be an insolvency practitioner) reports to court on whether a meeting of creditors and shareholders should be held to consider the proposal.

The Proposal

We will assist in the preparation of the company's voluntary arrangement proposal and statement of affairs based upon information provided by you and by anybody who is authorised to provide such information on your behalf, which may include, for example, your accountant. The information required by us to do this is listed on the attached information memorandum. Please note we are not responsible for the accuracy of any information you have supplied and none of the work we undertake shall in anyway constitute an audit of the information supplied. At all times it remains your responsibility to ensure that you are satisfied with the proposal.

Once the proposal has been drafted it will be provided to you for approval. Should any amendments be needed we will make such changes as you direct, but with consideration to the matters mentioned in the section 'matters required under Statement of Insolvency Practice 3'.

Once you are satisfied the proposal is suitable we will prepare all the necessary statutory documentation to allow you to formally lodge the CVA with the relevant county court. You will be asked to review this proposal and associated documentation and sign where appropriate. The proposal is a legally binding document and you should obtain independent legal advice before entering into the same should you be uncertain about any of its contents. Once the proposal has been signed, one or more of the insolvency practitioners at this firm may sign one of the statutory notices and consent to act in their capacity as nominee in relation to the arrangement.

The company's proposal and accompanying documentation will then be lodged at the company's local county court.

The role of the nominee

The nominee or joint nominees will then prepare their independent report commenting upon proposal. If at this time more information is needed, we will ask you for this as soon as possible to avoid any delay.

Once the nominee's report has been completed it will be filed with the court stating a date on which the meeting of creditors will be held for the purposes of considering the company's proposal. This date must be at least fourteen days from the date on which the nominee's report is lodged in court.

Following the filing of the nominee's report in court, notice of the meeting must be given by us to all creditors of the company of whose claim we are aware, this includes both secured and unsecured creditors. The period of the notice must be at least fourteen days, which excludes the day of sending the notice and the day of the meeting. Creditors will receive a copy of the proposal, a copy of the nominee's report, and other statutory documentation necessary to allow them to consider the proposal that they have received.

The creditors meeting

During the period up to the meeting the company's creditors have the opportunity to consider the proposal and send in their vote on the proposal via a proxy form. Creditors do have the right to attend the meeting and vote in person, however it is uncommon for creditors to do this. The creditors may vote in one of three ways:

1 - Approve the proposal as it is stated;
2 - Reject the proposal as it is stated;
3 - Approve the proposal but with modifications.

Should creditors put forward modifications you must decide whether or not to accept these. If you do not accept these it is likely that they will instruct the proxy holder to cast their vote as a rejection of the proposal, meaning the proposal may not be approved. If the proposal is not accepted additional time (up to fourteen days) may be given to allow you to reconsider the position or make any amendments to increase the chance of it being accepted.

If your proposal is accepted the nominee will then, subject to the approval of creditors, act as supervisor to put the proposal into practice. It is possible for an alternative insolvency practitioner to be appointed as supervisor, however this is uncommon. Should your proposal be rejected after the maximum 14 day period of adjournment the engagement will terminate, but please note that we may enter into a separate engagement in respect of an alternative insolvency procedure for the company, such as a Creditors Voluntary Liquidation or Administration.

The supervisor's role and scope of his duties will be outlined in the proposal, however in broad terms the role of the supervisor is to ensure the agreed terms of the CVA are followed by all parties to it and that any breaches are acted upon accordingly.

Full and accurate details of the company's financial situation are imperative as a misstatement of the amount of the assets and liabilities can constitute a material irregularity. In addition it must be noted that a director of a company commits an offence if he makes a false representation or commits any other fraud for the purposes of obtaining the approval of the creditors to the proposed arrangement.

We will require details of all known or possible liabilities, which may include but are not limited to:

• Claims which are fully or partly secured;
• Preferential claims;
• Guarantee liability;
• Claims for breach of contract including claims in respect of faulty and incomplete work and hire purchase and leasing agreements;
• Creditors who are persons connected with the company either in their capacity as individuals or corporate bodies;
• Guarantors of the company's debts;
• Debts for an unliquidated amount or any debt whose value is unascertained, which include particularly contingent liabilities or the potential for liabilities to arise under property leases or both past and present tenancies, details of any creditors who have commenced execution or any other legal process against the Company or its assets;
• Creditors who may have special rights in relation to the company (for example insured claims).

Where the value of any assets of the company is material to the outcome of the arrangement, consideration must be given to obtaining an independent valuation. We will advise where this is needed and also arrange for a valuation to be undertaken. The cost of this valuation will be paid from the contributions into the voluntary arrangement unless we agree otherwise.

We are required to enquire into the existence of certain transactions which may be challengeable in the event of a liquidation or administration of the company. These transactions include:

• Transactions at an undervalue (Section 238 Insolvency Act 1986)
• Preference transactions (Section 239 Insolvency Act 1986)
• Liabilities which may be extortionate credit transactions (Section 244 Insolvency Act 1986)
• Floating charges that may be voidable in the event of the liquidation of the company (Section 245 Insolvency Act 1986)

As mentioned above, once the arrangement has been approved the supervisor will oversee its implementation and running. One of the terms that is required to be included will state what will happen in the event of a default in the terms of the arrangement, which will include most commonly where the company is unable to keep up the contributions. In most cases the terms of a voluntary arrangement will indicate that where a breach has occurred it will be necessary for the supervisor to issue a certificate of failure or termination and seek to wind up the company either with the voluntary agreement of the directors, or where this is not forthcoming, through the issue of a winding up petition in the court.

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