Vol 15 (2018) - Issue 4

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Retail: Is CVA the Only Answer?

Background – what is a CVA?

A Company Voluntary Arrangement ('CVA') is a procedure under Part 1 of the Insolvency Act 1986 which enables a company to enter into a legally binding agreement with its unsecured creditors to compromise amounts owed to them. The company does not have to be insolvent or unable to pay its debts in order to propose a CVA. It is a flexible procedure with limited Court involvement and does not affect the rights of secured creditors. It is a contract between a company and its unsecured creditors.

A CVA is a collective procedure in Annex A to the EC Insolvency Regulations and as such can be proposed by a company regardless of where it is incorporated provided it can be demonstrated that the COMI is in the UK.

A CVA may be proposed by the directors, an Administrator or Liquidator of a company. If proposed by directors it is their proposal. They may be assisted in drafting it to ensure it complies with the legislation and best practice usually by an Insolvency Practitioner and legal advisors. The directors will also request an insolvency practitioner act as Nominee. The Nominee should be satisfied that the proposal it is achievable and that there is a fair balance is between the interests of the company and the creditors. They are required to provide a report to the company’s shareholders and creditors which provides sufficient information to enable the stakeholder to make informed decisions in relation to the proposal and the CVA. This report is also filed in Court. The report will state whether or not, 1) the company’s financial position is materially different from that contained in the proposal 2) the CVA is manifestly unfair and 3) the CVA has a reasonable prospect of being approved and implemented. The Nominee will summon the meetings of shareholders and creditors. The Nominee will normally act as Supervisor of the implementation of the proposal if the CVA is approved.

A CVA requires the approval of 50% in value of shareholders and 75% in value of those unsecured creditors who vote either in person or by proxy. A second vote is held at which only unconnected unsecured creditors votes are counted. The CVA is approved if at this second vote, less than 50% of the unconnected unsecured creditors vote against it.