Company Voluntary Arrangements

In view of the complex nature of a Company Voluntary Arrangement, a face to face initial meeting is required between the Directors’ and the IP.

At the initial stage the advising IP will clearly set out the disadvantages and advantages of entering into a CVA process compared to other forms of insolvency e.g. Creditors’ Voluntary Liquidation.

The IP will also set out clearly the consequences of proposing and entering into a CVA including the rights to challenge a CVA by any of the creditors who might consider that it be unfair on their part.

During the initial stages the IP will advise the Directors of his role as the adviser; the nominee; and the supervisor as during the process of a Company Voluntary Arrangement the IP’s roles change.

The Proposal sets out the basis of the repayment plan between the Company and its creditors’.

The Proposal is a document which is presented by the Director (although in practical terms is prepared by AABRS) and it includes a trading history; a statement of the Company’s assets and liabilities; cash flow forecasts; a comparison of the outcome to creditors under a Company Voluntary Arrangement compared to their return if the Company were placed into Liquidation.

The Company might also seek agreement or the attitude of key creditors in relation to determining whether the CVA will be successfully approved. It is also important that the Directors consider what measures they are to take moving into the future to ensure that they will avoid a reoccurrence of the Company’s financial difficulties.

Prior to the formal acceptance of the CVA, the IP is known as the “Nominee” and has a duty to report on the contents of the Proposal. This information is contained within the Nominee Report and together with the Proposal will be circulated to creditors and the Court. The Nominee needs to consider whether or not in the Nominee’s judgement:-

1. The Company’s financial position is materially different from that contained in the Proposal and explaining the extent to which the information has been verified.
2. The Company Voluntary Arrangement is manifestly unfair.
3. The CVA has a reasonable prospect of being approved and implemented.

Creditors will have been invited to either attend a virtual meeting of creditors’ (telephone conference or Skype) or alternatively complete a proxy form in order to cast their vote. Frequently creditors propose modifications to the Proposal, which subject to agreement by the Company and depending on the quantum of their claim will result in the Proposal being accepted.

At the meeting of creditors, a majority of more than 75% of those voting in favour is required for the Proposal to be approved.

If the Company requires time to consider possible modifications, the meeting can be adjourned for up to 14 days.

If the Company and its creditors cannot agree to the Proposal or modifications, then the Proposal will be deemed rejected and it is likely that the Company will soon enter into another form of insolvency.

Once the Proposal has been accepted, the Supervisor will notify the creditors, the Court, the Directors and the Shareholders.

The Supervisor will have a duty to ensure that the CVA is carried out in accordance with the terms of the Proposal. The Supervisor will open a designated bank account and monitor that contributions are received in a timely manner in accordance with the terms of the Proposal.

Similarly, the Supervisor will have a duty to agree creditor claims and distribute funds according to the terms of the Proposal.

The Supervisor will have a duty to review the financial accounts of the Company to ascertain whether contributions can be increased due to profitability increasing more than was anticipated in the cash flow forecasts contained within the Proposal.

On an annual basis, the Supervisor will circulate to creditors a Progress Report which includes a synopsis of the financial review of the Company; a receipts and payments account; and details of contributions paid by the company.

In certain circumstances, the Company may require a variation to the terms of the CVA. For example:-

• The Company may fall into arrears with its contributions
• The forecast minimum dividend is no longer achievable
• The lump sum payment date (if applicable) may need to be deferred due to unforeseen circumstances.

As a consequence, a variation meeting will be considered (usually by correspondence), inviting creditors to agree on the new proposed terms of the CVA.

A majority of 75% of the voting creditors is required for the Variation to be accepted.

If the Variation is rejected by creditors’, then the Supervisor will petition the winding up of the Company.

At any point during the course of the Company Voluntary Arrangement if the Supervisor is of the opinion that the Company is in breach with the terms of the Arrangement, then a Notice of Breach will be issued to the Company.

The Company will have period of time to remedy the breach. However, failing to do so will result in the Supervisor petitioning the Court for the winding up of the Company.

Once the terms of the Proposal have been completed, then the Supervisor will issue a Certificate of Completion which will be sent to the Company, to the Court and to creditors to confirm that the terms of the Company Voluntary Arrangement have been completed.