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Part of the process of applying for a Company Voluntary Arrangement (CVA) involves holding a creditors meeting. There, the company’s creditors vote to either approve or reject the proposal for a CVA. The creditors must be satisfied that the CVA will provide them with a better return than if the company went into administration or liquidation.
Before the creditors meeting
The insolvent company will have contacted a licensed insolvency practitioner (IP) and applied for a CVA to rescue the company and allow it to continue trading.
The insolvency practitioner negotiates a proposal
The IP’s role starts when the directors first seek advice on their current position. Once the company decides to apply for the agreement, they will provide the IP with the company’s financial details, and of any debts or obligations. The IP will help the company put together a proposal based on the information provided.
The CVA is proposed to the creditors
Once the company directors have approved the CVA proposal, it will be sent out to all creditors, who are invited to the creditors meeting. The meeting is most commonly held ‘virtually’ following recent changes to legislation.
There will be a minimum period of 14 days’ notice for the meeting in which creditors can decide to reject or approve the CVA.
Creditors meeting takes place
The creditors meeting is chaired by the IP, giving at least 14 days notice (plus time to give allowances for postage). The meeting provides creditors with an opportunity to ask any questions regarding the proposal.
Creditors are not required to attend the meeting in person, and in reality, few do. Instead, they’ll send their vote via proxy before the meeting via email or may attend via video call. The IP may request that at least one company director attends the meeting.
Any party that the company owes money to is considered a creditor and will be entitled to a vote on the proposal. Employees are only entitled to a vote if the company owes them expenses, wages or awards from employment tribunals.
Creditors may request modifications
Creditors may be happy to accept the agreement, but with modifications to the proposals. Unless these modifications are accepted, their vote won’t count in favour. The IP can negotiate with creditors to make sure the modifications are workable.
The CVA is approved or rejected
At the end of the meeting, the creditors will vote on the agreement.
Afterwards, a second vote is cast discounting any claims received from creditors connected to the company (such as directors). This second vote requires 50% of creditors (by the value of the debt) not to reject the proposal for it to be approved.
If the agreement is approved, the IP can action it. If the creditors reject the CVA, the company may have to go into either administration or voluntary liquidation, which is generally preferable to compulsory liquidation; induced by a creditor filing a winding-up petition.
Once a licensed insolvency practitioner has assisted the directors in completing a proposal for a CVA, the company’s creditors will vote on it at a series of meetings. Creditors aren’t required to attend the meeting but can send their vote via proxy. Creditors may insist on modifications to the arrangement to protect their interests, and for the proposal to be approved, creditors owed at least 75% by the value of debt must agree to it. If the CVA passes, the IP can action the agreement. If the creditors reject the CVA, the company will have to consider other options.
How we can help
If you’re concerned your company is becoming insolvent, or creditor pressure is increasing, you should contact us as soon as possible. Our licensed insolvency practitioners can advise you whether a CVA would be appropriate for your circumstances. Our advice is free and impartial with no obligation.