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For the purpose
of this section, imagine that the bank has actually has security
in the form of a debenture document lodged at Companies House.
Prior to the
introduction of a CVA with a moratorium the rule has been
that a bank could always ignore the proposed CVA and move
instead to appoint the banks own person as an Administrative
Receiver. Such action meant that the future of the company
was totally down to the bank appointee. The law indicates
that such an appointee only has a duty to his appointor and
not to the general body of creditors. The end result was that
other creditors could not influence whether or not the
company should cease or operate under the terms of a CVA.
The
new rules introduced on the 1-1-2003 (by the Insolvency Act
2000) result in a totally reversed situation. From the 1st
January 2003 onwards debenture holders will not be able to
appoint a Receiver once a CVA has been filed with the court.
While a bank
can continue to vote at a CVA creditors meeting to accept,
reject or modify a proposal it can only vote to the extent
that it is not fully secured.
For instance,
if a bank holding a debenture was owed £320,000 but
the assets on which it held security were estimated to be
worth £300,000 then the bank would have a £20,000
vote in determining whether or not the CVA was accepted.
However, if
a resolution is put to the CVA creditors meeting to adjourn
that meeting and reconvene at a later date then the bank has
a much more powerful vote. In this case the bank can vote
for the full amount they are owed - e.g. £320,000. The
aim of this rule is to not deprive secured creditors of their
security rights for more than 28 days, should the other creditors
not be able to agree a way forward without seeking an adjournment.
Bank
Tactics
Inevitably
a banks tactics will change when considering how to vote at
a CVA creditor meeting
- Firstly
the banks will not ignore the CVA proposal
- secondly, unlike old CVA's banks
are likely to attend at CVA creditors meetings particulary
to influence any resolutions that may be proposed to adjourn
the meeting.
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