- Creditors are frozen by the Section 1A Company Voluntary Arrangement
- CVA - Responsibility of directors in a Section 1A CVA
- Section 1A Insolvency Act 1986 - Disclosure Requirements
- Creditors not included in the CVA proposal
- What does a Nominee of a Company Voluntary Arrangement have to do?
- CVA Creditors Meeting - Section 1A Insolvency Act 1986
- Voting Rights in a CVA under Section 1A Insolvency Act 1986
- Supervisors Duties in a Section 1A CVA
- A draft Company Voluntary Arrangement Proposal for you to look at
- Costs of preparing and operating under a Company Voluntary Arrangement
- Concluding the Company Voluntary Arrangement - The end is nigh!
- Banks and other secured creditors in a Company Voluntary Arrangement
- Landlords no longer protected from a Company Voluntary Arrangement
- Petitioning Creditors
- Company Voluntary Arrangements and Preferential Creditors - Definition
- Benefits to unsecured Creditors in the newer type of CVA
Banks and other secured creditors in a Company Voluntary Arrangement
Imagine that your bank has security over your company's assets in the form of a debenture document lodged at Companies House and that you are considering proposing a Company Voluntary Arrangement - what are the issues?
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Prior to the introduction of a Company Voluntary Arrangement (CVA) with a moratorium the general insolvency rule has been that a bank which held security in the form of a floating charge debenture could always ignore the proposed Company Voluntary Arrangement (CVA) and move instead to appoint the banks own person as an Administrative Receiver. Such possible action by the company bankers 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 Company Voluntary Arrangement (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 unsecured 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 Company Voluntary Arrangement (CVA) creditors meeting
- Firstly the banks will not ignore the Company Voluntary Arrangement (CVA) proposal
- Secondly, unlike under the older type of CVA banks are more likely to attend at CVA creditors meetings particulary to influence any resolutions that may be proposed to adjourn the meeting.
For advice on bankers and other secured creditors and their attitude and approach to Company Voluntary Arrangements contact Ray Purnell for a FREE MEETING.