Who does the law allow to put forward a Company Voluntary Arrangement Proposal?

Section 1 of The Insolvency Act 1986 & the benefits of a Company Voluntary Arrangement

The law (set out in The Insolvency Act 1986 and The Insolvency Rules 1986) does not permit just anybody to benefit by being able to put forward a Company Voluntary Arrangement proposal to company creditors.

There are two types of Company Voluntary Arrangement and this webpage explains who can put forward a proposal under the first type of CVA - The relevant insolvency law is found at Section 1 of The Insolvency Act 1986.

You might recall that a Section 1 Insolvency Act 1986 CVA is one where there is no automatic freeze granted by law for the short period leading up to the creditors meeting at which the Company Voluntary Arrangement (CVA) proposal is considered by the creditors.

It is probably better to explain who  cannot put forward such a Company Voluntary Arrangement proposal. These include:

- Creditors of the Company (by contrast creditors could as an alternative petition the Court for an Administration)

- The directors and shareholders of the company also cannot put forward a Company Voluntary Arrangement if the have left it to too late in the day. (For instance if the company is already in liquidation only the liquidator can propose a Company Voluntary Arrangement). Directors are always advised to act at the earliest to keep more insolvency options open to them.

- Directors may put forward a Company Voluntary Arrangement proposal under Section 1A of The Insolvency Act 1986 if a winding up petition has been issued but a winding up order has not yet been made.

The prescribed contents of a Company Voluntarty Arrangement (CVA) proposal are set out in Rule 1.3 of the Insolvency Rules 1986. Click here if you would like to read that rule in its entirety.

The deal offered to creditors under the proposal must be better than the alternative of liquidation. Otherwise why would creditors vote for the approval of a CVA?

For this reason a CVA proposal must include an estimated outcome statement, which contrasts the return to creditors under the CVA as compared with the lesser return, they could expect in liquidation.

As a director maximise your insolvency options by taking ealrly advice from an insolvency practioner. For that advice or for a FREE INITIAL MEETING please contact us.