Voting Rights in a Company Voluntary Arrangement Creditors Meeting 

How does a proposal get approved?

Voting rights at a CVA decision procedure with or without a moratorium in place are largely similar save for one major difference.

For every other type of insolvency process (or liquidation) secured creditors cannot vote - except to the extent that the value of their security does not cover the amount they are owed.

A bank can vote at a CVA creditors meeting to accept, reject or modify a proposal but 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 the decision procedure 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.

A hire purchase company will also be able to ignore their security and vote for the full amount they are owed.

This fundamental change to voting rights is quite reasonable when you remember that the moratorium period takes away the rights of debenture holders and banks to take enforcement action. The aim is for secured creditors not to have their enforcement rights taken away when the unsecured creditors have not made up their minds by the time of the first decision procedure whether or not they will accept the proposal.

  

Another interesting change in the voting rules from 1-1-2003 is that an approved arrangement binds not only every person who was entitled to vote at the meeting but also every person who would have been so entitled if they had had notice of the decision procedure. This means that unknown creditors will be bound by the result of the decision procedure.

Would you like us to give you a call?

Fill in the form and we'll give you a call as soon as we can to discuss your needs in a free initial consultation with a Licensed Insolvency Practitioner. Alternatively give us a call on 01326 340579 if there is an urgency to your needs.

The information provided will be used solely to contact you and any information you provide will be held in accordance with our firm's privacy policy, and not used for marketing purposes.

Call