Rule 1.19 of The Insolvency Rules 1986 - Company Voluntary Arrangements (CVAs)
What is the Required Percentage Majority of creditors' votes to approve a CVA at a CVA Creditors meeting?
Insolvency Rule 1.19 is quite detailed and sets out how the chairman of the meeting is to determine whether or not the Company Voluntary Arrangement (CVA) proposal has been approved, modified or rejected at the CVA creditors' meeting.
This Rule prescribes that,
- Secured creditors cannot vote (unless they give up their security)
- It is only the required percentage majority of those who actually vote that is taken into account. (The required majority being 75% of all those who vote)
- The influence of a connected creditor's vote is less than that of an unconnected creditor.
.This is because a second vote is conducted at CVA creditors meetings. At the second vote connected creditors cannot participate in the vote. At the second vote a majority of 50% of the connected creditors is needed to approve he CVA proposal.
The actual wording of Insolvency Rule 1.19 is shown below in bold.
Insolvency Rules 1986 - Chapter 5 - Rule 1.19 - Requisite majorities (creditors)
(1) Subject to paragraph (2), at the creditors' meeting a resolution is passed when a majority (in value) of those present and voting in person or by proxy have voted in favour of it.
(2) A resolution to approve the proposal or a modification is passed when a majority of three-quarters or more (in value) of those present and voting in person or by proxy have voted in favour of it.
(3) In the following cases there is to be left out of account a creditor's vote in respect of any claim or part of a claim—
(a) where written notice of the claim was not given, either at the meeting or before it, to the chairman or [nominee];
(b) where the claim or part is secured;
(c) where the claim is in respect of a debt wholly or partly on, or secured by, a current bill of exchange or promissory note, unless the creditor is willing—
(i) to treat the liability to him on the bill or note of every person who is liable on it antecedently to the company, and against whom a bankruptcy order has not been made (or in the case of a company, which has not gone into liquidation), as a security in his hands, and
(ii) to estimate the value of the security and (for the purpose of entitlement to vote, but not of any distribution under the arrangement) to deduct it from his claim.
(4) Any resolution is invalid if those voting against it include more than half in value of the creditors, counting in these latter only those—
(a) to whom notice of the meeting was sent;
(b) whose votes are not to be left out of account under paragraph (3); and
(c) who are not, to the best of the chairman's belief, persons connected with the company.
(5) It is for the chairman of the meeting to decide whether under this Rule—
(a) a vote is to be left out of account in accordance with paragraph (3), or
(b) a person is a connected person for the purposes of paragraph (4)(c); and in relation to the second of these two cases the chairman is entitled to rely on the information provided by the company's statement of affairs or otherwise in accordance with this Part of the Rules.
(6) If the chairman uses a proxy contrary to Rule 1.15, his vote with that proxy does not count towards any majority under this Rule.
(7) The chairman's decision on any matter under this Rule is subject to appeal to the court by any creditor or member and paragraphs (5) to (9) of Rule 1.17 apply as regards an appeal .
It is important to appreciate that two votes are cast at CVA creditors' meetings,
- At the first vote all unsecured creditors can vote. At this first meeting a 75% majority of the votes cast must be achieved to approve the CVA proposal before the proposal is further considered at a second vote.
- At the second vote connected creditors (such as family) cannot participate. Therefore connected creditors cannot influence the outcome of the second vote. At this second vote a majority of at least 50% in value of the unconnected creditors who voted is required to approve the CVA proposal.