Rule 1.52 of The Insolvency Rules 1986 - Company Voluntary Arrangements (CVAs) with a Moratorium
At a CVA Creditors Meeting what are the Requisite Majorities of creditors votes to get the arrangement approved?
At a Company Voluntary Arrangement (CVA) creditors meeting where a prior moratorium was obtained Insolvency Rule 1.52 applies. The Rule is complex and we are happy to provide free advice on this or any other insolvency topic. The gist of Insolvency Rule 1.52 is that there are two votes on each and every topic at a CVA Creditors meeting. The reason for the requirement of two separate votes is that the law does not want connected creditors to the company to have undue influence that would swing the vote in the company's favour when the majority of unconnected creditors are against that which is proposed.
The actual wording of Insolvency Rule 1.52 is reproduced below in bold.
The Insolvency Rules 1986 - Rule 1.52 - Requisite majorities (creditors) [at a CVA creditors meeting where a prior moratorium was obtained]
(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) At a meeting of the creditors for any resolution to pass extending (or further extending) a moratorium, or to bring a moratorium to an end before the end of the period of any extension, there must be a majority in excess of three quarters in value of the creditors present in person or by proxy and voting on the resolution. For this purpose paragraph (4)(b) below shall not apply and a secured creditor is entitled to vote in respect of the amount of his claim without deducting the value of his security.
(4) 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.
(5) 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) who have notice of the meeting;
(b) whose votes are not to be left out of account under paragraph (4); and
(c) who are not, to the best of the chairman's belief, persons connected with the company.
(6) 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 [(4)] , or
(b) a person is a connected person for the purposes of paragraph (5)(c);
and in relation to the second of these two cases the chairman is entitled to rely on the information provided by the statement of the company's affairs or otherwise in accordance with this Part of the Rules.
(8) 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 (7) of Rule 1.50 apply as regards such an appeal.
Insolvency Rule 1.52 gives unconnected creditors of a company proposing a Company Voluntary Arrangement power to reject the proposal if more than 50% in value of those unconneced creditors so vote - in other words the connected creditors cannot change the unconnected creditors' decision in this particular circumtance.