Company Voluntary Arrangements (CVAs) - Law - CVA with a moratorium - What modifications are permissible?

Schedule A1 - Insolvency Act 1986 - Paragraph 31 - Approval and modifications to a CVA




What modifications can be proposed at a CVA creditors meeting (where a moratorium is in existence)?


At a Company Voluntary Arrangement creditors meeting a series of modifications to that which is proposed may be put forward to the meeting in order that the meeting can then decide to approve or reject any such suggested modifications.


Paragraph 31 of Schedule A1 of The Insolvency Act 1986 howeher restricts the type of modifications which may be legally put forward. The Paragraph is straight forwardly written - the main thrust being that the pre-existing rights of preferential and secured creditors cannot be changed by way of a mdification to any CVA proposal.


The actual wording of Paragraph 31 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.






Paragraph 31 - Schedule A1 - The Insolvency Act 1986 - The law concerning the approval of a Company Voluntary Arrangement (CVA) in the case where a moratorium exists


(1) The meetings summoned under paragraph 29 shall decide whether to approve the proposed voluntary arrangement (with or without modifications).

(2) The modifications may include one conferring the functions proposed to be conferred on the nominee on another person qualified to act as an insolvency practitioner, or authorised to act as nominee, in relation to the voluntary arrangement.

(3) The modifications shall not include one by virtue of which the proposal ceases to be a proposal such as is mentioned in section 1.

(4) A meeting summoned under paragraph 29 shall not approve any proposal or modification which affects the right of a secured creditor of the company to enforce his security, except with the concurrence of the creditor concerned.

(5) Subject to sub-paragraph (6), a meeting so summoned shall not approve any proposal or modification under which—

(a) any preferential debt of the company is to be paid otherwise than in priority to such of its debts as are not preferential debts, or

(b) a preferential creditor of the company is to be paid an amount in respect of a preferential debt that bears to that debt a smaller proportion than is borne to another preferential debt by the amount that is to be paid in respect of that other debt.

(6) The meeting may approve such a proposal or modification with the concurrence of the preferential creditor concerned.

(7) The directors of the company may, before the beginning of the period of seven days which ends with the meetings (or either of them) summoned under paragraph 29 being held, give notice to the nominee of any modifications of the proposal for which the directors intend to seek the approval of those meetings.

(8) References in this paragraph to preferential debts and preferential creditors are to be read in accordance with section 386 in Part XII of this Act.




The effect of this CVA insolvency law is that preferential creditors (such as arrears of employee wages) and secured creditors (such as mortgages) cannot have their rights taken away by a modification to a CVA proposal.  The reason for the making of this law is that unsecured creditors might otherwise try to improve their own positions by prejudicing the financial position of preferential and secured creditors.