Company Voluntary Arrangements (CVAs) - Law - CVA with a moratorium
Schedule A1 - Insolvency Act 1986 - Paragraph 36 - Effectiveness of decisions at CVA meetings
What happens if different decisions are made by members & creditors at their separate CVA meetings? Which decision is effective?
Before a Company Voluntary Arrangement (CVA) is approved the proposal is considered by separate meetings of members (shareholders) and creditors. Cleary each meeting could come to different decisions as to what they might accept or reject. What happens in this circumstance? Paragraph 36 of Schedule A1 to The Insolvency Act 1986 provides the way out of any such impasse. Essentially it is up to a member of the Company to apply to Court for the matter to be reviewed - otherwise it is the decision of the creditors which stands.
The actual wording of Paragraph 36 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.
Paragraph 36 - Schedule A1 - Insolvency Act 1986 -
(a) the approval of a proposed voluntary arrangement,
(b) the extension (or further extension) of a moratorium,
(c) the bringing of a moratorium to an end,
(d) the establishment of a committee, or
(e) the approval of the expected cost of a nominee’s intended actions.
(2) The decision has effect if, in accordance with the rules—
(a) it has been taken by both meetings summoned under paragraph 29, or
(b) (subject to any order made under sub-paragraph (5)) it has been taken by the creditors’ meeting summoned under that paragraph.
(3) If a decision taken by the creditors’ meeting under any of paragraphs 31, 32 or 35 with respect to any of the matters mentioned in sub-paragraph (1) differs from one so taken by the company meeting with respect to that matter, a member of the company may apply to the court.
(4) An application under sub-paragraph (3) shall not be made after the end of the period of 28 days beginning with—
(a) the day on which the decision was taken by the creditors’ meeting, or
(b) where the decision of the company meeting was taken on a later day, that day.
(5) On an application under sub-paragraph (3), the court may—
(a) order the decision of the company meeting to have effect instead of the decision of the creditors’ meeting, or
(b) make such other order as it thinks fit
The insolvency law set out at Paragraph 36 of Schedule A1 makes clear that in most circumstances that the decision of the creditors at a CVA meeting will prevail over any separate different decion of shareholders. In unusual circumstances however the shareholders of the Company can apply to Court for the decision of the creditors to be reviewed.