Company Voluntary Arrangements (CVAs) - Law - CVA with a moratorium
Schedule A1 - Insolvency Act 1986 - Paragraph 38 - Court Challenge of decisions made at CVA meetings
Insolvency law does not permit the approval of a Company Voluntary Arrangement (CVA) proposal to be improperly obtained. If there has been a material irregularity at the CVA meeting or unfair prejudice then Paragraph 38 of Schedule A1 sets out the procedure for taking a challenge to Court for the Court's intervention, if the Court considers appropriate, to any decision made at a CVA members or creditors meeting.
The actual wording of Paragraph 38 of Schedule A1 of The Insolvency Act 1986 is reproduced below in bold.
Paragraph 38 - Schedule A1 - Insolvency Act 1986 - Court challenge to decisions made at Company Voluntary Arrangement (CVA) meetings
(1) Subject to the following provisions of this paragraph, any of the persons mentioned in sub-paragraph (2) may apply to the court on one or both of the following grounds—
(a) that a voluntary arrangement approved at one or both of the meetings summoned under paragraph 29 and which has taken effect unfairly prejudices the interests of a creditor, member or contributory of the company,
(b) that there has been some material irregularity at or in relation to either of those meetings.
(2) The persons who may apply under this paragraph are—
(a) a person entitled, in accordance with the rules, to vote at either of the meetings,
(b) a person who would have been entitled, in accordance with the rules, to vote at the creditors’ meeting if he had had notice of it, and
(c) the nominee.
(3) An application under this paragraph shall not be made—
(a) after the end of the period of 28 days beginning with the first day on which each of the reports required by paragraph 30(3) has been made to the court, or
(b) in the case of a person who was not given notice of the creditors’ meeting, after the end of the period of 28 days beginning with the day on which he became aware that the meeting had taken place,
but (subject to that) an application made by a person within sub-paragraph (2)(b) on the ground that the arrangement prejudices his interests may be made after the arrangement has ceased to have effect, unless it came to an end prematurely.
(4) Where on an application under this paragraph the court is satisfied as to either of the grounds mentioned in sub-paragraph (1), it may do any of the following—
(a) revoke or suspend—
(i) any decision approving the voluntary arrangement which has effect under paragraph 36, or
(ii) in a case falling within sub-paragraph (1)(b), any decision taken by the meeting in question which has effect under that paragraph,
(b) give a direction to any person—
(i) for the summoning of further meetings to consider any revised proposal for a voluntary arrangement which the directors may make, or
(ii) in a case falling within sub-paragraph (1)(b), for the summoning of a further company or (as the case may be) creditors’ meeting to reconsider the original proposal.
(5) Where at any time after giving a direction under sub-paragraph (4)(b)(i) the court is satisfied that the directors do not intend to submit a revised proposal, the court shall revoke the direction and revoke or suspend any decision approving the voluntary arrangement which has effect under paragraph 36.
(6) Where the court gives a direction under sub-paragraph (4)(b), it may also give a direction continuing or, as the case may require, renewing, for such period as may be specified in the direction, the effect of the moratorium.
(7) Sub-paragraph (8) applies in a case where the court, on an application under this paragraph—
(a) gives a direction under sub-paragraph (4)(b), or
(b) revokes or suspends a decision under sub-paragraph (4)(a) or (5).
(8) In such a case, the court may give such supplemental directions as it thinks fit and, in particular, directions with respect to—
(a) things done under the voluntary arrangement since it took effect, and
(b) such things done since that time as could not have been done if a moratorium had been in force in relation to the company when they were done.
(9) Except in pursuance of the preceding provisions of this paragraph, a decision taken at a meeting summoned under paragraph 29 is not invalidated by any irregularity at or in relation to the meeting.
Paragraph 38 of Schedule A1 to The Insolvency Act 1986 provides that the Court has the ultimate oversight of the alleged approval of any Company Voluntary Arrangements. Upon a challenge being made for a material irregularity or unfair prejudice the Court has power to make any decision it thinks fit - Such as the giving of directions to call a further meeting or overturning of the CVA.