Section 1 of The Insolvency Act 1986 - Company Voluntary Arrangement (CVA) Law

Those who may propose a CVA - Who can put forward a CVA proposal to creditors?


Section 1 of The Insolvency Act 1986 is headed "Those who may propose an arrangement". (meaning a Company Voluntary Arrangement or CVA)


There are five sub sections to this Section and they read as follows:

(1) The directors of a company [(other than one which is in administration or being wound up)] may make a proposal under this Part to the company and to its creditors for a composition in satisfaction of its debts or a scheme of arrangement of its affairs (from here on referred to, in either case, as a "voluntary arrangement").


(2) A proposal under this Part is one which provides for some person ("the nominee") to act in relation to the voluntary arrangement either as trustee or otherwise for the purpose of supervising its implementation; and the nominee must be a person who is qualified to act as an insolvency practitioner [or authorised to act as nominee in relation to the voluntary arangement].


(3) Such a proposal may also be made -

(a) where the company is in administration, by the administrator, and

(b) where the company is being wound up, by the liquidator.


(4) In this Part "company" means -

(a) a company regisered under The Companies Act 2006 in England and Wales or Scotland

(b) a company incorporated in an EEA State other than the United Kingdom; or

(c) a company not incorporaed in an EEA State but having its centre of main interests in a member State other than Denmark.


(5) In sub section (4), in relation to a company, "centre of main interests" has the same meaning as in the EC Regulation and, in the absence of proof to the contrary, is presumed to be the place of its registered office (within the meaning of that Regulation).


(6) If a company incorporated outside the United Kingdom has a principal place of business in Northern Ireland, no proposal under this Part shall be made in relation to it unless it also has a principal place of business in England and Wales or Scotland (or both in England and Wales or Scotland)


So what does all this mean?


Firstly it means that not just anybody can prepare and put forward a Company Voluntary Arrangement proposal for consideration. For instance Section 1 of The Insolvency Act does not allow the following categories of person to directly propose a Company Voluntary Arrangement (CVA),

- Trade creditors of the company concerned

- Bankers to the company concerned

- Employees of the company

- The shareholders of the company


There are various ways however how these four categories of interested parties can influence the directors of the company to propose a CVA. This can be achieved, for example, by  the creditors threatening to place the company into liquidation or administration (as the liquidator or administrator then has the power propose a CVA).


Secondly it means that a company operating in, say, Italy but that has its centre of main interests in the UK can propose a Company Voluntary Arrangement under the UK Insolvency Act 1986 law by virtue of Section 1 of that Act.


Thirdly shareholders of a company are debarred from proposing a Company Voluntary Arrangement (CVA) as the law presumes (up to a point) that they may have no interest in the outcome of (ie return from) a CVA. This of course is far from the case as shareholders are very interested in returning their company to financial stability.


Irrespective of your capacity in relation to a company (be it as a shareholder, creditor, banker, director or otherwise) we can identify a legal route to provide the ability for you to effectively propose a company voluntary arrangement (CVA) under Section 1 of The Insolvency Act 1986.