Section 4A Insolvency Act 1986 - Company Voluntary Arrangements (CVAs)
Rules as to the approval of a CVA - Who wins? - Creditors or shareholders?
Section 4A of The Insolvency Act 1986 is interesting as it prescribes what can happen if the creditors approve the proposed arrangment but the shareholders of the company vote against approving the proposed Company Voluntary Arrangement (CVA).
If the shareholders of the company are unhappy with what the directors and creditors have agreed at the CVA creditors meeting then the shareholders have only 28 days to make an application to court to have their concerns considered - If the shareholders do not apply in that 28 day period the decision of the creditors will stand.
The actual wording of Section 4A of The Insolvency Act 1986 is shown below in bold.
4A Approval of arrangement
(1) This section applies to a decision, under section 4, with respect to the approval of a proposed voluntary arrangement.
(2) The decision has effect if, in accordance with the rules—
(a) it has been taken by both meetings summoned under section 3, or
(b) (subject to any order made under subsection (4)) it has been taken by the creditors’ meeting summoned under that section.
(3) If the decision taken by the creditors’ meeting differs from that taken by the company meeting, a member of the company may apply to the court.
(4) An application under subsection (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) Where a member of a regulated company, within the meaning given by paragraph 44 of Schedule A1, applies to the court under subsection (3), the Financial Services Authority is entitled to be heard on the application.
(6) On an application under subsection (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.
Sub section 6 of Section 4A of The Insolvency Act 1986 makes clear that the court has the power to override the views of creditors by substituting the shareholders decision as to any modifications to the CVA proposal. It is considered however that only in the most extreme of cases would the court go against the creditors wishes. After all the company is insolvent - what real interest do the shareholders of that company have in the decision(s) made by creditors about the proposed CVA?
If you wish to receive free advice on Section 4A of The Insolvency Act 1986; the related case law concerning shareholder challenges to decisions made at CVA creditors' meetings; or as to any aspect of the law relating to Company Voluntary Arrangements (CVAs) then please contact us by submitting the form on the right hand side of this page.