Section 7B of The Insolvency Act 1986 - Company Voluntary Arrangements (CVAs)

Company Voluntary Arrangements that come to an end prematurely


Section 7B of The Insolvency Act 1986 defines the word "prematurely" for the purposes of Part 1 of the Act. [Part 1 of the Act is represented by Sections 1 to 7B of The Insolvency Act 1986].


The Section is a bit of a mouthful as it refers to four other pieces of CVA insolvency legislation. In an attempt to untangle matters first read Section 7B which is shown below in bold.


7B  Arrangements coming to an end prematurely


For the purposes of this Part, a voluntary arrangement the approval of which has taken effect under section 4A or paragraph 36 of Schedule A1 comes to an end prematurely if, when it ceases to have effect, it has not been fully implemented in respect of all persons bound by the arrangement by virtue of section 5(2)(b)(i) or, as the case may be, paragraph 37(2)(b)(i) of Schedule A1.


The first question  as far as company voluntary arrangements are concerned is: "what is Section 5 (2) (b) (i) of The Insolvency Act 1986?"


This sub section refers to the binding into the CVA terms of "every person who was entitled to vote at the meeting"  as distinct from "those creditors who did not have notice of the creditors' meeting".


It is noteworthy that Section 5 (2 (A) (b) refers to the word "prematurely". In that context if a creditor was not notified of the creditors meeting he is still bound to the CVA - but when a CVA is properly ended such a creditor is entitled to be paid his CVA share by the company - provided the CVA did not end "prematurely".


In other words if a CVA does pay out to creditors who were initially notified of the creditors meeting that will not be enough if the CVA has not ended "prematurely". Everybody has to be paid! Non notification is ineffective in avoiding liability as a consequence of Section 5 (2) (A) and Section 7B of The Insolvency Act 1986.