The different stages and role of Gibson Hewitt in relation to a Company Voluntary Arrangement (CVA)
Gibson Hewitt (GH) acts as an advisor and gives independent advice to the directors on the options available to the company and their relative merits. Once the directors have decided to put a Company Voluntary Arrangement (CVA) proposal to creditors, GH typically drafts the CVA proposal on behalf of the board of directors, (even though it is technically the directors’ own proposal). GH advises the board on the implications of the terms forming CVA proposal and answers any questions the board may have about their CVA proposal.
Once the board have approved the CVA proposal and one of their number has signed it, they will give the GH a “Notice of Intended Nominee”. The Insolvency Practitioner (“IP”) at GH will also sign the Notice of Intended Nominee following which they are known as the Nominee. The Nominee is required to act impartially and write an independent report on the viability of the CVA proposal. This includes a recommendation to creditors on as regards the acceptability of the proposal. The Nominee is the Chairman of the meeting of creditors at which the creditors consider the CVA proposal.
Once a CVA proposal is approved by creditors, an IP is appointed Supervisor of the CVA. This IP is usually the person acting as Nominee. A CVA Supervisor is independent and their prime role is to ensure that all parties adhere to the terms of the CVA. Inter alia, the Supervisor administers the funds coming into the CVA and will agree the creditors’ claims, distribute funds and report to creditors. At the end of the CVA the Supervisor will issue a final report confirming whether the terms of the CVA have been complied with or whether it was failed.
Consequences of a Company Voluntary Arrangement and requirements of the company
A CVA is a legally binding contract between the company and its creditors. The onus is on the Directors to ensure there is a full and honest disclosure in their CVA proposal. Where there is a material irregularity in the CVA proposal, the Insolvency Act 1986 gives the creditors the right to challenge the outcome of the meeting at which the IVA was approved. Where such a challenge is successful, it can render the CVA proposal void and it will therefore not offer the company protection from any recovery actions their creditors might bring. False or fraudulent representations in a CVA proposal can also lead to the Company being wound up and the directors being disqualified as directors. It is therefore vital that you make a full an honest declaration of all relevant facts to us when preparing your CVA proposal.
A meeting of creditors will be convened at which the creditors vote whether to accept the proposal. Whilst creditors have the right to attend such meetings in person and question the board, most creditors will lodge their votes by post, fax or e-mail. The following 3 outcomes are possible at the meeting:
- The CVA is approved as originally proposed. The CVA proposal will then be implemented
- The CVA is approved with modifications. This occurs where the creditors are satisfied that an CVA should be agreed but require that some of the terms therein be amended. The Board and the Company are then asked whether they will consent to these modification and assuming they do, the CVA will be approved with the incorporation of those modifications.
- The CVA is rejected. The Company remains as before the CVA proposal and it will not be protected from creditors taking legal recovery actions. Depending on the Company’s situation and population of creditors, its creditors may bring court proceedings or appoint bailiffs to recover goods. Ultimately, one of the creditors is likely to petition for a winding up order.
The meeting can also be adjourned for a maximum period of 14 days from the date of the original meeting.
Implementation of the approved Company Voluntary Arrangement and consequences of breach
Once it is approved, the Company must adhere to the terms set out in the CVA proposal. The CVA will include terms detailing the steps that the Supervisor must take in the event that the Company fails to perform on matters required of it in the CVA proposal which typically includes a requirement for the Supervisor to petition for the winding-up and fail the CVA. It is therefore important that you consider the terms of the CVA before signing and ensure you make every possible effort to adhere to the terms therein.