Company Voluntary Arrangement Rejection
Company Voluntary Arrangement (CVA) rejection is usually by aggrieved creditors not generally wishing the company to trade on.
However, a CVA once agreed and coupled with approval becomes legally binding.
Wherefore the company’s creditors do not accept the terms offered; the directors have little option than to find a different route, out of trouble.
Creditors Review Process
An Insolvency Practitioner drafts a company voluntary arrangement. Once the company directors are willing, submit the CVA to the court, along with a copy sent to each of the company’s creditors.
However, the company’s Shareholders and Creditors must accept the CVA before it becomes a legally binding agreement.
To begin with, hold a shareholders’ meeting. Fifty per cent of the shareholders (value) need to vote yes, to therefore approve the document.
Once shareholders have agreed on the terms of the “CVA”, then a meeting of creditors needs holding. However, 75 per cent of the company’s creditors (value of debt) need to agree to the CVA, for it to be approved.
The terms of the CVA can conversely be rejected by creditors, who are dissatisfied with the proposed repayments.
What if the Shareholders or Creditors reject the CVA?
In this event, you need to carefully consider other company rescue options available. However, if Creditors believe other options are available, which may increase their return, then listen.
Unsecured Creditors are not a priority in Insolvent Liquidations. Creditors who pursue a Liquidation are unlikely to receive any repayment. Therefore, a “CVA”, which offers part-payment of the company’s debt, has an excellent chance of approval by all.
Are rescue solutions available if CVA Terms are rejected?
Once “CVA” was rejected, all alternative finance options failed, then three options are available, a winding-up order not pending?
Administration allows your business eight weeks to formulate a plan to rescue or restructure the company. During this time, creditor action ceases, and a licensed Insolvency Practitioner takes control of the company. For the most part, their job involves rescuing the company as a going concern or selling off company assets for the benefit of the company’s creditors.
A Pre-Pack administration requires the company’s marketing and pre-sale before the administrators appoint. As a rule, the company’s directors or shareholders buy back the business’s assets and allow trading with another company, with a different trading name, to commence business concluding the first part of the process.
CVA Rejection – Creditor’s Voluntary Liquidation (“CVL”)
Should creditors reject the CVA proposal, the company directors may have no option but to liquidate the company through a voluntary process referred to as a creditors’ voluntary liquidation. To do so allows directors to manage who may liquidate, subject to creditors’ approval, rather than a compulsory liquidation & an winding up petition..
Additionally, with a “CVL”, companies assets liquidated are for the benefit of the creditors.