Company Voluntary Arrangement Rejection

Company Voluntary Arrangement Rejection. Written by John A Waller. Consultant. Reviewed June 23rd, 2024.

What happens if a CVA is rejected?

If a Company Voluntary Arrangement (CVA) is rejected, the company’s directors can propose a formal insolvency process such as administration or creditors’ voluntary liquidation.

The directors and their advisors formulate the CVA proposal to submit to a licensed insolvency practitioner, who acts as the nominee, before its presentation to the court. A copy of the proposal is then distributed to each of the company’s creditors, who are responsible for voting on it.

A successful CVA must secure the support of 75% of creditors by value. In addition, the proposed document should receive approval from over 50% of the shareholders, underscoring their significant role in the process. It’s important to note that not all CVAs are approved.

A Company Voluntary Arrangement (CVA) is a form of business rescue. It involves a process whereby a company in financial difficulty can reach an agreement with its creditors to repay a proportion of its debts with a payment plan over an agreed-upon period. Creditors usually reject a CVA proposal because they do not want the company to continue trading.

What happens with a CVA rejection?

Company Voluntary Arrangement Rejection and a Creditors Review Process

A CVA is part of the insolvency family of the company’s recovery.

So once you approach the Insolvency Practitioner for a CVA, the IP drafts a CVA proposal for the company directors, submits it to the court and sends a copy to each creditor.

However, shareholders and creditors of the company must accept the CVA before it becomes a legally binding agreement.

So, to begin with, hold a shareholders’ meeting. Fifty per cent of shareholders (value) must vote yes to approve the document.

Once shareholders have agreed on the terms of the “CVA,” a meeting of creditors must be held. However, 75 per cent of the company’s creditors (value of debt) must agree to the CVA to remain approved.

Conversely, creditors may reject the CVA terms due to dissatisfaction with the proposed repayments.

Company Voluntary Arrangement Rejection
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What if The Shareholders or Creditors Reject The CVA?

If the business has had a company voluntary arrangement rejection experience, you must consider other options. If creditors believe other options exist that could increase their return, listen.

Unsecured Creditors remain a non-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, provides a chance of approval by all.

Are rescue solutions available if a proposed Company Voluntary Arrangement Rejection happens?

Once a “CVA” is rejected along with all other finance options failing, three insolvency procedures remain available, provided a winding-up order remains not pending.

Option 1. Administration

A company administration allows eight weeks for an IP to formulate a plan to ensure the company’s recovery or restructuring. Creditor action stops, and a licensed insolvency practitioner takes control of the company. Their job remains mainly to save or sell corporate assets to benefit creditors.

Option 2. Pre-pack Administration

A pre-pack administration is a pre-arranged insolvency process that involves marketing and pre-sale before the administrators are appointed. As a rule, pre-pack administration involves the company’s directors or shareholders buying back its assets and allowing trading with another company with a different trading name to start the business and conclude the first part of the process.

Option 3. Creditor’s Voluntary Liquidation (“CVL”)

If creditors reject the CVA proposal, the company directors may have to liquidate the company through a voluntary process called creditors’ voluntary liquidation. Doing so allows directors to manage who may liquidate, with creditors’ approval, rather than a compulsory liquidation and winding up petition.

So, a CVL allows company directors to set up a new company debt-free.

With a “Creditors VoluntaryLiquidation,” company assets remain for creditors’ benefit, and the company is closed.

So contact John Waller on 0800 612 5448 today for a free consultation if faced with a company voluntary arrangement rejection.

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