PART 5 - Company Voluntary Arrangements
PART 5 - Company Voluntary Arrangements
This Part is divided into five sections as follows:-
Section 1 - Introduction and the proposal (paragraphs 56.1205 to 56.216).
Section 2 - Moratorium where directors propose voluntary arrangement (paragraphs 56.217 to 56.231).
Section 3 - Meetings for the approval of the proposal (paragraphs 56.232 to 56.240).
Section 4 - The CVA (paragraphs 56.241 to 56.248).
Section 5 - The conclusion of the CVA (paragraphs 56.249 to 56.255).
Abbreviations used in this part of the Chapter are:
CVA - Company voluntary arrangement
IA2000 - Insolvency Act 2000.
Section 1 - Introduction And The Proposal
Section 1 - Introduction And The Proposal
(amended March 2011)
A CVA involves a legally binding agreement in satisfaction of a company’s debts or a scheme of arrangement of its affairs. This may involve restructuring, delayed or reduced payment of debts, or an orderly disposal of assets. The proposal is put to creditors at meeting(s) and, if approved, its implementation is supervised by a qualified insolvency practitioner or other authorised person. The procedure was introduced in the Insolvency Act 1986 as a simpler alternative to the Companies Act 1985 scheme of arrangement provisions (see Part 4 of this chapter).
The CVA procedure is set out in Part I of the Insolvency Act 1986 and Part 1 of the Insolvency Rules 1986, as amended by IA 2000 and the Insolvency (Amendment)(No.2) Rules 2002 respectively. These amendments came into force on 1 January 2003. The IA2000 effected some general reforms and also introduced, for small companies, an option of a short moratorium into the CVA procedure (see paragraphs 56.217 to 5.231).
Further amendments were made by The Legislative Reform (Insolvency) (Miscellaneous Provisions) Order 2010 (LRO 2010) and the Insolvency (Amendment) Rules 2010 (IAR 2010) which both became effective on 6 April 2010.
Notes: [IA 2000][IA 2000][The Insolvency (Amendment)(No.2) Rules 2002 SI 2002/2712][LRO 2010 SI 2010/18][IAR2010 SI 2010/686]
56.206 Transitional Provisions
The general CVA reform provisions do not apply to cases where certain preliminary steps in the CVA procedure were taken before 1 January 2003.Notes: [The IA2000 (Commencement No 3 and Transitional Provisions) Order 2002 SI 2002/2711]
Both corporate and individual partners may enter into voluntary arrangements. The provisions contained in Part I of, and Schedule A1 to, the Act apply to insolvent partnerships, with certain modifications. These are set out in Schedule 1 to the Insolvent Partnerships Order 1994 as substituted by the Insolvent Partnerships (Amendment) (No 2) Order 2002. The arrangement should provide for both partnership creditors and the individuals’ creditors (see Chapter 53 - Partnerships).Notes: [The Insolvent Partnerships Order 1994] [The Insolvent Partnerships (Amendment) (No.2) Order 2002 SI 2002/2708]
56.208 Official receiver’s involvement in CVAs
Guidance and further details on the official receiver’s role in voluntary arrangements is given in Chapter 20 of this manual.
56.209 Who may propose an arrangement
A proposal to the company and its creditors for a composition in satisfaction of its debts or a scheme of arrangement of its affairs may be proposed by:
56.210 The nominee
The proposal must provide for a nominee to act as trustee or otherwise for the purposes of supervising the implementation of the CVA. The nominee must be either a qualified insolvency practitioner or a person who is authorised to act as nominee in relation to the CVA (i.e. is a member of a body recognised for this purpose by the Secretary of State).
In the majority of cases where the administrator or liquidator is proposing the CVA he will also be the nominee. In practice the nominee is also likely to become the supervisor of the CVA.
Notes: [s1(2)] [s389A]
56.211 Procedures to be followed
The initial procedure to be followed in relation to the proposed CVA where no steps are being taken by the directors of the company to seek a moratorium is set out in the remainder of this part. For the procedure where a moratorium is being obtained see Section 2 (paragraphs 56.217 to 56.231).
56.212 Contents of the proposal
(amended March 2011)
The directors’ proposal must provide a short explanation of why a CVA is desirable, and give reasons why the company’s creditors may be expected to concur with the CVA. It should also give full details of the company’s assets and liabilities and how they are to be dealt with within the CVA, the expected duration of the CVA, how the supervisor’s remuneration will be paid and other prescribed matters.
Where the proposer of the CVA is the administrator or liquidator, the proposal should, in addition to those matters covered by Rule 1.3, contain details of the preferential creditors and any other matters that the insolvency practitioner considers appropriate.
Notes: [r1.3 as amended by IAR 2010][r1.10 as amended by IAR 2010] [r1.12]
56.213 Rights of secured and preferential creditors
A proposal may not affect the right of any secured creditor to enforce his security, except with the concurrence of that creditor, and the position of preferential creditors, as regards both their priority and their right to rank equally with each other, is similarly protected. Where a creditor such as a landlord is bound by a CVA, his proprietary rights, such as a right of re-entry, are unaffected by the CVA (Razzaq v Pala  BCC 66). This contrasts with the position in a case where a moratorium is in effect to allow a CVA to be considered (see paragraph 56.217).Notes: [s4(3) & (4)]
56.214 Notice to the nominee
(amended March 2011)
The directors must give the nominee written notice of the proposal (including a copy of it) and at the same time deliver to him a statement of the company’s affairs. In the case of a proposal by an administrator or liquidator who is not himself the nominee, the same procedure must be followed.
If the nominee agrees to act he must endorse the notice to the effect that it has been received by him on a specified date and forthwith return it to the proposer. The period of 28 days to submit a report to court (see paragraph 56.215) runs from the date of the endorsement.
Notes: [r1.4, r1.12(1)] [r1.5 as amended by IAR 2010, r1.12(5)][r1.4(3)]
56.215 Report to court
Where the nominee is not the administrator or liquidator of the company he must, within 28 days of receiving notice of the proposal, submit a report to the court stating whether, in his opinion, the proposed CVA has a reasonable prospect of being approved and implemented and, if so, when and where he proposes calling meetings of the company and its creditors. If he forms the opinion that such meetings should not be called, he should also report this to the court. In such a case there is, however, nothing to stop the proposer seeking a second opinion from another insolvency practitioner or authorised person and seeking to have the nominee replaced.
The nominee will be reliant on the information provided by the proposer and to assist him in forming his opinion he may call on the directors, administrator or liquidator to provide any further information he thinks necessary. He can also require access to the company’s accounts and records.
It is an offence for directors to seek to obtain a CVA by making false representations or by any fraudulent action.
Notes: [s2 r1.7] [r1.6] [s6A]
56.216 Summoning of meetings
(amended March 2011)
Where the nominee is the administrator or liquidator of the company he may summon meetings of the company and its creditors as soon as he has prepared his proposals, without reference to the court. In all other cases the nominee must summon meetings for a date not more than 28 days from that on which his report (as in paragraph 56.215) is filed at court.
Notes: [s3, r1.9 as amended by IAR 2010]
Section 2 - Moratorium
Section 2 - MoratoriumWhere Directors Propose Voluntary Arrangement
56.217 The moratorium
A moratorium is a temporary stay on certain legal acts and processes being performed or continued.
The IA2000 introduced into the Insolvency Act 1986 a new procedure to enable a small company (within the meaning of section 247 of the Companies Act 1985 – now section 382 of the Companies Act 2006) to obtain an initial moratorium where a CVA under Part I of the Insolvency Act 1986 is proposed. The new provisions are to be found principally in a new Schedule A1 to the 1986 Act and in amendments to the Insolvency Rules 1986.
A moratorium provides a breathing space to allow the directors of a company time to put the CVA proposals to creditors. It prevents the company’s creditors from proceeding against the company during the relevant period, whilst allowing the directors to remain largely in control of the company and its business.
The moratorium is obtained by filing certain documents at court (see paragraph 56.219) without the need for a court hearing.
Notes: [schedule A1] [IA2000][CA 06 s 382]
56.218 Companies excluded from obtaining a moratorium
The criteria for eligibility for a moratorium are set out in detail in paragraphs 2, 3 and 4(a) to 4(g) of Schedule A1. These provisions exclude not only companies which are not small companies within the meaning of the Companies Act 2006 but also certain companies involved in insurance, banking and other financial market or project finance activities and companies with a liability of £10 million or more under an agreement that forms part of a capital market arrangement.
A company is also ineligible where it is already in administration, liquidation (including provisional liquidation) or administrative receivership as these procedures provide their own protection from the actions of creditors. In addition, the option of a moratorium is not available where a company currently has a CVA in effect or has already had a moratorium in the previous 12 months and the proposed CVA did not come into effect or ended prematurely.
Notes: [Schedule A1 paragraph 2, 3 and 4(a) to 4(g)]
56.219 Obtaining a moratorium
Where the directors of a company wish to obtain a moratorium they must submit to the nominee (see paragraph 56.210) a document setting out the terms of the proposed CVA and a statement of the company’s affairs. The content of these documents is almost exactly the same as in the case of a CVA without a moratorium (see paragraphs 56.211 to 56.213). The directors are also required to supply any other information the nominee needs to enable him to assess the viability of the proposal. It is an offence to seek to obtain a moratorium by making false representations.
The nominee will in return submit to the directors a statement of his opinion as to whether the proposed CVA has a reasonable prospect of being approved and implemented; whether the company has sufficient funds to carry on its business during the proposed moratorium; and whether meetings of the company and its creditors should be called to consider the proposed CVA.
To obtain a moratorium the directors must file the following at court:
The moratorium comes into force when the above documents (for which there are prescribed forms) are filed at court.
Notes: [Schedule A1 paragraph 6(1)] [r1.35, r1.37] [Schedule A1 paragraph 42)][Schedule A1 paragraph 6(2)][r1.38][Schedule A1 paragraph 7][r1.39][r1.37]
56.220 Notice and advertising of the beginning of a moratorium
(amended March 2011)
The directors must immediately notify the nominee of the commencement of the moratorium. The nominee must then advertise the coming into effect of the moratorium by notice in the London Gazette. The nominee may also advertise the moratorium in such other manner as he/she thinks fit.
He must also give direct notice to:
Notes: [Schedule A1 paragraphs 8, 9 and 10] [r1.40 as amended by IAR 2010]
56.221 Summoning of meetings
Once the moratorium comes into effect the nominee must call meetings of the company and its creditors to consider the CVA proposal. Those meetings must be held within 28 days from the commencement of the moratorium.Notes: [Schedule A1] [paragraphs 8 and 29]
56.222 Duration of the moratorium
The moratorium ends when the meetings of the company and its creditors are first held, unless those meetings resolve that they be adjourned (or further adjourned) and the moratorium extended (or further extended) (see paragraph 56.225). If those meetings do not take place before the end of the 28 day period the moratorium will come to an end either on the day on which they were to have been held or if the nominee fails to summon the meetings within the 28 day period, on the last day of that period. The moratorium will also come to an end if the nominee withdraws his consent to act, the court orders it to end following a challenge of the nominee’s or directors’ actions, or the meetings decide it should end.Notes: [Schedule A1] [paragraphs 8, 25, 26, 27, 32, 40] [r1.48(1)]
56.223 Notice and advertising of the end of a moratorium
(amended March 2011)
After the moratorium comes to an end the nominee must give notice, specifying the date on which it came to an end, to:
and advertise its coming to an end in the London Gazette. The nominee may also advertise the notice in such other manner as he/she thinks fit.
Notes: [Schedule A1] paragraphs 11] [r1.42 as amended by IAR 2010]
56.224 Conduct of meetings
The rules for the conduct and business of the meetings of creditors and members summoned under paragraph 29 of Schedule A1 (see paragraph 56.221) mirror those for CVAs without a moratorium and are discussed in Section 3 (paragraphs 56.232 to 56.240).
56.225 Meeting can extend the moratorium
Meetings of creditors and members summoned under paragraph 29 of Schedule A1 which resolve that they be adjourned may also resolve that the moratorium be extended for up to two months from the date on which the meetings of the company and its creditors were first held. If the meetings are held on different days the period of the extension runs from the day on which the later of the two meetings was held. Notice of the extension must be given to the Registrar of Companies and the court.Notes: [Schedule A1 paragraphs 32, 34 and 36] [r1.41]
56.226 The moratorium committee
Meetings summoned under paragraph 29 of Schedule A1 that resolve that the moratorium be extended can, with the consent of the nominee, establish a committee to exercise the functions conferred upon it by the meetings. The committee ceases to exist when the moratorium comes to an end.
Note: [Schedule A1 paragraph 35]
56.227 Effectiveness of decisions
The decisions referred to in paragraphs 56.221, 56.225 and 56.226 to extend the moratorium, bring it to an end or establish a committee, will have effect if approved either by both meetings summoned under paragraph 29 or by the creditors’ meeting alone. Any resolution to extend or bring an end to the moratorium requires a majority in excess of three-quarters in value of the creditors present in person or by proxy and voting on the resolution.Notes: [Schedule A1 paragraph 36] [r1.52(3)]
56.228 Effect of moratorium on creditors
(amended March 2011)
During the period the moratorium is in force the company is protected as follows:-
Note: [Schedule A1 paragraph 12][Schedule A1 paragraph 13 and 43][s233]
56.229 Effect of moratorium on company
For the protection of creditors certain restrictions or other provisions apply to the directors’ conduct of the business during the moratorium. In particular:-
If a company enters into any of the prohibited transactions referred to above, the transaction in question is not rendered unenforceable but the company is liable to a fine and a director who permitted it without reasonable excuse may incur sanctions.
Note: [Schedule A1 paragraph 16][Schedule A1 paragraph 17][Schedule A1 paragraph 18][Schedule A1 paragraph 19][Schedule A1 paragraphs 20 to 22][Schedule A1 paragraphs 15 to 23]
56.230 Challenge of director’s actions and offences
A creditor or member of the company (or in relevant cases, the administrator or the liquidator) may apply to the court on the grounds that the directors’ management of the company’s affairs during the moratorium has been unfairly prejudicial to the interests of some or all of the creditors or members. The court may make any order on the application it thinks fit, including an order regulating the management of the company’s affairs for the remainder of the moratorium or prohibiting particular actions by the directors.
In addition, some actions by directors or shadow directors (e.g. concealing company property to the value of £500 or more) during the moratorium or within the 12 months preceding it may be criminal offences.
Notes: [Schedule A1 paragraph 40][Schedule A1 paragraph 41]
56.231 Conduct by nominee
As protection for creditors, the nominee is required to monitor the company’s affairs during the moratorium. He must withdraw his consent to act if at any time he forms the opinion that the proposed arrangement no longer has a reasonable prospect of being approved or that the company does not have sufficient funds to carry on its business during the moratorium. If he withdraws his consent to act the moratorium ends and he is required to give notice to, amongst others, the court, the company and any creditor of whose claim he is aware.
If dissatisfied with any of the actions of the nominee during the moratorium any creditor, director or member or anyone affected by the moratorium can apply to the court which can make any order it thinks fit to deal with the problem. A nominee can also be replaced by the court.
Notes: [Schedule A1 paragraphs 24 and 25] [r1.44][Schedule A1 paragraphs 26, 27 and 28][r1.45, r1.47]
Section 3 - Meetings For The Approval Of The Proposal
56.232 Time and Place of the meetings
(amended March 2011)
The meetings, of creditors and the company, may be held on the same day or different days but, if the latter, must be held within 5 business days of each other. They must be held between 10.00am and 4.00pm with the creditors’ meeting being held first, unless the chairman thinks that the meetings should be held together. The venue of the meetings must be fixed having regard, primarily, to the convenience of creditors and where the meetings are on the same day they must be held at the same place. The chairman of the meeting must be the nominee.
Notes: [r1.13(2),(3) & (4) as amended by IAR 2010] [r1.48(5)] [r1.21, r1.53(2) - (5)] [r1.13(1)] [r1.14 as amended by IAR 2010]
56.233 Business of the meetings
The meetings may accept, reject or modify a proposal but must not include any modifications by which a proposal ceases to be a composition in satisfaction of the company’s debts or a scheme of arrangement of its affairs.Notes: [Schedule A1 paragraph 31]
56.234 Entitlement to vote (creditors)
Subject to the exceptions mentioned below, every creditor who has notice of the creditors’ meeting is entitled to vote at the meeting. Creditors vote according to the value of their debts at the date of the meeting or, if applicable, the date of the beginning of the moratorium (less any subsequent repayment) or the date of the company going into liquidation or administration.
For voting purposes only a creditor with a claim which is unliquidated or the value of which is not ascertained will have his debt valued at £1 unless the chairman agrees to put a higher value on it. It is not necessary for there to be agreement between the chairman and the creditor. The chairman can decide what value to put on the claim and the creditor can apply to the court in accordance with rule 1.17A or rule 1.50 (see paragraph 56.207) if he disputes the chairman’s decision. (Re: Doorbar v Alltime Securities Limited  BCC 1149).
Secured creditors vote according to the value of their debts but are only admitted to the extent that their claim exceeds the value of the security.
Members vote according to the rights attached to their shares in the articles of association.Notes: [r1.17(2), r1.49(2)][r1.17(3), r1.49(3)][r1.19(3), r1.52(4)]Entitlement to vote (members)[r1.18, r1.51]
56.235 Chairman’s discretion
The chairman has the power to admit or reject any creditor’s claim, in whole or in part, for voting purposes. Where he is unsure whether a claim should be admitted or rejected he may allow the creditor to vote but mark it as objected to. If the objection is sustained that vote may be declared invalid. Any creditor or member may apply to the court, within 28 days of the chairman’s report being filed, for the decision of the chairman to admit a claim for voting purposes to be reviewed. If on appeal the chairman’s decision is reversed or varied or votes are declared invalid the court may order that another meeting be summoned or make any other such order as it sees fit.Notes: [r1.17A, r1.50]
56.236 Attendance by company officers
(amended March 2011)
The nominee may require any director or officer of the company to attend the meetings by giving them 14 days’ notice of the meeting. The chairman has the right to exclude the directors or other officers from the meetings regardless of whether the nominee has required them to attend.
Notes: [r1.16 as amended by IAR 2010, r1.48(5)]
56.237 Required majorities
(amended March 2011)
The approval or modification of a proposal at a creditors’ meeting requires a majority of three-quarters or more in value of the creditors present in person or by proxy and voting on the resolution. Any other resolution proposed at the meeting requires a majority in value of those creditors.
Creditors’ votes in respect of a claim where written notice of the claim was not given either at or before the meeting and in respect of secured claims or certain debts arising out of promissory notes or bills of exchange are left out of account. Where those voting against a resolution include more than half in value of the creditors to whom notice was sent, excluding those whose votes are left out of account and connected persons (e.g. directors and associated companies) the resolution will be invalid.
At a members’ meeting, subject to any express provisions to the contrary in a company’s articles of association, a resolution is passed by a majority of more than one half in value of the members present in person or by proxy and voting on the resolution.
Notes: [r1.19, r1.52 both as amended by IAR 2010][r1.20, r1.53(1)]
56.238 Where creditors and members wishes are different
A CVA will have effect if approved by the creditors, notwithstanding that the members did not vote in favour of it. However if the decision taken by the creditors’ meeting differs from that taken by the members’ meeting, a member of the company may apply to the court, within 28 days of the creditors’ meeting. The court may order that the members’ meeting decision has effect or make any other such order as it thinks fit.Notes: [s4A] [Schedule A1 paragraph 36]
56.239 Report of outcome of meetings
(amended March 2011)
The chairman of the meetings must report the outcome of the meetings to the court within 4 business days of their conclusion and notify the result of each meeting to all persons who were sent notice of that meeting. If a proposal has effect (see paragraph 56.238), the supervisor must send a copy of the chairman’s report(s) to the Registrar of Companies.
Notes: [s4(6), r1.24 as amended by IAR 2010] [Schedule A1 paragraph 30(3), r1.54]
56.240 Challenge of CVA
The approval of a CVA may be challenged. The grounds for challenge are either that the CVA unfairly prejudices the interests of a creditor, member or contributory of the company or that there has been a material irregularity at or in relation to one of the meetings. With some limited exceptions the time limit for bringing an application is 28 days beginning with the first day on which each of the reports of the results of the meetings was made to the court (paragraph 56.239). Where the court is satisfied that one of the grounds is made out it can revoke or suspend any decision approving the arrangement, or direct the summoning of further meetings, as well as giving supplemental directions.
The application to challenge the CVA may be made by:
Notes: [s6, r1.25] [Schedule A1 paragraph 38]
Section 4 - The CVA
Section 4 - The CVA
56.241 Effective date
If a proposed CVA has effect (i.e. is approved, (with or without amendments) either by both meetings or my the creditors’ meeting alone) it is deemed to be in force and effective from the date of the creditors’ meeting.Notes: [s4A, s5(2)] [Schedule A1 paragraphs 36 and 37]
56.242 Effect of approval of the CVA
(amended March 2011)
When a CVA takes effect, the nominee becomes the supervisor of the scheme and supervises its implementation. He may apply to the court for directions in relation to any matter arising under the CVA.
Where the company is being wound up or is in administration, the court may stay the winding up proceedings or provide that the appointment of the administrator cease to have effect and/or give such directions as it thinks appropriate for the future conduct of the winding up or administration. Where the official receiver is liquidator of the company he should seek to have the winding up proceedings stayed as soon as possible after the period, during which a challenge to the CVA may be made, has expired (28 days, see paragraph 56.240).
Further information on the procedure for and effect of a stay of the liquidation are given in Chapter 6 Appeals, stays and rescissions, part 5 .
In the case of a company for which a moratorium was in force, any petition for the winding up of the company other than an excepted petition, presented before the beginning of the moratorium, must be dismissed by the court.
Notes: [s7] [Schedule A1 paragraph 39][s5(3)][Schedule A1 paragraph 37(4) and paragraph 12]
56.243 CVA binding on all creditors
When a CVA has effect, it binds not only every person who was entitled to vote at the meeting but also every person who would have been so entitled if they had had notice of it (so that unknown creditors are also bound).Notes: [s5, Schedule A1 paragraph 37]
56.244 Hand-over of property to the supervisor
On the CVA coming into effect, the directors, liquidator or administrator must do all that is required for putting the supervisor into possession of the assets included in the CVA.Notes: [r1.23(1), r1.54(1)]
56.245 Duties of the supervisor
(amended March 2011)
Where the company is in liquidation or administration the supervisor must, out of the assets in his possession, discharge any balance due to the liquidator or administrator for remuneration, costs, fees and expenses properly incurred and payable under the Act and Rules and any advances made in respect of the company, or give a written undertaking to discharge that balance out of the first realisation of assets.
The supervisor must keep records and accounts, which may be inspected by the Secretary of State. The supervisor must in respect of each period of 12 months from the commencement of the arrangement, issue a report on the progress of the CVA, including an abstract of receipts and payments. Within 2 months from the end of the period the progress report must be sent to the Registrar of Companies, the company, all creditors bound by the CVA, members of the company bound by the CVA and, if the company is not in liquidation, its auditors. In a CVA where the nominee agreed to act before 6 April 2010 a copy of the report must also be sent to the court.
The supervisor may also consider any transactions which were undertaken at an undervalue and may apply to the court for an order restoring the company to the position it would have been in if the transaction had not been entered into.
Notes: [r1.23(2) & (3)][r1.27][r1.26A, r1.54(2)][s423 and s424(1)(b)]
56.245A Electronic communication and use of websites
With effect from 6 April 2010, where a nominee or supervisor is required by the Act or the Rules to give, send or deliver any notice or document he/she may use electronic means to do so provided that the intended recipient has consented to such delivery and provided an electronic address for this. A supervisor could, for example, issue the progress report by electronic means. Any document delivered by the nominee or supervisor electronically must contain a statement that a hard copy may be requested and give contact details for making such a request.
The nominee or supervisor may also satisfy his/her statutory requirement to give, deliver or send a notice or document by making the information available for viewing or downloading on a website. The office-holder must notify creditors of the website address and any required password. Again creditors must be advised of their right to request a hard copy and be given contact details for making such a request. Information placed on a website by the nominee or supervisor must remain available for a period of at least 3 months from the date of the notice.
56.246 Prosecution of officers
Nominees and supervisors are under a duty to report to the Secretary of State any case where they suspect the directors of committing any criminal offences in connection with a moratorium or CVA.Notes: [s7A]
56.247 Action by dissatisfied parties
If any of the company’s creditors or any other person is dissatisfied by any act, omission or decision of the supervisor, he may apply to the court which may make an order confirming, reversing or modifying that decision or any other such order as it thinks fit.Notes: [s7(3)] [Schedule A1 paragraphs 39(3) and (4)]
56.248 Application for directions
The supervisor may apply to the court for directions in relation to any particular matter arising under the CVA.Notes: [s7(4)] [Schedule A1 paragraph 39(5)]
Section 5 - The Conclusion Of The CVA
56.249 Completion of CVA
Not more than 28 days after the final completion or termination of the CVA, the supervisor must give notice that the CVA has been fully implemented or terminated and submit a final report to all creditors and members bound by the CVA. The report which should include a summary of receipts and payments and an explanation of any difference in the actual implementation of the CVA as compared with the proposal. In the case of a termination, the report should also state the reasons for the termination. A copy of the notice and report should also be sent to the court and to the Registrar of Companies. The supervisor does not vacate office until such copies have been sent.Notes: [r1.29]
56.250 Winding up after CVA -Supervisor’s petition
The supervisor has the right to petition for the winding up of the company or apply for an administration order in relation to it. This gives supervisor some means of redress when faced with a defaulting debtor/promisor under a CVA.Notes: [s7(4)(b)] [Schedule A1 paragraph 39(5)]
56.251 Effect of winding up after CVA
The position where a winding up follows a CVA was clarified by the Court of Appeal in the case of re NT Gallagher & Son Ltd  3 All ER 474. The court summarised its findings as follows.
The court also made clear that in its view the question of who presented the petition or what form the winding up took (compulsory or voluntary) was immaterial in determining the effect of liquidation.
56.252 Winding up after CVA -voluntary liquidation
The members of the company can resolve to wind up the company notwithstanding the CVA even though they may have broken the agreement by so doing (Re: Arthur Rathbone Kitchens Limited  BPIR 1).Notes: [s84]
When a winding-up order intervenes before the completion of a CVA, the official receiver should obtain from the supervisor a copy of the CVA proposal agreed by creditors, a copy of the statement of affairs, details of the realised and unrealised assets and any other information which might assist in his enquiries and in the protection of assets. The official receiver should establish the basis on which the supervisor holds any assets of the company. In particular the official receiver needs to establish whether the arrangement contains any provisions in accordance with which the assets are held on trust for creditors who are bound by the CVA and, if so, whether that trust survives the making of the winding-up order.
Under rule 1.3(2)(l) the CVA can provide for the way in which assets are to be dealt with on the termination of the CVA. The effect of liquidation (either voluntary or compulsory) on any trust created by a CVA will depend on the terms of the CVA (see paragraph 56.223). Any provision in the CVA for what is to happen on liquidation should be followed by the official receiver as liquidator.
Where there is no provision in the CVA for what is to happen in those situations, the Court of Appeal in Re: NT Gallagher & Son Limited (see paragraph 56.251) held that any trust created by the CVA will continue despite the liquidation. The official receiver should notify the supervisor of his conclusion regarding any trust as soon as practical in the expectation that the position will be agreed between them.
Where an asset is held on trust under the terms of the CVA, the asset will remain vested in the company. As, generally speaking, on the making of the winding-up order, the liquidator is the only person who can act for the company, it will fall to the official receiver as liquidator (or any insolvency practitioner that replaces him in that capacity) to realise assets held on trust by the company for the benefit of the CVA creditors. This might necessitate some liaison with the supervisor of the CVA. The official receiver should follow general guidance in dealing with these assets but with appropriate modification. For example, when considering chapter 31.9 of the Technical Manual in dealing with rights of action, if it is necessary to seek the views of the creditors or to seek additional funding to deal with a right of action, then only the creditors under the CVA should be contacted, as they would be the beneficiaries if any action were to be successful, post-CVA creditors not having a direct interest in the realisation, at least initially.
Usually the CVA creditors can prove for so much of their debt as remains after payment of what has been or will be recovered from the monies or assets held on trust.
The court may appoint the supervisor in office at the date of the winding-up order as liquidator of the company. In these circumstances, the official receiver is still obliged to comply with his statutory duty to gazette the order and to provide information to creditors and contributories but not to hold first meetings. It is the liquidator’s duty to issue forms of proof of debt to the creditors.
Note: [r1.3(2)(I)][s140 (2) and (3)]
56.254 Expenses of CVA
Where a winding-up order is made against a company which is subject to a CVA any unpaid expenses properly incurred during the administration of the CVA, including fees, costs, charges and expenses (which includes the supervisor’s remuneration), are to be paid as a first charge out of the company’s assets. However, if the company’s assets are subject to a fixed charge, the supervisor’s unpaid expenses will rank after any charge which was created as a fixed charge by the company. Where despite the liquidation the supervisor retains assets on trust (see paragraph 56.251) the expenses of the CVA are discharged first from the funds so held.Notes: [r4.21A]
56.255 Disqualification and prosecution
Where the winding-up order follows a failed CVA the official receiver retains his obligation to report on the conduct of the directors under the Company Directors Disqualification Act 1986 and to investigate the possibility that offences might have been committed, including offences connected with the proposal and the CVA.
Notes: [Company Directors Disqualification Act 1986 s6]
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