Company voluntary arrangements

April 2004

20.5 General

The company voluntary arrangement (CVA) procedure is set out in the Insolvency Act 1986, Part I as amended by IA2000 and the Insolvency Rules 1986, Part 1 as amended (most recently by IAR 2010) .The IA2000 effected some general reforms and also introduced, for small companies, an option of a short moratorium into the CVA procedure. Full details of the CVA procedure are set out in Chapter 56, Part 5.

20.6 Official receivers role where winding up order made before completion of the CVA

Where a winding-up order is made, the official receiver should obtain details of any previous arrangement to which the company may have been subject. When a winding-up order intervenes before the completion of a CVA, the official receiver should, as soon as possible, obtain from the supervisor the following:  

  • 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/her 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.



20.7 Dealing with the assets

Under rule 1.3(2) 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 Chapter 56, paragraph 56.253). Any provision in the CVA for what is to happen on liquidation should be followed by the official receiver as liquidator.

Note: [r1.3(2)]

Where there is no provision in the CVA for what is to happen in those situations, the official receiver should follow the decision of the court in NT Gallagher & Son Limited [2002] 3 ALL ER 474 (see Chapter 56, paragraph 56.251 for full details). The Court of Appeal held that any trust created by the CVA will continue notwithstanding the liquidation or failure of the CVA and must take effect according to its terms.

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.


20.8 Appointment by court following voluntary arrangement (amended August 2010)

If a winding-up order is made following a CVA, an insolvency practitioner who is fully aware of the company's circumstances will already be in office and it may be good sense for him/her to be appointed as liquidator at the time the winding-up order is made in order that he can commence the duties of liquidator immediately. Section 140(2) provides that 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 may advertise it if he/she thinks fit. He/she must also provide information to creditors and contributories but is not required to hold first meetings. It is the liquidator’s duty to issue forms of proof of debt to the creditors.

Note: [s140 (2) and (3)] [R4.21(4) and (5)] [R 4.43]


20.9 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 the expenses of the CVA are discharged first from the funds so held.

Notes: [r4.21A]


20.10 Disqualification and prosecution

Where a 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.

Note: [Company Directors Disqualification Act 1986 s6]


20.11 Arrangement following winding-up order

A company may propose a voluntary arrangement after the commencement of compulsory winding up proceedings. The official receiver should not make such a proposal and where a CVA seems viable should seek the appointment of another liquidator to make the proposal and deal with all matters relating to the application. (see Chapter 56, Part 5).


Note: [s1(3)(b), r1.10 - 1.29]


20.12 Stay of proceedings

Where a CVA is approved on identical terms by both meetings summoned under section 3 and a winding-up order has been made against the company by the court, the court may stay the winding-up proceedings and give any directions it thinks appropriate for the future conduct of the winding up.

Note: [s5(3)]


20.13 Assets to be handed over to 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.


20.14 Expenses of the liquidation

The supervisor must, out of the assets in his possession, discharge any balance due to the official receiver or liquidator 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.

Note: [r1.23(2) & (3)]


20.15 Conversion of earlier proceedings into liquidation

A CVA is an insolvency proceeding as defined by the EC Regulation on Insolvency Proceedings 2002 (see Chapter 41, paragraph 41.10). Where the liquidator of the main proceedings considers it to be in the interest of the creditors in those proceedings he may apply to the court for the conversion of any CVA, in relation to the company, in any other member state, to winding up proceedings.

Note: [EC Regulation on Insolvency Proceedings 2002 Article 37]


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