Voluntary Arrangements Types of Arrangement:
- Individual IVA (Alternative to Bankruptcy)
- Company CVA (Alternative to Liquidation)
- Partnership PVA (Cross between IVA/CVA for partnership)
General points common to all types:
- Creditor approval required
~ Generally 75% by value of those who chose to vote
~ Special rules for connected or associated parties
~ Creditors meeting held on minimum 14 days notice
- Agreement is a binding contract between all the creditors and the Debtor
- Agreements are filed at Court and at Companies House (for companies)
- A formal document is required setting out the terms of the proposal including what happens if things do not happen as expected
- The Proposal needs a Licensed Insolvency Practitioner to act as Nominee and then become the scheme Supervisor
- Creditors can propose amendments to the proposal at the creditors meeting
Court protection
Once a proposal is filed at Court, an Interim Order may be applied for (in the case of IVAs) to stay all other proceedings until the Creditors meeting to consider the proposal has been held.
Companies can enjoy the same protection by applying for a Moratorium. However, depending on the circumstances, we have found that a Moratorium is not a prerequisite for getting a CVA agreed.
What are the commercial terms of a Voluntary Arrangement?
- There are no rules – provided the creditors agree to it
- Generally, the creditors should be better off than the alternative formal procedure
- Schemes usually last upto 3 years or in some cases 5 years
- Common commercial terms can include any or all of -
- A fixed monthly payment scheme
- Sale of assets (often a matrimonial home)
- The introduction of new money from a third party (often a spouse or family member)
- Sale of the business
What problems does a Voluntary Arrangement not deal with?
- It will not affect the rights of any secured creditors (without their express consent) – eg Mortgagees, creditors holding charges etc
- It will not affect the terms of any lease or landlord and tenant relationship
- The Supervisor cannot disclaim onerous property
If any of these points are relevant to you, the Licensed Insolvency Practitioner will need to discuss the position with the creditor before finalising your scheme for consideration by the whole of your creditors.
Key Benefits of a Voluntary Arrangement
- Enable the debtor to continue in business with a view to improving the position of the creditors
- Professional people (Lawyers, Accountants, Architects etc) are usually able to retain their professional qualification, provided that they follow the ethical rules of their Institute
- Directors are allowed to remain as such
- The Directors Disqualification Act does not apply to Voluntary Arrangement situations
- Greater flexibility allowed to ensure that the return to creditors is maximised
- The matrimonial home need not be sold (which would usually be the case in a Bankruptcy)
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