INS10205 - Steps a debtor takes

Companies (CVA)

Companies and partnerships

Company Administration / Administration Order

Company Voluntary Arrangement (CVA)

Companies and partnerships

There is no interim order procedure for companies. When protection from creditors is needed companies may obtain a moratorium, or companies and partnerships can go into administration before putting CVA proposals to their creditors. CVA or PVA proposals may be made by the

• Administrator when a company or partnership is in administration
• Liquidator when the company or partnership is being wound-up
• Partners or company directors acting through an IP as nominee.

Company Administration / Administration Order

Once a company is in administration no proceedings can be taken by any creditor for pre- or post-administration debts without the permission of the Administrator or the Court.

The purpose of an administration under the IA 1986 (as originally enacted) is to achieve one or more of

• The survival of the company or its undertaking
• The approval of a company voluntary arrangement
• The approval of a scheme of arrangement
• A more advantageous realisation of assets.

There is no mechanism for this administrator to distribute realisations hence a need for an exit route such as CVA.

The objectives of an administration under the 1986 Act as revised by Schedule 16 Enterprise Act 2002 are

• The rescue of the company as a going concern
• Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up
• Realising property in order to make a distribution to one or more secured or preferential creditors
• The administrator is obliged to give primacy to rescue measures and is able to distribute directly to creditors with the sanction of the court.

Administrations traditionally have been very costly because of the heavy involvement of the IP and staff in running the company and were only really suitable for very large concerns. The changes introduced in 2003 are aimed at making entry into administration easier, faster and cheaper. They may not reduce ongoing costs.

Whilst in administration the administrator

• May have day to day control of the business and its finances
• Acts as agent for the company
• May take measures to make the business more viable, for example process re- engineering, downsizing, tightening financial and credit controls.

Within eight weeks of the company going into administration, the administrator must send to creditors details of the administrator’s proposals for achieving the objective of the administration. In certain circumstances a creditors’ meeting will be held.

Company Voluntary Arrangement (CVA)

A CVA may be put forward by

• The directors of the company through an IP as nominee or
• A liquidator or administrator.

When the directors put forward a proposal: their nominee must report to the Court whether in the nominee's opinion

• The proposal has a reasonable prospect of succeeding should be considered for approval at separate meetings of the company’s creditors and members
• When the meetings should be held.

Creditors must receive not less than 14 days notice of the meeting, which must be held not more than 28 days from the date of the nominee's report.

When the administrator or liquidator is putting forward the proposal with themselves as nominee

There is no report to Court, they simply have to give 14 days notice to creditors.

If the proposal is approved creditors have appeal rights under Section 6 IA 1986.