CVAs – What are Creditor’s Rights?

There is no denying that it is tough out there for many UK businesses.

The cost-of-living crisis has meant households have less income and this has led to many well-known brands permanently closing their doors over the past 12 months. Here at Askews Legal LLP , we’ve seen many firms seeking guidance around CVAs. What is a CVA?

Company Voluntary Arrangements (CVAs) provide companies in financial distress a way to avoid insolvency. For some creditors, however, they can result in their interests being unfairly prejudiced. One of the main objectors to the increasing use of CVAs are commercial property landlords.

Creditors have several rights when a debtor proposes a CVA. They need to ensure they attend relevant meetings and table their concerns/objections firmly.

CVAs are governed by the Insolvency Act 1986. It is a formal agreement and often involves the company rescheduling or reducing its debts, for example, only paying a portion of what it owes to its creditors.

No legal proceedings can be brought against a company with a CVA in place.

How are CVAs created?

For a CVA to be an option, a company must be insolvent or face a real risk of insolvency. The implementation of a CVA is normally suggested by the company’s directors. An insolvency practitioner is appointed to help them with the process. Once the CVA is approved by 75% of the company’s creditors, there is a limited period in which a creditor can challenge it on the grounds of either unfair prejudice or material irregularity.

Once the CVA is in place, all creditors are legally bound by it and will be repaid under the terms of the agreement.

Can a creditor challenge a CVA?

A CVA can be challenged in court on the grounds of unfair prejudice or material irregularity within 28 days of it being approved by creditors, or, in the case of a creditor who was not given notice of the proposed CVA decision process, within 28 days of the day on which the creditor became aware of the decision process occurring. A creditor who was not told of the CVA process may challenge the CVA on the ground of unfair prejudice after the CVA ends provided it was not terminated prematurely.