Company Voluntary Arrangement: Protection

Clearly the directors will need some time to put together sound, well thought out and defensible proposals. 

Although a Company Voluntary Arrangement (CVA) itself does not protect the company from its creditors, at least until the proposals are agreed, certain protections are available.

Firstly the directors (of certain companies only) can apply to the Court for what is known as a Moratorium. This protects the company from its creditors and allows the directors to put a CVA together.

Secondly the directors can obtain an Administration Order that has much the same effect.

Once a majority of creditors (and members) have approved the CVA proposals at a meeting, all creditors who have been notified of the CVA will be bound by it and unable to take separate action to enforce their debts.

This means that it is very important to make sure that all creditors have been notified even if they have not agreed to the CVA since they could otherwise take precipitate action.

Secured creditors retain their security and so it will be important to ensure that important secured creditors who could terminate their agreements with the company in the event of a CVA have been approached and agree to support the CVA proposals. Landlords who could forfeit leases are particularly important as are providers of lease finance etc.

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