A snapshot of company voluntary arrangements: Success, failure and proposals for reform

• Date: 01 June 2020
• Published date: 01 June 2020
• Author: Lézelle Jacobs,Chris Umfreville,Peter Walton
• DOI: http://doi.org/10.1002/iir.1381

RESEARCH ARTICLE

A snapshot of company voluntary

arrangements: Success, failure and proposals

for reform

Peter Walton

1

| Chris Umfreville

2

| Lézelle Jacobs

1,3

1

Wolverhampton Law School, University

of Wolverhampton, Wolverhampton, UK

2

Aston University, Birmingham, UK

3

University of the Free State,

Bloemfontein, South Africa

Correspondence

Peter Walton, Wolverhampton Law

School, University of Wolverhampton,

Wolverhampton, UK.

Email: p.a.walton@wlv.ac.uk

Abstract

Company Voluntary Arrangements (CVAs) are

designed to be used in the UK to rescue a company as a

going concern. They are under used in practice and

have a reputation for high failure rates. This article,

based upon a longer report funded by the UK insol-

vency profession, considers the nature of success or

failure of CVAs. It considers empirical evidence to

identify the weak points of CVAs in practice. It looks at

quantitative data as well as taking into account views

of practitioners and other stakeholders. Key elements

of the CVA procedure are considered in light of recent

national reform proposals and approaches and reforms

internationally. Domestic reforms in the Netherlands

and South Africa are considered to determine whether

any lessons might be learnt from other jurisdictions.

Recommendations are made including changes to the

suggested amendments to the legal framework and to

professional practice guidance.

1|INTRODUCTION

The Company Voluntary Arrangement (“CVA”), introduced by the Insolvency Act 1986, was

born out of the Cork Committee, which in 1982 identified the need for a simple procedure

Received: 27 February 2020 Revised: 15 April 2020 Accepted: 20 May 2020

DOI: 10.1002/iir.1381

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and

reproduction in any medium, provided the original work is properly cited.

© 2020 The Authors. International Insolvency Review published by INSOL International and John Wiley & Sons Ltd

Int Insolv Rev. 2020;29:267–284. wileyonlinelibrary.com/journal/iir 267

where the will of the majority of creditors in agreeing to a debt arrangement could be made

binding on an unwilling minority.

1

Despite the availability of this flexible restructuring tool for

over three decades, the frequency of CVAs is reasonably low when compared with alternative

corporate Insolvency Act 1986 procedures and it has been commented that CVAs have a high

failure rate.

2

The CVA has risen to prominence recently with a number of high-profile cases

drawing media attention and, at times, creditor criticism.

3

It is in this context that the authors were commissioned by R3, the Association of Business

Recovery Professionals, and the ICAEW, to consider the reasons for the “success”or “failure”

of CVAs and investigate the outcomes where CVAs fail. The aim of the project was to identify

key characteristics which will allow practical guidance to be provided to insolvency practi-

tioners (“IPs”) and also inform policy recommendations to Government. This led to the publica-

tion in May 2018 of Company Voluntary Arrangements:Evaluating Success and Failure (“the

Report”).

4

This article represents a summary of the key findings of the Report as presented at

the INSOL International Academic Colloquium in July 2018. The findings and recommenda-

tions of the Report are of continuing importance in light of the continued negative publicity

surrounding CVAs, developments in judicial interpretation and the reform proposals subse-

quently published by the Government in August 2018 (discussed below in Section 7.3) but yet

to be implemented at time of writing.

2|CVA MECHANICS

In order to consider how effective or otherwise CVAs are in practice, it is necessary to under-

stand the legal and procedural rules which govern them. The following is designed to provide

only an outline guide. For more detailed consideration of the law relating to CVAs, readers are

directed to more specialist publications.

5

The Cork Committee identified in 1982 a need for a simple procedure to be introduced,

where the will of the majority of creditors in agreeing to a debt arrangement could be made

binding on an unwilling minority.

6

This gave rise to the CVA. Sections 1–7B of the Insolvency

Act 1986 contain the primary legislation governing CVAs. Part 2 of the Insolvency Rules 2016

7

contains most of the relevant secondary legislation.

It is most commonly the directors of a company who propose a CVA. Where the directors

propose a CVA they must approach an insolvency practitioner to act as nominee. The nomi-

nee's role is to opine on the proposal (and will frequently assist with its drafting in the role of

adviser as distinct from nominee). If the nominee's opinion is that the proposal has “a reason-

able prospect of being approved and implemented”

8

that opinion will be filed at court and the

proposal will be put to the members and creditors of the company. If the unsecured creditors

agree to it by a majority of at least 75% in value of those creditors voting, the CVA becomes

binding upon the company and all the unsecured creditors (even those who voted against the

proposal). Secured creditors are only bound if they agree to be bound. Creditors may apply to

the court if the CVA's terms are unfairly prejudicial or if there was some material irregularity in

the procedure leading up to its approval.

Once approved, the CVA is given effect to under the supervision usually of the nominee

who becomes the supervisor upon the CVA being approved.

9

Its terms are then carried out in

much the same way as any other commercial contract. If all creditors are paid what the CVA

has promised, the CVA will complete. If the company does not satisfy the terms of the CVA, for

example, if it is unable to keep up with monthly payments, the CVA's terms will often have

268 WALTON ET AL.