I am worried about the creditors' meeting for my company's CVA. What should I do to prepare and what is likely to happen? Will anyone attend?
The meeting is chaired by the advisor or an insolvency practitioner (IP). Creditors are sometimes represented by professionals from other insolvency firms if the debt is substantial. The aim of the meeting is to allow the creditors to question the director's proposals; however it is NOT a place for settling disputes. The creditors meetings are normally held via video conferencing unless 10% or more of the creditors wish it to be held at a physical location.
At the meeting, the creditors will vote on the proposed restructure of the company debts. If there is a majority vote of 75% by value of the total value of unsecured creditors at the meeting (whether in person or by proxy) vote in favour. A second vote, not including connected creditors, is taken and provided that not more than 50% of unsecured creditors vote against the proposal, it is approved. Remember that the bank or other secured creditors are not affected by this process. For an example of votes at a creditors meeting click here
Directors often worry about the creditors meeting.
However, if the work has been done thoroughly and all the creditors are thoroughly informed of what is happening before the CVA is filed at court, then there is no reason for concern.
In practice, it is rare for creditors to turn up. Instead, if they want to vote yes, they are more likely to send in a proxy. In our CVAs, the Voluntary Arrangement Service (VAS) which represents HMRC, will generally be supportive of viable proposals that are well built and show proper care with attention to detail. Given that the VAS often represents the largest votes, then we ensure they are comfortable with the CVA process very early in the cycle of events. However, VAS need to be confident that you are going to comply with your obligations. Therefore a poor record of filing returns on time and indeed even late filing of director's Self Assessment for tax will dent that confidence. Proper communication with creditors is a vital part of KSA's strategy for helping you build a CVA deal.
- The chairman controls the ability to vote, and provided creditors have been asked to consider a sensibly structured deal, almost all proposals are accepted by creditors.The creditors may wish to modify the proposal - once again, the modifications need to be approved by the majority votes (see above).This is often done by HMRC to ensure future debts are paid on time and future filing of tax returns is done correctly. Occasionally, other creditors may ask for a modification to the proposal.
- At the same time as the creditors meeting, the members (shareholders) meeting is held. Members decide whether to accept the proposal as made or modified and a vote of 50% in favour is required.
- If both meetings approve the proposal, the meetings close. The chairman must then issue a chairman's report, within 4 days, to all creditors and the court, stating what happened, who voted and how they voted.
What happens next?
Get on, run the business and make some money. Remember that once the company is in a CVA, the directors have to make it work and keep up any payments to creditors. Two or more failures to pay the dividend will deem the arrangement to be a failure and the company will be wound up. If you are having any problems meeting the payments or there is a change in your circumstances, let the supervisor know as soon as possible. Another creditors meeting could be held with further modifications being put to creditors but be warned they are likely to be less accommodating second time round.
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Please note that the guide includes updates due to Covid-19 For instance there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.