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vote in respect of it. There is a further condition that no more than 50% (by value) of any creditors who vote against the proposal (or a modification of it) are creditors who are unconnected with the company.
If the proposal is approved (and this will depend upon whether major creditors, such as HMRC and the landlord(s) can be persuaded to take ‘a hair cut’ on the amount owed to them) it will bind all creditors, even those who did not vote in favour of it.
Once bound by a CVA, a creditor is prevented from taking steps against the company that the terms of the CVA prohibit. Typically these terms will be drafted to prevent the creditor from recovering any debt that falls within the scope of the CVA, other than through an agreed mechanism set out in the CVA.
There is no moratorium in a CVA (which means that actions can be taken against the company, litigation can be started and continued and rights can be enforced), but the CIGA 2020 Moratorium may be used as part of the initial negotiation process with the creditors, to stay actions whilst longer term arrangements to come to an agreement with creditors are being made and agreed upon.
[See ‘Nominee’, ‘Supervisor’, ‘Director’, ‘Moratorium’, ‘HMRC’, ‘Debtor-in- Possession’ and ‘CIGA 2020’.]
Compulsory Liquidation is also known as a ‘Winding-up by the Court’ (WUC).
It is an insolvency procedure that applies to companies (and partnerships) and is started by the filing (or ‘presenting’) of a petition at court normally by a creditor, stating that the company owes a sum of money and that the company cannot pay.
Via a court process it is then decided, the ‘petitioner’ having served the petition and a statement of truth on the respondent company, whether it is appropriate to make a winding-up Order. The most common reason for a winding-up Order is that the company is insolvent, but most of the petitions presented are by unpaid creditors who have run out of options to request or force a company to pay them an amount owed.
Once the winding-up Order is made the date of commencement of the Compulsory Liquidation is backdated to the date of presentation of petition. At
