Once a creditors voluntary arrangement is proposed by a company and a nominee has been appointed by the company to oversee the proposal, the nominee must invite creditors to consider the proposal.
This means that each creditor must receive a notice which includes a copy of the creditors voluntary arrangement proposal, and a copy of the statement of affairs of the company, which includes a list of creditors and the amount of their debts plus details of company’s assets and income.
Modern insolvency legislation allows for the creditors to vote without the need for a physical meeting, although if creditors require a physical meeting then they can insist upon this.
- creditors will be given no less than 14 days from the date of receipt of notice in order to make a decision. All creditors who have been given notice of the proposal and have a debt in the company will be entitled to vote in respect of their debt.
- the nominee will determine entitlement to vote and may admit or reject claims from creditors. Creditors may need to produce evidence of their claim if necessary. If there is any doubt about the claim then it will be marked as objected to but the creditor will be allowed to vote in respect of it. It may be however that the vote will be later declared invalid if the objection to the claim is sustained.
If a creditor has an unliquidated or unascertained debt then they may still vote, but this will usually be valued at £1 unless a more realistic valuation can be given to it. If a creditor wants to object to this then they can make an application to the court with evidence as to why the value should be higher.
A contingent creditor can also be bound by the voluntary arrangement. Again, it will be up to the chairman to decide on the value for voting purposes of any contingent debt.
Secured creditors can’t vote unless their debt is partly unsecured, when they can vote on the value of the unsecured part.
A company voluntary arrangement can’t modify or affect the rights of a creditor, particularly a secured creditor, unless that creditor specifically agrees to it.
If any modifications are later required to the voluntary arrangement, or an extension is required, or it is decided to end the voluntary arrangement then it will be necessary for the creditors to vote using the same majority, i.e. three quarters in value.
In order to protect unconnected creditors from a company voluntary arrangement being pushed ahead against their will by connected parties, a creditors decision is not considered approved if more than half of the total value of unconnected creditors vote against it.
Appeals and challenges
Any creditor can appeal against the decision of the nominee to allow a creditor to vote, or on the valuation given for the vote. That appeal can be made to Court.
It is also possible for a voluntary arrangement to be challenged on one of two grounds:-
- That the voluntary arrangement ‘unfairly prejudices’ the interest of a creditor.
- That there was a ‘material irregularity’ in relation to either the meeting of the company or to the decision procedures.
Any person entitled to vote can make a challenge but this must be done no later than 28 days after the decision was reported to the court.
It should be noted that just because as a creditor you don’t like the voluntary arrangement proposal agreed by other creditors, this does not count as unfair prejudice, particularly if you are in no different position to other creditors.
The court will consider what is unfair and prejudicial but there will need to be some significant evidence that the proposal is specifically unfair to a particular creditor.
Similarly, a challenge to a material irregularity will relate to the meeting of the company approving the decision or the decision-making procedure. Simply because a particular creditor disagrees with the voting right they have been given by the chairman will not necessarily mean a material irregularity has occurred.
Our team of company voluntary arrangement experts at Francis Wilks & Jones work with a range of licensed insolvency practitioners, directors, creditors and shareholders in various creditors voluntary arrangement situations. Call our team today to discuss your company’s situation and whether a company voluntary arrangement is a good option for you.