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The implementation of Corporate Voluntary Arrangement (CVA) is intended to provide an opportunity for the companies to mount a rescue attempt before the onset of winding up of the company. In Re Arthur Rathbone Kitchens Ltd, Roger Kaye QC noted that the purpose of CVA was to enable the company to trade out of its insolvency and make provision for the creditors by stage payments whilst it did. In other words, CVA is an alternative way for the companies to recover from debts instead of being wound up.
CVA only available to private companies. Such application is applicable to companies which are not regulated under the laws enforced by Bank Negara Malaysia and that of the Capital Markets and Services Act 2007. Also, CVA is eligible to companies which does not create any form of charge or undertaking of the properties of the company.
CVA can be initiated by the directors, judicial manager, or liquidator subject to the condition of the company. For example, director may proposed CVA to the creditors if the company is not wind up and not under the judicial management stage. While judicial manager may do so provided that the company is under the judicial management stage. On the other hand, CVA can also be proposed by the liquidator if the company has been wound up.
The proposal of CVA must be coupled with an appointment of a nominee who act as the supervisor or trustee for the implementation of CVA. The nominee must be a person who is an insolvency practitioner. The directors, who intended to make a proposal of CVA, have to submit few documents for the review of the nominee. These documents include the proposed CVA and the statement of the company’s affairs.
The nominee will then submit his opinions in a form of statement to the directors. His opinion may include the reasonableness of the proposed CVA for approval and implementation, the sufficiency of company’s fund to run its business during the moratorium period, and the need to summon company meeting with the members and the creditors with regard to the proposed CVA. When the nominees approved the proposed CVA, he will notify the court by filing an application for CVA.
There are several documents need to be submitted to the court during the filing stage which include the proposed CVA, a statement containing the details of company’s affairs, a statement of the nominee together with the consent form from the nominee for himself to act. For situation where there was an earlier proposed CVA, the full details of the previous proposed CVA coupled with its result must be submitted to the court together with the documents mentioned earlier.
Upon the filing of application, the company is allowed to delay the legal obligation to perform certain payments for 28 days. The period of delay of payment is known as moratorium period which commence automatically upon the filing to court. It could be extend up to 60 days with the consent of nominee, the members of the company and 75 percent in value of the creditor.
During this period, the nominee have the power to withdraw his consent for CVA and the duty to monitor the company’s affairs. The power of the nominee is included in the Companies Act 2016 unlike the common law which can be seen in the case of Re Ultra Motorhomes International Ltd where Patten J observed that those powers shall be included in the proposal itself.
The effects of the moratorium are that no winding up petition and no application of judicial management shall be filed. In addition, no legal proceedings shall be commenced or continued and no resolution or order shall be passed for winding up of the company. Moratorium basically provides extension of time for the company to defer payment and continue to run its business to facilitate the recovery from debts owed by it.
The nominee shall summon a meeting for the members of the company and all creditors to make decision on the implementation of the proposed CVA. To obtain the approval for such implementation, 75 percent of the total value of creditors must be present and vote at the meeting and simple majority votes were achieved. Modification of the proposal is prohibited in the meeting.
Once approved, the CVA will take effect and bind all the creditors of the company and the supervisor of CVA implementation would be the nominee or any other insolvency practitioner. The supervisor is responsible to refer any matters arising under CVA to the court and may apply to the court for winding up of the company or judicial management order. Seven days after the end of moratorium, the nominee have to notify the public through website of Commission and newspaper and the Court, the company and all creditors.
With the amendments of the Companies Act, it becomes more comprehensive to provide a set of detailed guidelines on the requirements and procedures for the companies which wanted to apply for CVA. However, it remains to be seen how successful could CVA achieve in rehabilitating ailing companies.
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