2.0 Concept of Corporate Voluntary Arrangement


0 Concept of CorporateVoluntary Arrangement            The implementationof Corporate Voluntary Arrangement (CVA) is intended to provide an opportunityfor the companies to mount a rescue attempt before the onset of winding up ofthe company.[1]In Re Arthur Rathbone Kitchens Ltd, Roger Kaye QC noted that the purpose of CVAwas to enable the company to trade out of its insolvency and make provision forthe creditors by stage payments whilst it did.[2] Inother words, CVA is an alternative way for the companies to recover from debts insteadof being wound up.            CVA onlyavailable to private companies.

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Such application is applicable to companies whichare not regulated under the laws enforced by Bank Negara Malaysia and that ofthe Capital Markets and Services Act 2007. Also, CVA is eligible to companieswhich does not create any form of charge or undertaking of the properties ofthe company.[3]            CVAcan be initiated by the directors, judicial manager, or liquidator subject tothe condition of the company.[4]For example, director may proposed CVA to the creditors if the company is notwind up and not under the judicial management stage. While judicial manager maydo so provided that the company is under the judicial management stage. On theother hand, CVA can also be proposed by the liquidator if the company has beenwound up.            Theproposal of CVA must be coupled with an appointment of a nominee who act as thesupervisor or trustee for the implementation of CVA.

The nominee must be aperson who is an insolvency practitioner.[5] Thedirectors, who intended to make a proposal of CVA, have to submit few documentsfor the review of the nominee. These documents include the proposed CVA and thestatement of the company’s affairs.[6]           Thenominee 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 andimplementation, the sufficiency of company’s fund to run its business duringthe moratorium period, and the need to summon company meeting with the membersand the creditors with regard to the proposed CVA.[7] Whenthe nominees approved the proposed CVA, he will notify the court by filing anapplication for CVA.            Thereare several documents need to be submitted to the court during the filing stagewhich include the proposed CVA, a statement containing the details of company’saffairs, a statement of the nominee together with the consent form from thenominee for himself to act.[8]For situation where there was an earlier proposed CVA, the full details of theprevious proposed CVA coupled with its result must be submitted to the court togetherwith the documents mentioned earlier.

            Uponthe filing of application, the company is allowed to delay the legal obligationto perform certain payments for 28 days.[9]The period of delay of payment is known as moratorium period which commenceautomatically upon the filing to court. It could be extend up to 60 days withthe consent of nominee, the members of the company and 75 percent in value ofthe creditor.             Duringthis period, the nominee have the power to withdraw his consent for CVA and theduty to monitor the company’s affairs.[10] Thepower of the nominee is included in the Companies Act 2016 unlike the commonlaw which can be seen in the case of Re Ultra Motorhomes International Ltdwhere Patten J observed that those powers shall be included in the proposalitself.

[11]            Theeffects of the moratorium are that no winding up petition and no application ofjudicial management shall be filed.[12]In addition, no legal proceedings shall be commenced or continued and noresolution or order shall be passed for winding up of the company. Moratoriumbasically provides extension of time for the company to defer payment andcontinue to run its business to facilitate the recovery from debts owed by it.[13]             Thenominee shall summon a meeting for the members of the company[14]and all creditors to make decision on the implementation of the proposed CVA.[15]To obtain the approval for such implementation, 75 percent of the total valueof creditors must be present and vote at the meeting and simple majority voteswere achieved.[16]Modification of the proposal is prohibited in the meeting.

            Onceapproved, the CVA will take effect and bind all the creditors of the company[17]and the supervisor of CVA implementation would be the nominee or any otherinsolvency practitioner.[18]The supervisor is responsible to refer any matters arising under CVA to thecourt and may apply to the court for winding up of the company or judicialmanagement order.[19] Sevendays after the end of moratorium, the nominee have to notify the public throughwebsite of Commission and newspaper and the Court, the company and allcreditors.            With theamendments of the Companies Act, it becomes more comprehensive to provide a setof detailed guidelines on the requirements and procedures for the companieswhich wanted to apply for CVA. However, it remains to be seen how successful couldCVA achieve in rehabilitating ailing companies.

 [1] John Tribe, ‘ Company VoluntaryArrangements and Rescue: A New Hope and a Tudor Orthodoxy’ (15 January 2008) Journal of Business Law(UK), Forthcoming[2] [1998] BPIR 1.[3] Companies Act 2016, s. 395.[4] Ibid, s. 396.[5] Ibid, s.

394.[6] Ibid, s. 397(1).

[7] Ibid, s. 397(2).[8] Ibid, s. 398(1).[9] Ibid, Eighth Schedule, para 3.[10] Companies Act 2016, SeventhSchedule.

[11] [2007] BPIR 214.[12] Companies Act 2016, Eighth Schedule,para 17.[13] Chooi & Company, ‘CorporateVoluntary Arrangement’ accessed on 19 January 2018.[14] Companies Act 2016, s.

399.[15] Ibid, s. 400(1).[16] Ibid, s. 400(2).[17] Ibid, s. 400(5).

[18] Ibid, s. 401(1).[19] Ibid, s. 401(5).


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