2.0 Concept of Corporate Voluntary Arrangement

2.0 Concept of Corporate
Voluntary Arrangement

            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.[1]
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.[2] 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.[3]

            CVA
can be initiated by the directors, judicial manager, or liquidator subject to
the condition of the company.[4]
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.[5] 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.[6]

           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.[7] 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.[8]
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.[9]
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.[10] 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.[11]

            The
effects of the moratorium are that no winding up petition and no application of
judicial management shall be filed.[12]
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.[13]

            The
nominee 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 value
of creditors must be present and vote at the meeting and simple majority votes
were achieved.[16]
Modification of the proposal is prohibited in the meeting.

            Once
approved, 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 other
insolvency practitioner.[18]
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.[19] 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.

 

[1] John Tribe, ‘ Company Voluntary
Arrangements 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, Seventh
Schedule.

[11] [2007] BPIR 214.

[12] Companies Act 2016, Eighth Schedule,
para 17.

[13] Chooi & Company, ‘Corporate
Voluntary 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).

x

Hi!
I'm Tamara!

Would you like to get a custom essay? How about receiving a customized one?

Check it out