notification will normally be of the setting up of other
insolvency proceedings such as winding-up.
Ring-fencing assets for unsecured
creditors: all insolvencies
The preferential debts are paid before those holding float-
ing charges. However, the preferential debts are now
much less in amount since Crown debts such as sums
owed to HM Revenue & Customs have been reduced
to unsecured status. In order that holders of floating
charges, typically banks, do not get all the benefit of this,
the insolvency practitioner in all corporate insolven-
cies, i.e. liquidation, administration or administrative
receivership, must set aside from the proceeds raised a
certain amount of money for payment to the unsecured
creditors and not to the floating charge holders.
The Insolvency Act 1986 (Prescribed Part) Order 2003
(SI 2003/2097) applies and requires the insolvency practi-
tioner to set up a fund of £10,000 before making any
payments to holders of floating charges. Given that more
money than this is available then the prescribed per-
centage from realisations after that is:
■50 per cent of the first floating charge realisations to
be added to the initial £10,000;
■20 per cent of floating charge realisations after that;
■up to a maximum ring-fenced fund for unsecured
creditors of £600,000 but no more.
Voluntary arrangements
Provision for company voluntary arrangements (CVA)
exists on the lines of the rules relating to insolvent sole
traders which were considered in Chapter 5.
Once again, the aim of a voluntary arrangement is to
avoid insolvency proceedings by substituting a satis-
factory settlement of the company’s financial difficul-
ties. For example, a composition may be made between
the company and its creditors under which the creditors
accept, say, 60p in the £1 in full settlement of their debts.
The directors must draw up proposals assisted by an
insolvency practitioner, called a nominee, who will give
a professional assessment as to the feasibility of the com-
position and report to the court as to whether the members
and creditors should meet to consider the proposals. If the
court agrees, the nominee will call the relevant meetings.
The composition is approved if a simple majority
of members are in favour and 75 per cent in value of
the unsecured creditors agree. If the composition is
approved as required that approval is reported to the
court by the nominee who becomes the supervisorof
the arrangement and implements it. Creditors cannot
sue for payment or petition for winding-up. Under the
Insolvency Act 2000 a CVA binds allof the company’s
creditors, including unknown creditors and those who
did not for some reason receive notice of the relevant
meeting or did not attend and vote. These creditors, like
all the others who participated in the arrangement, can
claim only such distributions as they are entitled to
under the CVA.
They may, however, apply to the court on the grounds
(if they have any) that their interests are unfairly prejudiced
by the CVA that has been approved by the participating
creditors.
The above provisions do not excuse deliberate exclu-
sion of creditors. If this happens, the resulting CVA is
invalid, because the meeting is. The rights of secured
and preferential creditors are not affected. At any stage
any creditor may challenge a decision of the supervisor
in court.Company voluntary arrangements – the
disadvantages
The main disadvantages of company voluntary arrange-
ments (CVA) are that they cannot be made binding on
a secured or preferential creditor in terms of priority of
payment without the creditor’s consent, and that there
is no provision for obtaining a moratorium to hold
off actions by hostile creditors while the proposal for a
CVA is being drawn up and considered, unless the CVA
proposal is being combined with the appointment of an
administrator when the law relating to administrations
applies and provides protection. Administration is costly
and time-consuming. Although the company moratorium
was left out of the Insolvency Act 1986, it will have been
noted that the ‘interim order’ is available in the insol-
vency of individuals under the 1986 Act. (See further,
Chapter 5.)
The following provisions are now in force but only for
small companies.A company voluntary arrangement with a
moratorium option for small companies
The Insolvency Act 2000 makes provision for a company
CVA with a moratorium. The provisions are restricted
to small companies, i.e. companies that can satisfy two
or more of the conditions for being a small company
for reporting purposes under the Companies Act 2006.Part 2Business organisations