What Happens If Some of My Creditors Don’t Agree with the Company Voluntary Arrangement (CVA)?
A Company Voluntary Arrangement (CVA) is a formal agreement between a company and its creditors to repay debts over a fixed period, allowing the company to avoid liquidation and continue trading. However, not all creditors are guaranteed to agree to the CVA proposal.
Key Points:
Creditor Voting Thresholds: For a CVA to be approved, at least 75% (by value) of the creditors who vote must agree to the proposal. Also, less than 50% (by value) of the unsecured creditors can object to it. If these thresholds are not met, the CVA will be rejected.
Dissenting Creditors: Creditors who disagree can challenge the CVA during the creditors’ meeting or through legal action if they believe the arrangement unfairly prejudices their interests.
If CVA is Rejected: The company may be forced into liquidation (creditors’ voluntary liquidation or compulsory liquidation), where assets are sold off to repay creditors in order of priority.
Negotiation and Mediation: Often, before final rejection, the company or insolvency practitioner may negotiate directly with dissenting creditors to modify terms or offer better payment conditions.
Famous Liquidation Cases: Detailed Examples
Below are four high-profile company liquidations, including their causes, processes, and impacts. These cases highlight why seeking expert advice is crucial when facing insolvency.
- Carillion PLC (2018) – One of the Largest UK Corporate Collapses
Overview: Carillion, a major British construction and facilities management company, went into compulsory liquidation in January 2018 with debts of approximately £7 billion.
Causes: Poor financial management, aggressive accounting practices, delays in major projects, and failure to secure new contracts led to cash flow problems.
Liquidation Process: The Official Receiver was appointed to handle the liquidation, while various investigations into directors’ conduct began.
Impact: Thousands of employees faced uncertainty, subcontractors were unpaid, and many public projects were delayed or cancelled. The government introduced reforms to better protect suppliers and employees in future insolvencies.
Key Learning: Carillion shows the complexity of large corporate liquidations and the need for transparent financial reporting and early professional advice.
Keywords: Carillion liquidation, large corporate insolvency UK, construction company collapse, government contract insolvency, employee redundancy Carillion.
- Thomas Cook Group (2019) – Iconic Travel Company Collapse
Overview: Thomas Cook, a historic UK-based travel company operating for over 178 years, entered compulsory liquidation in September 2019.
Causes: A combination of mounting debt (£1.7 billion), Brexit uncertainties, poor summer weather affecting bookings, and changing consumer travel habits.
Liquidation Process: An official liquidation was declared after rescue talks failed. The Civil Aviation Authority organised repatriation flights for stranded holidaymakers.
Impact: Over 9,000 employees were made redundant, thousands of holidays were cancelled, and there was a significant economic impact on tourism-related businesses.
Key Learning: Even well-known brands are vulnerable to market and financial pressures; expert insolvency advice can sometimes prevent liquidation by exploring alternative solutions such as CVAs or pre-pack administrations.
Keywords: Thomas Cook liquidation, travel company insolvency, holiday company collapse, employee redundancy Thomas Cook, tourism industry insolvency.
- BHS (British Home Stores) (2016) – Retail Chain Collapse
Overview: BHS, a UK retail chain, entered administration and liquidation after years of declining sales and profitability, finally collapsing in 2016.
Causes: Poor management decisions, pension fund deficits, and failure to adapt to online retail trends.
Liquidation Process: Administrators were appointed to manage the wind-down. The Pension Protection Fund had to step in due to underfunded employee pensions.
Impact: Nearly 11,000 jobs were lost, and the case sparked widespread criticism of corporate governance and pension regulation in the UK.
Key Learning: Proper governance, pension management, and early insolvency advice are critical to mitigate losses to employees and creditors.
Keywords: BHS liquidation, retail insolvency UK, pension deficit, employee job losses, corporate governance failure.
- Woolworths Group PLC (2008) – High Street Icon Closure
Overview: Woolworths, once a staple of British high streets, went into administration and liquidation in 2008, closing all stores by early 2009.
Causes: Increasing competition from supermarkets and online retailers, failure to modernise, and the 2008 financial crisis reducing consumer spending.
Liquidation Process: Administrators handled the closure and sale of assets, including stores and intellectual property.
Impact: Approximately 27,000 jobs were lost, with major consequences for local communities and suppliers.
Key Learning: Market adaptation and early insolvency consultation can sometimes offer turnaround opportunities to avoid liquidation.
Keywords: Woolworths liquidation, high street retail collapse, administration process UK, insolvency retail chain, employee redundancy Woolworths.
Summary: Why Professional Advice Matters if Creditors Object to a CVA
If some creditors object to a CVA, this could lead to the arrangement failing and force the company into liquidation. Insolvency Practitioners play a vital role in:
Negotiating with dissenting creditors
Modifying proposals to increase acceptance
Advising on alternative solutions like administration or liquidation
Managing the process to protect directors and employees
If you are facing creditor disputes or uncertainty about a CVA, seek specialist insolvency advice immediately to explore your options and minimise risk.