Can a claimant against a company in a Company Voluntary Arrangement (CVA) require that sufficient assets to meet the whole of its claim be retained outside the CVA (to the disadvantage of the other creditors) pending judgment by the court on that claim? The first instance case of re TBL Realisations plc which was reported on 20 March 2001 shows that it can.
The Company which was already in Administration ran a parallel CVA, the purpose of which was to permit assets collected or realised to be distributed to creditors. The Respondents to this action had a $3m claim against the Company (which was formerly a bank) in relation to the giving of an alleged negligent banker's reference. Although initially they wished to obtain the benefit of the CVA by being able to vote at the creditor's meeting, they then asserted that the Chairman had not admitted them to vote and that they were not bound by the CVA by virtue of Rule 1.17 of the Insolvency Rules 1986 and s.5 Insolvency Act 1986. They wished to be free to prove to the court that they were entitled to prove for the whole amount of their claim which they were unlikely to realise if bound by the CVA.
The Court held that on the evidence the Respondents were not bound by the CVA and that even if the Chairman had not exercised his power under Rule 1.17 (4) of the Insolvency Rules 1986 so as to reject the Respondents claim for the purpose of their entitlement to vote, they were not in fact entitled to vote because of Rule 1.17 (3) unless the Chairman agreed to place an estimated minimum value on the claim for voting purposes, which he did not do.
But were the Respondents entitled to an injunction requiring the Administrators to retain sufficient assets outside of the CVA to meet the Respondents' claim if they were successful? The answer the court gave was "yes". The quantity of assets retained should be 100 percent of the claim, pending a decision by the court when they considered execution as to whether to restrict execution to a pari passu amount equivalent to the CVA dividend or the amount which would have been available in a Liquidation.
The court reasoned that under the terms of the CVA, the assets realised by the Administrators became subject to a trust in favour of the CVA creditors, but only as they were paid by the administrators into a CVA account in their name as supervisors. The CVA did not permit a payment to a creditor, such as the Respondents, not bound by the CVA and the court would not direct a payment in breach of the CVA terms. Therefore, the Respondents could not be paid out of moneys once paid into the CVA account. If a non-CVA creditor was to be paid, it would be necessary to retain sufficient moneys outside the CVA.
For further information, please contact Ruth Pedley by e-mail at ruth.pedley@cms-cmck.com or by telephone on +44 (0)20 7367 2098.
