UK Law and Practice Contributed by: Kate Stephenson and Zoe Stembridge, Kirkland & Ellis
agree, the terms are documented in a legally binding agreement and used to bind all creditors. In addition, a CVA is an out-of-court process by which a debtor can bind a dissenting minority of its unse - cured creditors, if at least 75% by value (of those vot - ing) approve the proposed compromise. However, a CVA will not be approved if more than half of the total value of unconnected creditors vote against it, and a CVA cannot bind secured or preferential creditors without their consent. As noted, a CVA is a formal insolvency process; it is out-of-court unless chal - lenged. It is not mandatory to enter into consensual restruc - turing negotiations before the commencement of a formal statutory process. Parties cannot generally be forced to co-operate in an out-of-court restructuring, nor held liable for not co-operating. 3.2 Legal Status A consensual restructuring binds all parties to the documentation, provided the majorities required by the debt documents are reached. A CVA binds all unsecured creditors if at least 75% by value (of those voting) approve the proposed com - promise. As noted in 3.1 Out-of-Court Restructuring Process , the CVA will not be approved if more than half of the total value of unconnected creditors vote against it. 4. Statutory Restructuring, Rehabilitation and Reorganisation Proceedings 4.1 Opening of Statutory Restructuring, Rehabilitation and Reorganisation No Obligation to File There is no obligation to initiate a restructuring or insolvency procedure. However, if a company is insol - vent or bordering on insolvency, or if an insolvent liq - uidation or administration is probable, then directors’ general duty to promote the success of the company extends to a duty to consider the interests of the com - pany’s creditors as a whole. This requires directors to consider risks to creditors of continuing trading. Direc -
tors may be held liable for breach of their directors’ duties, among other matters. Schemes and Restructuring Plans A scheme or restructuring plan is initiated by an appli - cation to court for an order summoning a meeting or meetings of the relevant class or classes of credi - tors. Although the application can be made by the debtor, any creditor, any member, an administrator or a liquidator, it is almost always made by the debtor itself. The consent of the company (through either the board of directors or a simple majority of members) is required for the court to sanction a scheme or restruc - turing plan. Eligibility for restructuring plans is restricted to com - panies in some present or prospective financial dif - ficulties affecting the company’s ability to carry on business as a going concern, which the plan must be intended to eliminate or reduce. No such requirement applies for a scheme; it is possible to have a fully solvent scheme. Administration Administration can be commenced either: • by court order, upon the application of the debtor, its directors or any creditor; or • out-of-court, by the debtor, its directors or a quali - fying floating charge holder (QFCH). The instigating party can select the identity of the administrator, although notice must be given to QFCHs if the out-of-court route is chosen, which may intervene to appoint a different individual as administrator (where the instigating party is a QFCH, only if the other party holds a prior qualifying floating charge). The administrators will need to be satisfied that they can achieve one of the statutory purposes of the administration before taking the appointment. It is also a prerequisite that the debtor is or is likely to become unable to pay its debts (except in the case of
a QFCH out-of-court appointment). Company Voluntary Arrangement
Directors may propose a CVA to the company’s share - holders and creditors; if the company is in administra - tion or liquidation, then the administrators or liquida -
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