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ACCA Applied Skills · Corporate and Business Law (Global) · Insolvency and administration

Brenner Ltd is in a CVA. A secured creditor, Castle Bank, holds a fixed charge over Brenner's factory. Which statement about the CVA's effect on Castle Bank is correct?

Castle Bank's fixed charge cannot be affected by the CVA without the bank's own consent. The majority vote of creditors does not override a secured creditor's right to enforce its security, so the bank keeps its charge unless it agrees otherwise.

  1. ACastle Bank's security cannot be affected without its own consentCorrect
  2. BCastle Bank is bound by the CVA once 75% by value of unsecured creditors approve
  3. CCastle Bank loses its fixed charge on approval of the CVA
  4. DCastle Bank must prove for its debt alongside unsecured creditors and give up its security

Explanation

A CVA cannot affect the right of a secured creditor to enforce its security unless that creditor agrees. The creditors' majority vote does not override the bank's rights, so the bank keeps its fixed charge. The other options wrongly suggest the security is lost or overridden by the vote.

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