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

Delta Co is insolvent. Its directors propose a company voluntary arrangement (CVA) to pay creditors part of what they are owed over three years. Which of the following best describes the effect of a CVA once it is approved by the required majorities?

An approved CVA binds all unsecured creditors who were entitled to vote, whether they voted for it, against it or not at all. It is a statutory arrangement, so it does not depend on individual consent, and the company continues trading rather than being liquidated.

  1. AIt binds all unsecured creditors who were entitled to vote, including those who voted against it or did not voteCorrect
  2. BIt binds only the creditors who voted in favour of the proposal
  3. CIt ends the company's existence and its assets are sold by a liquidator

Explanation

A CVA is a statutory composition or arrangement between a company and its creditors. Once approved by the required majority, it binds all creditors entitled to vote, including dissenters and non-voters. It is not limited to those who supported it, and the company continues to trade rather than being wound up.

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