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Finance team advises Supervisor of CVA on a challenge brought by Richmondshire District Council

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11/11/2021

Finance team advises Supervisor of CVA on a challenge brought by Richmondshire District Council

The Finance Team at Walker Morris provided advice to a Supervisor of a CVA in a challenge by Richmondshire District Council (RDC) to a company voluntary arrangement approved in relation to Dealmaster Limited.

  • The grounds for the application to revoke or suspend approval of the CVA were that:
    under s.6 IA 1986 the CVA unfairly prejudiced the interests of RDC who were a creditor of Dealmaster; and
  • there had been a material irregularity at, or in relation to the relevant qualifying decision procedure.

The application was subsequently dismissed with the Court observing that:

  • A creditor challenging a debt owed to another creditor in this context is not entitled to require full original documentation on every aspect of that debt. It should also not expect the Court to undertake a “forensic full audit” of all parts of the debt. Instead, the Court acted on the evidence before it and on the balance of probabilities. The creditor could not undertake a fishing expedition and assert that it was for others to prove that the challenged debt was valid.
  • Because the proceedings involved an attempt to disallow another creditor’s vote on the CVA, that creditor should have been made party to the proceedings. This is a useful reminder where an appeal under rule 15.35 of the Insolvency Rules 2016 is paired with a challenge to a CVA.
  • RDC had not been unfairly prejudiced, even though the CVA may have placed it in a marginally worse position than a liquidation would have done. The CVA projections (which showed the CVA as a better option for creditors) were honestly made and not negligent. Creditors were aware of the potential for a professional valuer to value the relevant property differently. There was also no material irregularity as a result.
  • The decision not to compromise and leave debt owed to the Dealmaster’s current parent company outside the CVA was fair, as payment of this debt serviced the group’s bank debt and was necessary for the survival of Dealmaster.

Duncan Lole with the assistance of Brian Rostron were involved in the case with Matthew Maddison of Enterprise Chambers counsel instructed

WM comment

The case provides another useful examination of the different heads that can be used to challenge a CVA. However maybe the most illuminating part of the judgment was the Court’s lack of sympathy with a creditor who seemed unable to accept the amount and validity of any of the company’s debts and expected the Court to carry out a forensic examination.

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