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Recently, R3 launched their standard form for COVID-19 CVA proposal (CVA proposal) and accompanying coronavirus (COVID-19) standard conditions for company voluntary arrangements (CVAs) which are intended for use by small and medium-sized enterprise (SME) companies in Northern Ireland whose businesses have been affected by coronavirus. Lexis®PSL R&I is pleased to announce standard variations to Appendix 2 to deal with exit from administration and debt waiver for companies in Northern Ireland drafted by Michael Neill and Tanya Surgeon of A&L Goodbody.
R3’s standard form for CVA proposal (Northern Ireland)
This form is intended to save time and costs, and therefore make CVAs more accessible to the SME market .
R3 said it was impossible to create a template CVA to tackle all variations that may be necessary in a CVA. R3’s standard form for CVA proposal has therefore been drafted to fit the following criteria:
R3’s standard form for CVA proposal is supported by standard conditions. These are based to a large extent on the popular and well-used R3 standard conditions for individual voluntary arrangements used by consumers, with amendments appropriate for companies. They are incorporated into R3’s standard form for CVA proposal by inclusion in Appendix 1.
The creation of R3’s standard form for CVA proposal and standard conditions was orchestrated by Stewart Perry and professor Peter Walton, both members of R3’s General Technical Committee, with assistance from Joan Houston of Houston Hunter and Michael Neill of A&L Goodbody on the versions for Northern Ireland. Both documents are a free resource available on R3’s website (as well as on Lexis®PSL R&I).
Standard amendments to Appendix 2 (Northern Ireland)
R3 anticipates that any agreed amendments to the standard will appear in Appendix 2 to make it easier for creditors with multiple debtors to compare their proposals.
Michael Neill and Tanya Surgeon of A&L Goodbody have drafted two variants to Appendix 2:
Appendix 2: Amendments to R3 Standard Form COVID-19 CVA proposal for exit from administration (Northern Ireland): to deal with the position where the debtor company is exiting from administration, so the CVA proposal is made by the administrators (rather than the directors, as appears in the R3 standard form)
Front page: replace heading with: ‘IN THE MATTER OF [INSERT COMPANY NAME] (‘COMPANY’) (in administration)’.
Replace ‘[name of company]’ with ‘[name of company] (in administration)’.
Introduction: replace ‘This proposal (Proposal) of the directors’ with ‘This proposal (Proposal) of the [Joint] Administrators’.
Clause 1: at the bottom add:
Clause 3.2: add ‘and administration’ after the words ‘winding-up’.
Clause 3.5: at the very start add: ‘Following heavy trading losses and the appointment of the Administrators on [insert date] as administrators of the Company, the Company needs to implement the proposals set out in the statement of proposals below, failing which the Administrators must report the position to the court and a winding-up order may be made.’
Clause 3.5: add ‘or administration’ after the word ‘liquidation’.
[Add new Clause 4.15: ‘At the expiration of 28 days from the date of the statutory meeting of the company and decision of creditors approving the terms of the voluntary arrangement, the Administrators will apply to the Court for the Administration Order to be discharged and their release.’]
Clause 9.8: add ‘or administration’ after ‘winding-up’.
Clause 10.2: add new ‘Clause 10.2.1 Administrators’ fees and expenses’, then renumber existing Clause 10.2.1 onwards.
New Clause 19: ‘Administrators’ comments: The Administrators have commented that:
19.1: The values attributed to the assets are unlikely to be achieved if the proposals are not implemented;
19.2: So far as known to the Administrators, the estimate of the prescribed part available under Article 150A of the Insolvency (Northern Ireland) Order 1989 for the satisfaction of unsecured creditors is as set out in Appendix 4.
19.3: The Administrators’ estimate of the value of the Company’s net property under Article 150A(6) of the Insolvency (Northern Ireland) Order 1989 on [insert date] is as set out in Appendix 4.
19.4: The Administrators [do OR do not] propose to make an application to court under Article 150A(5) of the Insolvency (Northern Ireland) Order 1989 [for the following reasons [insert reasons]].
19.5: The Administrators refer to Appendix 8 for the nature and amount of the Company’s preferential creditors.
[Insert name] and [insert name]
[Insert Company name] Limited’
Statement of proposals made by the Administrators
Appendix 4: at the end, add ‘and administration’.
Add new ‘Appendix 7: Administrators’ remuneration and expenses’.
Add new ‘Appendix 8: Preferential creditors’.
Appendix 2: Amendments to R3 Standard Form COVID-19 CVA proposal for a debt waiver (Northern Ireland): to deal with a debt waiver (rather than an amend and extend appearing in the R3 standard form)
Clause 3.5: replace 2nd sentence with ‘The Proposal, if accepted, is likely to result in a total Dividend of [insert amount, less than 100] pence in the pound to Creditors’.
Clause 3.5: add new 4th sentence ‘The returns to Creditors would be significantly lower if the Company is placed into liquidation than if the CVA is approved.’
Clause 3.5: replace 5th sentence with ‘The Arrangement is to be a scheme of arrangement whereby full payment of Debts is waived.’
Clause 4.4.2: replace 1st sentence with: ‘The amount of the monthly instalments shall be the Supervisor’s estimate of the total amount required to pay in total [insert percentage less than 100]% of those distributions listed in clauses 10.2.1 to 10.2.5 divided by the number of months in the Payment Period’.
Clause 4.4.2: Add to the end of 2nd sentence: [‘if the actual recoveries are better (ie through a windfall, acquisition of assets or profit or income of the Company) or worse than expected’ OR ‘Save as set out, there will be no further payments in respect of a windfall, acquisition of assets or profit or income of the Company in each case acquired or received by the Company after the date of this document’].
Clause 4.4.3: delete and replace with ‘Future, contingent or unascertained debts may be compromised by the Proposal. Rule 1.17 of the Insolvency Rules (Northern Ireland) 1991 applies and the chair will value such claims for voting purposes at £1, unless a higher value is agreed’.
Clause 4.4.3, Example 1: replace ‘equal instalments’ with ‘pro rata instalments’.
Clause 4.4.3, Example 2: replace ‘equal instalments’ with ‘pro rata instalments’.
Clause 4.4.3, Example 3: replace ‘equal instalments” with ‘pro rata instalments’.
Clause 4.4.3, Example 4: replace end of last sentence with ‘BankCo is not entitled to receive any payment during the Breathing Space Period and pro rata instalments during the Payment Period’.
Clause 4.7: delete the part in parentheses: ‘(not including Future Debts)’.
Clause 4.13: delete the last words: ‘save for Future Debts (which shall remain payable pursuant to their terms).’
Clause 10.2.5: delete ‘after applying the provisions in clause 4.4.3’.
Clause 10.4: after ‘(if the Interest Rate is greater than 0%’, add ‘and if there is sufficient surplus)’ .
Other useful links
The following documents are available on R3’s website:
• R3 Standard Form for COVID 19 CVA PROPOSAL (Northern Ireland)
• Standard Conditions for CVAs (Northern Ireland)
• Explanatory Note for insolvency practitioners
• Explanatory Note for media
The documents are also available here within Lexis®PSL R&I (reproduced with kind permission of R3):
• R3 Standard Form COVID-19 CVA Proposal (Northern Ireland)
• COVID-19 Standard Conditions for Company Voluntary Arrangements (Northern Ireland)
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