[2025] EWHC 2294 (Ch)

Legal Principles: Effect of approval of a CVA

Section 5(2) IA 1986 provides that:

‘Effect of approval

The voluntary arrangement-

takes effect as if made by the company at the time the creditors decided to approve the voluntary arrangement, and

binds every person who in accordance with the rules –

was entitled to vote in the qualifying decision procedure by which the creditors’ decision to approve voluntary arrangement was made, or

would have been so entitled if he had had notice of it,

as if he were a party to the voluntary arrangement’.

The CVA operates as a statutory contract: Wright v Prudential Assurance Co Ltd [2018] EWHC 402 (Ch) at [20]. Ordinary principles of interpretation applying to contracts apply also to the interpretation of a CVA: Heis v Financial Services Compensation Scheme Ltd 2018 WL 02766887.

A summary of the general principles of interpretation applying to contracts is helpfully set out in the case of Arnold v Britton [2015] AC 1619 at [15]:

‘When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”…. And it does so by focusing on the meaning of the relevant words… in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the paragraph, (ii) any other relevant provisions of the [contract], (iii) the overall purpose of the paragraph and the [contract], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial commonsense, but (vi) disregarding subjective evidence of any party’s intentions…’ .

A CVA may provide for different treatment of different creditors or classes of creditors. A CVA that does so is not for that reason alone outside the jurisdictional scope of s.1(1) IA 1986 or necessarily unfairly prejudicial: Lazari Properties 2 Ltd and Ors v New Look Retailers Ltd and Ors [2022] 1 BCLC 557 per Zacaroli J (as he then was) at [156]. The New Look Retailers case, for example, involved at least three separate deals with different groups of creditors and yet withstood a jurisdictional challenge, a material irregularity challenge and an unfair prejudice challenge (loc cit at [66], [157 and [330]).