Is a CVA a contract?

Published on
2 min read

It would seem to be a simple question, but not one that has a simple answer nor one that this decision has completely clarified either.

The Applicants sought permission to pursue misfeasance proceedings against former administrators alleging that they should have pursued swaps claims against their appointor bank.

The former administrators relied on various grounds in opposition to the application including the fact that a CVA proposed by the borrowers and approved by their creditors and shareholders included a clause releasing the administrators from the relevant liability vis a vis the companies and their creditors.

The administrators contended that the CVA was a contract that fell within the ambit of the Contract (Rights of Third Parties) Act 1999 (the “Act”) and could therefore be enforced against the Applicants, being shareholders in the Companies.

Having considered the authorities and substantive submissions from counsel on both sides of the argument, the Judge concluded that, because it was only a permission application, not a final determination of the claims, it was “realistically arguable” that a CVA was not a contract under the Act.  In the circumstances, the Judge only formed a provisional view that a CVA was not a contract, but rather a “quasi contract” that did not fall under the Act.  For this, and other reasons, the Judge granted the Applicant’s application for permission to pursue their claim against the administrators.

SCHOFIELD and RHINO ENTERPRISES HOLDINGS LIMITED v SMITH and BOARDMAN [2020] EWHC 2370 (Ch)

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