Essay Example on Commentary and Critical Analysis








Commentary and Critical Analysis As pertaining to the issue on whether the rescue mechanism is a pro debtor or a pro creditor mechanism we would like to say that the rescue mechanism is more to a pro debtor mechanism than a pro creditor mechanism The rescue mechanism of the corporate voluntary arrangement serves to prevent a company from winding up and whenever there is situation of a company owing a debt to the creditor then the company who is the debtor may also apply this mechanism in order for them to return the debt by using another method Therefore this are the reasons we felt that the rescue mechanism do support the debtor more than the creditor According to the newly amendment of the Companies Act 2016 CA 2016 S 395 had stated that not all companies are entitled to apply the corporate voluntary arrangement CVA of rescue mechanism By virtue of S 396 of CA 2016 it gives the rights to the debtor who is the director of the company to propose a proposal for CVA to solve insolvency Once the proposed proposal is approved by S 400 of CA 2016 then the company is said to have satisfied on its debts owing to the creditor and all the creditors of the company shall bind the CVA

The pro debtor mechanism CVA is there to help the debtor companies by bringing all the unsecured debt problems together and to make the payment through a regular periodic basis In order to have successfully apply for CVA the debtors of the company must make sure that they have sales and profits in their businesses However an insolvency company will not be able to apply CVA as CVA mechanism is there to reduce the stress of the debtor s debts and to provide a longer period for the debtor to make the payment owing to the creditors and it is not for an insolvency company who is not be able to make the repayment at the first place Therefore companies who are facing bankruptcy shall not be entitled to apply CVA but for a company who is going to face winding up in the future shall be applicable as long as there is a prove on their sales businesses then they will be given a longer period to repay the payment to the creditors The CVA is more to a pro debtor mechanism as it support the debtors by combining their outgoing payments into one payment only which makes their debts easier In order to avoid the public having knowledge on the relationship between the company and the creditors the debtor s financial status will not be reported to the Gazette Furthermore the costs of applying CVA is much cheaper than any other insolvency procedures

When the proposed CVA is being approved most of the ongoing costs will only be deducted through the monthly repayment as agreed between the debtors and the creditors in the proposal Most importantly the company is protected against any legal action Once the company applied for CVA then the law will not constitute that they have wound up If there is a situation that their bank accounts being frozen due to bankruptcy then the company may go for Validation Order to reopen their bank accounts as CVA mechanism protects the debtor companies from any insolvency Also at the moment the creditors accepted all the terms provided in the CVA proposal then the creditors shall not make any threatening acts taking any legal action or having interest from the debtor of the company If they are said to have done all the forbidden acts then the debtor of the company shall have the rights to take legal action against the creditors as they did not fulfil their obligation 

As mentioned earlier at the moment whether the creditors are present or not present at the meeting voted for the approval then they are all bind to the proposal of CVA In other word the creditors is prevented from taking any legal action against the debtor of the company or else they will be prevented from recovering any debts from the debtor as mention in CVA Thus the CVA is said to be a pro debtor mechanism as in most of the situations they supported them by preventing the creditors from taking any legal action against them once the proposal is approved Therefore once again CVA is more to a pro debtor mechanism as it supports the debtor in most of the circumstances by protecting the company under all legal actions such as winding up matters not reported in Gazette to help the company to solve and prevent from any insolvency chances extending the period of time for repayment of debts to the creditors and to reduce the strains of the company from its debts as they are already facing financial difficulties

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