UK: Re Brelec Installations Limited - Falied CVAs and Undistributed Assets - The Continuing Story

Last Updated: 23 October 2000
Article by Stephen York

In the last few years the courts have frequently been asked to look at issues arising on the termination or failure of voluntary arrangements, in particular, what effect a subsequent insolvency procedure has on a VA and what happens to the trust assets held by the supervisor on termination.

In Re Brelec Installations Limited these issues came before the Vice Chancellor. Here, although the company had made the agreed contributions to the supervisors, management accounts evidenced that, within six months of the start of the arrangement, it was trading at a loss, so that the continuing contributions were being made at the expense of the post-arrangement creditors. This was a breach of three express terms of the VA - (1) that the company was to pay contributions from "profits"; (2) that it was to pay ongoing liabilities of the Crown creditors; and (3) that it was not to incur credit other than in the ordinary course of business.

The company was subsequently placed into creditors’ voluntary liquidation and the supervisors applied to court for directions as to whether the monies they held were held on trust for the CVA creditors or were available for creditors in the liquidation.

The liquidator looked to the specific terms of the VA and argued that:

The failure to pay ongoing liabilities, make contributions from "profits" and provide monthly management accounts meant a ‘failure’ of the arrangement. On the wording of the proposal, this obliged the supervisors to issue a certificate of non-compliance and therefore the arrangement had automatically terminated.

The supervisors had no discretion to allow the VA to continue because the word "shall" in the VA meant that they had a positive obligation to distribute the funds they held at the date of the failure of the arrangement and then petition for the company’s winding up.

Monies paid by the company to the supervisors before the failure were held on trust for the VA creditors, but monies paid after the ‘failure’ of the arrangement could not be retained on trust for CVA creditors and therefore belonged to the company in liquidation.

The court rejected these arguments and held:

The question of whether a VA has failed (and if it has, what is to happen to any trust assets), depends on the terms of the particular arrangement.

Express breaches of the terms of this VA did not automatically bring the VA to an end, but merely enabled the supervisors to issue a certificate of non-compliance once a failure had occurred.

The express wording in the conditions to the proposal specifying that the supervisors "..shall issue a certificate of non-compliance" was permissive rather than mandatory. In the judge’s view it meant no more than "shall have power" to issue a certificate.

Even if the arrangement came to an end on the basis of its express terms, it did not follow, (in the absence of a specific term requiring such allocation), that subsequent contributions had to be treated as held by the supervisors for the benefit of the company.

The liquidator’s only remedy in such a situation may be for him to commence wrongful trading proceedings against the directors and to consider invoking the antecedent transaction provisions of the Insolvency Act 1986.

The Hon. Mr Justice Blackburne stated that proposals are often put together with some haste, with modifications being made at a meeting of creditors, and that in practice proposals are often clumsily worded. The court’s approach must be to construe the terms of the VA in a practical fashion to achieve the purpose of the arrangement. He held that a "failure" within the meaning of the terms of the proposal here did not of itself cause the arrangement to terminate. That only occurred if the supervisors took the formal step of issuing a certificate of non-compliance.

The judge emphasised the purpose of the instalment payments. It was plain that the contributions were paid by the company to the supervisors and held by them for the benefit of CVA creditors. On that basis, to say that the monies were held on anyone else’s behalf was wholly inconsistent with the company’s intention when the contributions were made. Although leave to appeal was readily given by the Vice Chancellor, lack of funds in the liquidation prevent an appeal to the Court of Appeal on the issues raised.


Mr Justice Blackburn VC stated that his judgment arises from the interpretation of the terms of the particular proposal. Another judge may have interpreted the VA terms differently. It is, however, clear following Brelec that a breach which entitles a supervisor to terminate an arrangement does not have the effect of terminating the trust unless the supervisor takes positive action, as envisaged by the arrangement, to bring both the arrangement and the trust to an end.

Whilst it is worth noting the court’s practical approach to the interpretation of proposals, it is clearly preferable to include clear, comprehensive, express terms in them dealing with the effect of subsequent insolvency both on the arrangement and on any trust attaching to any undistributed monies.

The law in this area, in our opinion, remains unclear and unsatisfactory. Earlier decisions in this area appear to be contradictory, and the decision in Brelec is explained as being arrived at on the basis of the particular terms of the proposal. Pending any appeal court decision, it does therefore seem that, where any dispute may arise as to the construction of the terms of a proposal and there has been breach of its terms, the safe course is for supervisors and/or liquidators to apply to court for directions before making a distribution to creditors. This will avoid later claims or proceedings and avert complaints about misconduct to disciplinary bodies.

The information and opinions contained in this article are provided by Hammond Suddards. They should not be applied to any particular set of facts without appropriate legal or other professional advice.

For further information please contact Jeremy Bennett (Insolvency), Tim Pope (Insolvency) or Duncan Haymes (Insolvency)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions