What does a Nominee of a Company Voluntary Arrangement have to do?
WHAT DO I NEED TO KNOW AS A DIRECTOR OF A COMPANY REGARDING THE DUTIES OF THE LICENSED INSOLVENCY PRACTITIONER WHO IS TO ACT IN CONNECTION WITH A COMPANY VOLUNTARY ARRANGEMENT PROPOSAL?
This webpage discusses the extra duties of a Nominee when that Nominee acts in relation to the second type of available Company Voluntary Arrangement - the one that stops company creditors from taking any type of enforcement action in the period leading up to the creditors meeting. (Otherwise known as the Section 1A Insolvency Act 1986 type of Company Voluntary Arrangement).
A nominee has greater responsibilities than under this type of CVA
As well as "reporting" to the court and to the creditors his opinion that the proposed voluntary arrangement has a reasonable chance of being approved and implemented the nominee also has to investigate the forecast cash flow and monitor actual achievement of the company in the moratorium (freeze) period. This pre-requisite is caused by the INsolvency Rule that a nominee must check that:
"a company is likely to have sufficient funds during the moratorium to enable it to carry on its business".
This is an important extra duty of the nominee - particularly when many businesses will need to trade "cash with order" during the moratorium period.
While the moratorium continues the nominee must keep a watchful eye on developments. The nominee must withdraw his consent to act if:
- the directors fail to provide him with any information he requests.
- he forms the opinion that the proposed arrangement no longer has a reasonable prospect of being approved and implemented or
- that the company will not have sufficient funds to enable it to carry on in business.
This eventuality could arise for instance if at the commencement of the moratorium it was considered that the company could raise finance from say:
- or asset lenders
But part way through the moratorium no such offers of finance were obtained. In those circumstances the moratorium comes to an end and the nominees must advise the court, and the creditors and advertise the ending of the the freeze on creditors enforcement action.
All this shows that a Nominee to a Copmany Voluntary Arrangement must be independently minded as a result not only of professionalism but also as a result of direct statute law..
Because of the fact that the nominee has greater duties it has been provided by the Insolvency Act that the nominee must obtain an "insurance bond" for the moratorium period. The costs of this bond will fall on the company.
For advice on the entire Company Voluntary process from beginning to end contact us for a FREE INITIAL MEETING.
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