Company Voluntary Arrangement without a Moratorium
When a freeze on creditors actions is not required
A company voluntary arrangement without a moratorium is one that does not grant a freeze on creditors actions ahead of the decision procedure at which the proposal will be considered.
The director(s) will seek the assistance of an insolvency practitioner in drafting the proposal and that person will become what is known as the "Nominee" ie the person named in the Company Voluntary Arrangement (“CVA”) proposal who is intended to ultimately supervise the implementation of the proposal if the proposal is agreed by the company’s creditors.
The "Nominee" must be a licensed insolvency practitioner and will become the "Supervisor" if the company’s proposals are approved.
The duties of the Nominee will include:
- Reporting to the court as to whether or not the Nominee believes a decision procedure ought to be requisitioned. In other words the Nominee has to report as to whether or not, in his opinion, the proposed CVA has a real prospect of success and may be acceptable to creditors.
After reporting to the court the Nominee has to:
- Send out notifications of the decision procedures to the creditors and shareholders.
- Attend at and act as chairman of the decision procedure then,
- Report the result of each decision procedure to the court, creditors etc.
Generally speaking, in a CVA without a moratorium the Nominee does not have the responsibility of monitoring the company’s position and cash requirements in the period leading up to the day of the decision procedure.
The Nominees' role is very much "hands off" therefore and the directors continue to manage the company in full power up to the day of the decision procedure.
In practical terms a Nominee helps to keep company creditors at bay in the period leading up to the decision procedure.
In a CVA without a moratorium there is no requirement to:
- advertise the existence of the proposed company voluntary arrangement in the London Gazette or local newspapers,
- lodge any paperwork about the Company Voluntary Arrangement with the Registrar of Companies prior to approval or
- record on company letterheads, invoices, orders etc that a CVA has been proposed.
It can be seen therefore that this type of CVA is not publicised quite as aggressively as a CVA with a moratorium.
The deal offered to creditors under the proposal must be better than the alternative of liquidation. Otherwise why would creditors vote for the approval of a CVA?
For this reason a CVA proposal must include an estimated outcome statement, which contrasts the return to creditors under the CVA as compared with the lesser return that they could expect in liquidation.
The directors responsibility is to live up to each and every word of their Company Voluntary Arrangement proposal. Make sure therefore that you are happy with the wording of your company's proposal and that what is being proposed is realistically achievable.
It is the supervisors duty to enforce the "contract" made between the company and it's creditors.
The contract consists of two documents;
- the first is the proposal document itself which sets out the main terms of the contract,
- the second document is the chairman's report on the decision procedure at which the proposal document was considered and voted upon by the creditors. In most cases the creditors will resolve to amend the proposal by making "modifications" to it and those modifications will be set out in the chairman’s report.
If you would like further information on Company Voluntary Arrangements (“CVAs”) with or without a moratorium, please contact Chris Parkman of Purnells on 01326 340579 or by emailing email@example.com.