Rule 1.35 of The Insolvency Rules 1986 - Company Voluntary Arrangements (CVAs)

Obtaining a CVA with a Moratorium - Preparation of Proposal by Directors and Submission to Nominee

 

If an immediate freeze on creditors' collection actions (otherwise known as a "moratorium") is needed before a Company Voluntary Arrangement (CVA) proposal can be considered at a creditors meeting then the alternative procedure laid down in Insolvency Rules 1.35 to 1.54 must be followed. In other words if this second type of CVA is needed then more red tape is involved to obtain the immediate benefit of a freeze on creditors' enforcement actions.

 

Insolvency Rule 1.35 is concerned with who is to prepare the CVA proposal and the content of that proposal where a moratorium is being pursued before the CVA creditors' meeting. The question as to who can be answered by logic: if the company is already in liquidation or administration a freeze on creditors is already in place and therefore the pursuit of a CVA with a prior moratorium is not needed. It is not therefore surprising that Insolvency Rule 1.35 specifies that it is the directors of the company who must prepare the Company Voluntary Arrangement (CVA) proposal

 

The actual wording of Insolvency Rule 1.35 is shown below in bold.

 

Insolvency Rules 1986 - Chapter 9 - Obtaining a Moratorium - Section A - Obtaining a Moratorium

 

Insolvency Rule 1.35 - Preparation of proposal by directors and submission to nominee

 

(1) The document containing the proposal referred to in paragraph 6(1)(a) of Schedule A1 to the Act shall— 

(a) be prepared by the directors;

(b) comply with the requirements of paragraphs (1) and (2) of Rule 1.3 (save that the reference to preferential creditors shall be to preferential creditors within the meaning of paragraph 31(8) of Schedule A1 to the Act); and

(c) state the address to which notice of the consent of the nominee to act and the documents referred to in Rule 1.38 shall be sent.

(2) With the agreement in writing of the nominee, the directors may amend the proposal at any time before submission to them by the nominee of the statement required by paragraph 6(2) of Schedule A1 to the Act. 

 

So what are the differences between the procedure for the preparation of a proposal under Rule 1.35 (where a moratorium is needed) and the alternative (where a moratorium is not needed) of the preparation of a proposal under Insolvency Rules 1.2 and 1.3?

 

The differences are that two sub sections of Rule 1.3 are disapplied. The sub sections disapplied (when following the procedure to apply for a CVA moratorium or freeze) are Rule 1.3 (3) and (4). Those sub sections are not of much concern. More interestingly Rule 1.35 makes reference, for the first time in the Insolvency Rules 1986, to Schedule A1 of The Insolvency Act 1986. 

 

Schedule A1 to the Insolvency Act 1986 is a comprehensive set of 45 Paragraphs of law relating to CVAs with a moratorium. For a better understanding of the background to the law relating to CVAs with a moratorium the 45 Paragraphs of Schedule A1 should be first read - before reading the Insolvency Rules (Rules 1.35 to 1.54) relating to CVAs with a moratorium. By reading the Insolvency Act Schedule A1 Paragraphs first of all you will obtain an overview as to,

- What companies are eligible for a CVA with a moratorium, and

- Obtaining the CVA moratorium, and

- Effects of a CVA moratorium, and

- Nominees responsibilities in the CVA moratorium period, and

- Consideration & implementation of the CVA (Calling of meetings etc), and

- MIscellaneous provisions convering topics such as; challenges to directors' actions; and offences.

 

A table of the main differences between a CVA with and without a moratorium is shown elsewhere on this site. A CVA with a moratorium protects the interests of preferential creditors (Paragraphs 31(5) to 31(8) of Schedule A1 to The Insolvency Act 1986).

 

In summary Insolvency Rule 1.35 of The Insolvency Rules 1986 is concerned with who (the directors!) must prepare the Company Voluntary Arrangement proposal and the required content of that document when a CVA with a moratorium on creditors enforcements actions is sought.