Rule 1.43 of The Insolvency Rules 1986 - Company Voluntary Arrangements (CVAs) with a Moratorium

Can charged property be sold in the Moratorium period?

 

We have already commented on the fact that a Company obtains an important privilege when it obtains a moratorium on creditors being able to take enforcement action against the company concerned. Insolvency Rule 1.43 is concerned with the extent of the directors' powers in the moratorium period and whether or not, in that period, they can sell company assets which are charged (such as under a fixed or floating charge). Clearly the law cannot allow directors of an insolvent company to run riot in the moratorium (freeze) period and sell charged assets without any oversight of the parties who hold a charge over those assets.  Insolvency Rule 1.43 requires that no sale of charged property can take place without the court first considering the matter and the court having first obtained input from the creditor who holds the security. In other words the court ensures fair play.

 

Insolvency Rule 1.43 is reproduced below in bold.

 

Insolvency Rules 1986 - Rule 1.43 - Disposal of charged property in the moratorium period

 

(1) This Rule applies in any case where the company makes an application to the court under paragraph 20 of Schedule A1 to the Act for permission to dispose of property of the company which is subject to a security, or goods in possession of the company under an agreement to which that paragraph relates.

(2) The court shall fix a venue for the hearing of the application and the company shall [as soon as reasonably practicable] give notice of the venue to the person who is the holder of the security or, as the case may be, the owner under the agreement. 

(3) If an order is made, the company shall [as soon as reasonably practicable] give notice of it to that person or owner. 

(4) The court shall send 2 sealed copies of the order to the company, who shall send one of them to that person or owner. 

 

Under Insolvency Rule 1.43 directors of a company in a CVA Moratorium period cannot sell charged property unless the permission of the court is first obtained.