Company Voluntary Arrangements (CVAs) - Law - CVA with a moratorium
Schedule A1 - Insolvency Act 1986 - Paragraph 13 - Interaction - Floating charges, receivership & the CVA moratorium
How do the rights of bankers (or others) under their floating charge over a company's assets change when a company has obtained a moratorium prior to a Company Voluntary Arrangement (CVA) creditors meeting?
Paragraph 13 of Schedule A1 (along with Paragraph 12) to The Insolvency Act 1986 severely resticts the normal rights of floating charge holders when a company that it has lent money to finds itself in financial difficulties. The Paragraphs prevents the floating charge holder from appointing an Administrative Receiver over the company assets in the moratorium period or of its charge "crystallising" in that period. The company is therefore protected and can trade semi normally in the moratorium period without fear of their bankers appointing a Receiver or taking the preliminary steps to appoint a Receiver.
The actual wording of Paragraph 13 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.
13 (1)This paragraph applies where there is an uncrystallised floating charge on the property of a company for which a moratorium is in force.
(2) If the conditions for the holder of the charge to give a notice having the effect mentioned in sub-paragraph (4) are met at any time, the notice may not be given at that time but may instead be given as soon as practicable after the moratorium has come to an end.
(3) If any other event occurs at any time which (apart from this sub-paragraph) would have the effect mentioned in sub-paragraph (4), then—
(a) the event shall not have the effect in question at that time, but
(b) if notice of the event is given to the company by the holder of the charge as soon as is practicable after the moratorium has come to an end, the event is to be treated as if it had occurred when the notice was given.
(4) The effect referred to in sub-paragraphs (2) and (3) is—
(a) causing the crystallisation of the floating charge, or
(b) causing the imposition, by virtue of provision in the instrument creating the charge, of any restriction on the disposal of any property of the company.
(5) Application may not be made for leave under paragraph 12(1)(g) or (h) with a view to obtaining—
(a) the crystallisation of the floating charge, or
(b) the imposition, by virtue of provision in the instrument creating the charge, of any restriction on the disposal of any property of the company.
Bankers, or others, who hold registered debentures containg a floating charge provision cannot crystallise those charges in a Company Voluntary Arrangement (CVA) moratorium period. The effect of Paragraph 13 of Schedule A1 to The Insolvency Act 1986 is to make that effect law. It results in the floating charge holder being unable to progress any action (regarding what is known as crystallisation) in the moratorium period to ultimately appoint an Administrative Receiver to the company concerned.