Company Voluntary Arrangements (CVAs) - Law - CVA with a moratorium
Schedule A1 - Insolvency Act 1986 - Paragraph 14 - Does a CVA Moratorium provide protection against secured creditors?
The idea behind a Company Voluntary Arrangement (CVA) is that it is a legal type of rescue vehicle which can assist a company in financial difficulty to come to a deal with its creditors under the terms of a CVA proposal. Before a CVA proposal can be considered by creditors at a meeting there is, necessarily, an intervening period. In that intervening period secured creditors would have been able to take enforcement action against the company unless for the provisions of Paragraph 14 of Schedule A1 to The Insolvency Act 1986. Under that Paragraph if a CVA moratorium has been obtained ahead of the creditors' meeting then secured creditors are legally unable to enforce their security.
The actual wording of Paragraph 14 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.
13. Security granted by a company at a time when a moratorium is in force in relation to the company may only be enforced if, at that time, there were reasonable grounds for believing that it would benefit the company.
It is unusual for the contractual rights of secured creditors to be legally taken away from them for a legally defined period - that is, however, exactly what Paragraph 14 of Schedule A1 to The Insolvency Act 1986 prescribes for a CVA moratorium period ahead of the CVA Creditors' meeting.