Company Voluntary Arrangements (CVAs) - Law - CVA with a moratorium
Schedule A1 - Insolvency Act 1986 - Paragraph 18 - Can directors dispose of company assets in a CVA moratorium period?
The purpose of Paragraph 18 of Schedule A1 to The Insolvency Act 1986 is to ensure that the directors of a company do not dissipate the company assets by disposing of those assets in a Company Voluntary Arrangement (CVA) moratorium period ahead of the creditors meeting.
The actual wording of Paragraph 18 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.
18. (1) Subject to sub-paragraph (2), the company may only dispose of any of its property if—
(a) there are reasonable grounds for believing that the disposal will benefit the company, and
(b) the disposal is approved by the committee established under paragraph 35(1) or, where there is no such committee, by the nominee.
(2) Sub-paragraph (1) does not apply to a disposal made in the ordinary way of the company’s business.
(3) If the company makes a disposal in contravention of sub-paragraph (1) otherwise than in pursuance of an order of the court—
(a) the company is liable to a fine, and
(b) if any officer of the company authorised or permitted the contravention, without reasonable excuse, he is liable to imprisonment or a fine, or both.
The idea behind Paragraph 18 of Schedule A1 to The Insolvency Act 1986 is that there should be fair dealing between a company which is in financial difficulty (and which has proposed a Company Voluntary Arrangement with a prior moratorium) by not permitting the company directors to dispose of assets in the CVA moratorium period. Instead the assets are effectively ring fenced for the creditors benefit should the CVA not be approved at the creditors meeting called to consider the CVA proposal.