Company Voluntary Arrangements (CVAs) - Law - CVA with a moratorium
Schedule A1 - Insolvency Act 1986 - Paragraph 19 - Can a company pay existing creditors when in a CVA moratorium period?
The idea behind any Company Voluntary Arrangement proposal is to treat like creditors in an equal way. For that reason when a company that has proposed a Company Voluntary Arrangement (CVA) is in the intervening moratorium period leading up to the CVA Creditors meeting the general rule is that the company must not prefer (ie pay) any existing pre CVA creditor. That is what Paragraph 19 of Schedule A1 to The Insolvency Act 1986 prescribes.
The actual wording of Paragraph 19 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.
19. (1) Subject to sub-paragraph (2), the company may only make any payment in respect of any debt or other liability of the company in existence before the beginning of the moratorium if—
(a) there are reasonable grounds for believing that the payment will benefit the company, and
(b) the payment 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 payment required by paragraph 20(6).
(3) If the company makes a payment 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
This Paragraph of Schedule A1 to the Insolvency Act 1986 only provides very limited circumstances where a company can pay pre Company Voluntary Arrangement (CVA) creditors in the moratorium period leading up to the Company Voluntary Arrangement creditors meeting.