Company Voluntary Arrangements (CVAs) - Law - CVA with a moratorium

Schedule A1 - Insolvency Act 1986 - Paragraph 20 - Can charged property be sold by the Co in the CVA moratorium period?

 

 

 

In accord with the government's intention to have a "rescue culture" for companies in financial difficulty there is a specific provision in Paragraph 20 of Schedule A1 to The Insolvency Act 1986 that assists any restructuring process. The gist of Paragraph 20 is that holders of charged property (eg a HP company) may, with their consent, allow the directors of a company in a Company Voluntary Arrangement (CVA) moratorium period to sell such charged property (as long as the proceeds go to the chargeholder). This provisions allows arrangements for the sale of the entirety of the assets of a company (charged assets and uncharged assets) to be arranged as one sale should that benefit the company overall. Buyers normally want everything!

 

 

 

The actual wording of Paragraph 20 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.

 

20. (1) This paragraph applies where—

(a) any property of the company is subject to a security, or

(b) any goods are in the possession of the company under a hire-purchase agreement.

(2) If the holder of the security consents, or the court gives leave, the company may dispose of the property as if it were not subject to the security.

(3) If the owner of the goods consents, or the court gives leave, the company may dispose of the goods as if all rights of the owner under the hire-purchase agreement were vested in the company.

(4) Where property subject to a security which, as created, was a floating charge is disposed of under sub-paragraph (2), the holder of the security has the same priority in respect of any property of the company directly or indirectly representing the property disposed of as he would have had in respect of the property subject to the security.

(5) Sub-paragraph (6) applies to the disposal under sub-paragraph (2) or (as the case may be) sub-paragraph (3) of—

(a) any property subject to a security other than a security which, as created, was a floating charge, or

(b) any goods in the possession of the company under a hire-purchase agreement.

(6) It shall be a condition of any consent or leave under sub-paragraph (2) or (as the case may be) sub-paragraph (3) that—

(a) the net proceeds of the disposal, and

(b) where those proceeds are less than such amount as may be agreed, or determined by the court, to be the net amount which would be realised on a sale of the property or goods in the open market by a willing vendor, such sums as may be required to make good the deficiency,

shall be applied towards discharging the sums secured by the security or payable under the hire- purchase agreement.

(7) Where a condition imposed in pursuance of sub-paragraph (6) relates to two or more securities, that condition requires—

(a) the net proceeds of the disposal, and

(b) where paragraph (b) of sub-paragraph (6) applies, the sums mentioned in that paragraph,

 to be applied towards discharging the sums secured by those securities in the order of their priorities.

(8) Where the court gives leave for a disposal under sub-paragraph (2) or (3), the directors shall, within 14 days after leave is given, send [a copy] of the order giving leave to the registrar of companies.

(9) If the directors without reasonable excuse fail to comply with sub-paragraph (8), they are liable to a fine

 

 

Arrangemens for the sale of the entirety of a company's assets (both charged and uncharged property) is made more easy in CVA cases (in the moratorium period) by the provisions of Paragraph 20 of Schedule A1 to The Insolvency Act 1986.