Company Voluntary Arrangements (CVAs) - Law - CVA with a moratorium
Schedule A1 - Insolvency Act 1986 - Paragraph 25 - Effect of the Nominee's (in a CVA) withdrawal of consent to act
Paragraph 24 of Schedule A1 to The Insolvency Act 1986 places great responsibility on the insolvency practitioner, acting as Nominee, in a Company Voluntary Arrangement (CVA) moratorium period ahead of the creditors meeting called to consider the CVA Proposal. In this period the Nominee must pull the plug on the moratorium if he can see that,
- The proposed arrangement no longer has a reasonable prospect of success, or
- The company does not have sufficient funds to even last out the moratorium period, or
- The directors do not cooperate with the Nominee's enquiries
The effect of the withdrawal of the Nominee's consent is that the moratorium comes to an end & the company is then reexposed to creditors enforcement actions.
The actual wording of Paragraph 25 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.
25. (1) The nominee may only withdraw his consent to act in the circumstances mentioned in this paragraph.
(2) The nominee must withdraw his consent to act if, at any time during a moratorium—
(a) he forms the opinion that—
(i) the proposed voluntary arrangement or, if he has received notice of proposed modifications under paragraph 31(7), the proposed arrangement with those modifications no longer has a reasonable prospect of being approved or implemented, or
(ii) the company will not have sufficient funds available to it during the remainder of the moratorium to enable it to continue to carry on its business,
(b) he becomes aware that, on the date of filing, the company was not eligible for a moratorium, or
(c) the directors fail to comply with their duty under paragraph 24(2).
(3) The reference in sub-paragraph (2)(a)(ii) to the company’s business is to that business as the company proposes to carry it on during the remainder of the moratorium.
(4) If the nominee withdraws his consent to act, the moratorium comes to an end.
(5) If the nominee withdraws his consent to act he must, in accordance with the rules, notify the court, the registrar of companies, the company and any creditor of the company of whose claim he is aware of his withdrawal and the reason for it.
(6) If the nominee without reasonable excuse fails to comply with sub-paragraph (5), he is liable to a fine.
Because of the positive requirement on a CVA Nominee under Paragraph 25 of Schedule A1 directors of the relevant company realise that the moratorium period does not allow for a free for all but that the Nominee's continuing consent is required if the moratorium period is not to be brought to an early end.