Company Voluntary Arrangements (CVAs) - Companies which are eligible to obtain a CVA with a moratorium

Paragraph 3 of Schedule A1 - Insolvency Act 1986 - "The qualifying conditions"

 

Essentially it is only those companies that are legally defined as "small companies" than can obtain a Company Voluntary Arrangement with a moratorium (freeze on creditors enforcement actions in the period leading up to the creditors meeting to consider the CVA proposal).

 

The actual wording of Paragraph 3 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.

 

Paragraph 3 - Schedule A1 - Insolvency Act 1986 - Qualfying conditions (to apply for a Company Voluntary Arrangement with a moratorium)


(1) A company meets the requirements of this paragraph if the qualifying conditions are met—

(a) in the year ending with the date of filing, or

(b) in the financial year of the company which ended last before that date.

(2) For the purposes of sub-paragraph (1)—

(a) the qualifying conditions are met by a company in a period if, in that period, it satisfies two or more  of the requirements for being a small company specified for the time being in [section 382(3) of the  Companies Act 2006] , and

(b) a company’s financial year is to be determined in accordance with that Act.

(3) [Section 382(4), (5) and (6)] of that Act apply for the purposes of this paragraph as they apply for the purposes of that section.

[(4) A company does not meet the requirements of this paragraph if it is a [parent company] of a group of companies which does not qualify as a small group or a medium-sized group [in relation to] the financial year of the company which ended last before the date of filing.

[(5) For the purposes of sub-paragraph (4)—

(a) “group” has the same meaning as in Part 15 of the Companies Act 2006 (see section 474(1) of that Act); and

(b) a group qualifies as small in relation to a financial year if it so qualifies under section 383(2) to (7) of that Act, and qualifies as medium-sized in relation to a financial year if it so qualifies under section 466(2) to (7) of that Act.]]

[(6) Expressions used in this paragraph that are defined expressions in Part 15 of the Companies Act 2006 (accounts and reports) have the same meaning in this paragraph as in that Part.

 

 

The gist of the above is that it is only "small companies" that can apply for a CVA with a moratorium. The law envisages that larger companies would use an Administration if they need an immediate freeze on creditors enforcement actions. In turn the definition of a "small company" is regularly changing by up issues to statutory instruments. At 1 November 2011 the definition of a "small" company (by reference to Section 382 (3) of The Companies Act 2006) is, one which can satisfy two out of the three following criteria,

 

  • Has an annual turnover of £6.5 million or less

 

  • Total fixed & current assets on its balance sheet of £3.26 million or less

 

  • 50 employees or less


If you wish to find out if your company is eligible to qualify as a "small company"  to obtain a Company Voluntary Arrangement (CVA) with a moratorium then  contact us for free advice - in plain english on that and on any other insolvency question that you might have.