Company Voluntary Arrangements (CVAs) - Law - CVA with a moratorium
Schedule A1 - Insolvency Act 1986 - Paragraph 37 - Effects of the approval of a company voluntary arrangement
What are the effects of the approval of a Company Voluntary Arrangement (CVA) proposal?
One major effect when a CVA is approved at a creditors meeting is that binds not only those creditors who were notified of the creditors meeting but also those creditors who were not invited to that meeting. The other effcts of approval are set out in Paragraph 37 of Schedule A1 to The Insolvency Act 1986.
The actual wording of Paragraph 37 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.
Paragraph 37 - Schedule A1 - Insolvency Act 1986 - What are the effects of the approval of a Company Voluntary Arrangement (CVA) proposal?
(1) This paragraph applies where a decision approving a voluntary arrangement has effect under paragraph 36.
(2) The approved voluntary arrangement—
(a) takes effect as if made by the company at the creditors’ meeting, and
(b) binds every person who in accordance with the rules—
(i) was entitled to vote at that meeting (whether or not he was present or represented at it), or
(ii) would have been so entitled if he had had notice of it,
as if he were a party to the voluntary arrangement.
(a) when the arrangement ceases to have effect any amount payable under the arrangement to a person bound by virtue of sub-paragraph (2)(b)(ii) has not been paid, and
(b) the arrangement did not come to an end prematurely,
the company shall at that time become liable to pay to that person the amount payable under the arrangement.
(4) Where a petition for the winding up of the company, other than an excepted petition within the meaning of paragraph 12, was presented before the beginning of the moratorium, the court shall dismiss the petition.
(5) The court shall not dismiss a petition under sub-paragraph (4)—
(a) at any time before the end of the period of 28 days beginning with the first day on which each of the reports of the meetings required by paragraph 30(3) has been made to the court, or
(b) at any time when an application under paragraph 38 or an appeal in respect of such an application is pending, or at any time in the period within which such an appeal may be brought.
The effect of approval of a CVA is that all creditors are bound by the terms of the CVA proposal (as modified by any creditors modifications). For the reason that there is then a new contractual arrangement (represented by the approved proposal) between the creditors and the company the enforced moratorium period is automatically brought to an end. The agreement of the proposal does of course provide a future effective moratorium as the approved CVA provides a new contractual arrangement between the creditors and the Company.