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

Sch A1 - Insol Act 1986 - Para 41 - Punishable offences by directors for improper actions in the CVA moratorium period

 

 

 

 

Directors of a company must engage in proper conduct at all times. It is no surprise then to read Paragraph 41 of Schedule A1 to The Insolvency Act 1986 which addresses improper behaviour by company directors in a Company Voluntary Arrangement period of moratorium ahead of the CVA creditors meeting. The Paragraph provides for punishement of directors who involve themselves in the types of behaviour listed below - the punishment menu available to be ordered by the Court includes imprisonment or fine or both. 

 

 

The actual wording of Paragraph 41 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.

 

 

Paragraph 41 - Schedule A1 - Insolvency Act 1986 - Offences in the Company Voluntary Arrangement moratorium period in respect of which directors (and certain others) may be punished by law.

 

(1)This paragraph applies where a moratorium has been obtained for a company.

(2) If, within the period of 12 months ending with the day on which the moratorium came into force, a person who was at the time an officer of the company—

(a) did any of the things mentioned in paragraphs (a) to (f) of sub-paragraph (4), or

(b) was privy to the doing by others of any of the things mentioned in paragraphs (c), (d) and (e) of that sub-paragraph,

he is to be treated as having committed an offence at that time.

(3) If, at any time during the moratorium, a person who is an officer of the company—

(a) does any of the things mentioned in paragraphs (a) to (f) of sub-paragraph (4), or

(b) is privy to the doing by others of any of the things mentioned in paragraphs (c), (d) and (e) of that sub-paragraph,

he commits an offence.

(4) Those things are—

(a) concealing any part of the company’s property to the value of £500 or more, or concealing any debt due to or from the company, or

(b) fraudulently removing any part of the company’s property to the value of £500 or more, or

(c) concealing, destroying, mutilating or falsifying any book or paper affecting or relating to the company’s property or affairs, or

(d) making any false entry in any book or paper affecting or relating to the company’s property or affairs, or

(e) fraudulently parting with, altering or making any omission in any document affecting or relating to the company’s property or affairs, or

(f) pawning, pledging or disposing of any property of the company which has been obtained on credit and has not been paid for (unless the pawning, pledging or disposal was in the ordinary way of the company’s business).

(5) For the purposes of this paragraph, “officer” includes a shadow director.

(6) It is a defence—

(a)for a person charged under sub-paragraph (2) or (3) in respect of the things mentioned in paragraph (a) or (f) of sub-paragraph (4) to prove that he had no intent to defraud, and

(b) for a person charged under sub-paragraph (2) or (3) in respect of the things mentioned in paragraph (c) or (d) of sub-paragraph (4) to prove that he had no intent to conceal the state of affairs of the company or to defeat the law.

(7) Where a person pawns, pledges or disposes of any property of a company in circumstances which amount to an offence under sub-paragraph (2) or (3), every person who takes in pawn or pledge, or otherwise receives, the property knowing it to be pawned, pledged or disposed of in circumstances which—

(a) would, if a moratorium were obtained for the company within the period of 12 months beginning with the day on which the pawning, pledging or disposal took place, amount to an offence under sub-paragraph (2), or

(b) amount to an offence under sub-paragraph (3),

commits an offence.

(8) A person guilty of an offence under this paragraph is liable to imprisonment or a fine, or both.

(9) The money sums specified in paragraphs (a) and (b) of sub-paragraph (4) are subject to increase or reduction by order under section 417A in Part XV.

 

 

 

 

Paragraph 41 of Schedule A1 ensures that there is legal provision for punishing directors who, in a Company Voluntary Arrangement (CVA) moratorium period, 

- Conceal assets

- Destroy records

- Commit fraiud

- Make false entries in the company records.