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

Schedule A1 - Insolvency Act 1986 - Para 42 - Punishment for fraud & false representations to obtain a CVA moratorium

 

 

Insolvency law also provides for punishment for directors (and certain others) if they commit fraud or make false representations in an attempt to obtain a moratorium on creditors enforcement actions ahead of a Company Voluntary Arrangement (CVA) credtors meeting. The law is set out in Paragraph 42 of Schedule A1 to The Insolvency Act 1986.

 

 

 

The actual wording of Paragraph 42 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.

 

 

 

Paragraph 42 - Schedule A1 - Insolvency Act 1986 - The punishment implications of improperly obtaining a CVA moratorium

 

(1) If, for the purpose of obtaining a moratorium, or an extension of a moratorium, for a company, a person who is an officer of the company—

(a) makes any false representation, or

(b) fraudulently does, or omits to do, anything,

he commits an offence.

(2) Sub-paragraph (1) applies even if no moratorium or extension is obtained.

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

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

 

 

 

The law demands directors to engage in proper behaviour at all times. There is a specific provision (in Paragraph 42 of Schedule A1 to The Insolvency Act 1986) to punish directors for fraud or false representations if that behaviour is designed to obtain the benefit of a CVA moratorium ahead of a Company Voluntary Arrangement creditors meeting. In other words directors cannot obtain such a breathing space from creditors through fraud - without risk of being imprisoned and / or fined.