Company Voluntary Arrangements (CVAs) - Law - CVA with a moratorium
Schedule A1 - Insolvency Act 1986 - Paragraph 43 - Void provisions in floating charge documents as they impact on CVAs
Creditors of a company, such as banks, often seek to protect their interests by registering at Companies House a "floating charge" over the assets of the company concerned. Floating charge documents do not have any prescribed wording. In pracice floating charge documentation is changed over time by particular lenders in the light of developing case law and statute law. Paragraph 43 of Schedule A1 to The Insolvency Act 1986 makes it legally impossible for a floating charge document to include wording that impacts on Company Voluntary Arrangements (CVA's).
The actual wording of Paragraph 43 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.
Paragraph 43 - Schedule A1 - Insolvency Act 1986 - Interaction between floating charges and Company Voluntary Arrangements
(1) A provision in an instrument creating a floating charge is void if it provides for—
(a) obtaining a moratorium, or
(b) anything done with a view to obtaining a moratorium (including any preliminary decision or investigation),
to be an event causing the floating charge to crystallise or causing restrictions which would not otherwise apply to be imposed on the disposal of property by the company or a ground for the appointment of a receiver.
(2) In sub-paragraph (1), “receiver” includes a manager and a person who is appointed both receiver and manager.
The purpose of Paragraph 43 is to protect the CVA moratorium period. If banks could rewrite their standard floating charge documentation such that the grant of any moratorium would result in the crystallisation of their charge then the whole basis of this CVA protection from creditors would be nullified (as the bank could then appoint an Administrative Receiver). Paragraph 43 of Schedule A1 makes any such provision in floating charge documents void (ie of no effect).