Company Voluntary Arrangements (CVAs) - Obtaining a CVA with a moratorium - Nominee's Duties
Schedule A1 - Insolvency Act 1986 - Paragraph 6 - The importance of the Nominee's Statement
Before a Company Voluntary Arrangement requesting a moratorium (freeze) on creditors enforcement actions can be submitted into court for consideration it must be critically reviewed by a licensed insolvency practitioner acting as "nominee". Under Paragraph 6 of Schedule A1 the nominee's serious duties are set out. Essentially the nominee has to conclude a professional opinion that the company
- will not run out of money in the ringfenced period
- proposal contains all of the voluminous information prescriibed by law
- proposal has a reasonable chance of being approved by creditors.
If the nominee does not reach such an opinion the proposal cannot go forward.
The actual wording of Paragraph 6 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.
Insolvency Act 1986 - Schedule A1 - Paragraph 6 - Obtaining a CVA with a moratorium - The nominee's statement
(1) Where the directors of a company wish to obtain a moratorium, they shall submit to the nominee—
(a) a document setting out the terms of the proposed voluntary arrangement,
(b) a statement of the company’s affairs containing—
(i) such particulars of its creditors and of its debts and other liabilities and of its assets as may be prescribed, and (when the word "prescribed" is used that is a reference to The Insolvency Rules 1986)
(ii) such other information as may be prescribed, and
(c) any other information necessary to enable the nominee to comply with sub-paragraph (2) which he requests from them.
(2) The nominee shall submit to the directors a statement in the prescribed form indicating whether or not, in his opinion—
(a) the proposed voluntary arrangement has a reasonable prospect of being approved and implemented,
(b) the company is likely to have sufficient funds available to it during the proposed moratorium to enable it to carry on its business, and
(c) meetings of the company and its creditors should be summoned to consider the proposed voluntary arrangement.
(3) In forming his opinion on the matters mentioned in sub-paragraph (2), the nominee is entitled to rely on the information submitted to him under sub-paragraph (1) unless he has reason to doubt its accuracy.
(4)The reference in sub-paragraph (2)(b) to the company’s business is to that business as the company proposes to carry it on during the moratorium.
In practice the insolvency practitioner who acts as nominee under the CVA proposal assists the directors' in preparing the CVA proposal. Having drafted the proposal the Nominee has to then stand back & satisfy himself (under the duty provisions of Paragraph 6) that the Company Voluntary Arrangement proposal is serious, complete and has a reasonable chance of being approved by creditors.