Company Voluntary Arrangements (CVAs) - Law - CVA with a moratorium
Schedule A1 - Insolvency Act 1986 - Paragraph 12 - What is the effect of the CVA moratorium period?
What is the effect of the moratorium period before a Company Voluntary Arrangement (CVA) creditors meeting?
The answer is found in Paragraphs 12 to 23 of Schedule A1 to The Insolvency Act 1986. Paragraph 12 of Schedule A1 sets the scene by providing that in the moratorium period,
- No insolvency proceeding can be pursued (such as a winding up petition, liquidation, receivership or administration) against the company that has proposed the CVA
- Landlords' and HP companies cannot seize or repossess the company goods.
- Unsecured creditors may not start or continue court proceedings against the company.
The moratorium period ahead of the CVA creditors' meeting really stops all types of legal and possession proceedings against the company and its assets. This is why a "moratorium" is otherwise described "as a freeze on enforcement actions"
The actual wording of Paragraph 12 of Schedule A1 to The Insolvency Act 1986 is reproduced below in bold.
The Insolvency Act 1986 - Schedule A1 - Paragraph 11 - Effect on creditors of the moratorium
12 (1) During the period for which a moratorium is in force for a company—
(a) no petition may be presented for the winding up of the company,
(b) no meeting of the company may be called or requisitioned except with the consent of the nominee or the leave of the court and subject (where the court gives leave) to such terms as the court may impose,
(c) no resolution may be passed or order made for the winding up of the company,
(d) no administration application may be made in respect of the company,
(da) no administrator of the company may be appointed under paragraph 14 or 22 of Schedule B1,]
(e) no administrative receiver of the company may be appointed,
(f) no landlord or other person to whom rent is payable may exercise any right of forfeiture by peaceable re-entry in relation to premises let to the company in respect of a failure by the company to comply with any term or condition of its tenancy of such premises, except with the leave of the court and subject to such terms as the court may impose,
(g) no other steps may be taken to enforce any security over the company’s property, or to repossess goods in the company’s possession under any hire-purchase agreement, except with the leave of the court and subject to such terms as the court may impose, and
(h) no other proceedings and no execution or other legal process may be commenced or continued, and no distress may be levied, against the company or its property except with the leave of the court and subject to such terms as the court may impose.
(2) Where a petition, other than an excepted petition, for the winding up of the company has been presented before the beginning of the moratorium, section 127 shall not apply in relation to any disposition of property, transfer of shares or alteration in status made during the moratorium or at a time mentioned in paragraph 37(5)(a).
(3) In the application of sub-paragraph (1)(h) to Scotland, the reference to execution being commenced or continued includes a reference to diligence being carried out or continued, and the reference to distress being levied is omitted.
(4) Paragraph (a) of sub-paragraph (1) does not apply to an excepted petition and, where such a petition has been presented before the beginning of the moratorium or is presented during the moratorium, paragraphs (b) and (c) of that sub-paragraph do not apply in relation to proceedings on the petition.
(5) For the purposes of this paragraph, “excepted petition” means a petition under—
(a) section 124A [or 124B] of this Act,
(b) section 72 of the Financial Services Act 1986 on the ground mentioned in subsection (1)(b) of that section, or
(c)section 92 of the Banking Act 1987 on the ground mentioned in subsection (1)(b) of that section.
[(d)section 367 of the Financial Services and Markets Act 2000 on the ground mentioned in subsection (3)(b) of that section.]]
From Paragraph 12 of Schedule A1 it is apparent that the freezing effect of the moratorium is compehensive - and permits the company to trade with material protection against creditors in the period leading up to the Company Voluntary Arrangement (CVA) creditors meeting.