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Company Voluntary Arrangement CVA Moratorium

7th December, 2020
Keith Steven

Written ByKeith Steven

Managing Director

07879 555349

Keith is the author of the content on this comprehensive rescue, turnaround and insolvency website. He is the managing director of KSA Group Ltd - a specialist firm of turnaround and licensed insolvency practitioners. Keith was nominated for Turnaround Practitioner of the Year 2014 at the National Insolvency and Rescue Awards in 2014.

Keith Steven
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  • CVA and Moratorium
  • A Very Brief Guide to The (Formal) Moratorium
  • The De facto Informal Moratorium (This Does Work)!
  • What if a Creditor Starts Legal Actions?

I have heard that a CVA does not allow a moratorium until creditors approve the proposal?

CVA and Moratorium

Please note that this is a technical page but one that covers very important practical issues when implementing CVAs.

As experts we are often asked questions like these;

  • Do we need to apply for a moratorium? How do we protect the company while the proposal is being prepared?
  • Why don’t insolvency practitioners use the moratorium? Can the company be wound up by creditors before the Arrangement is approved?

KSA Group specialise in building successful proposals, we know a fair bit about them having been responsible for hundreds of deals. We have never used the formal moratorium because in practice its too cumbersome for the company and much too risky for the nominee. We understand that very few moratoria have been applied for and this I think supports our view!

Here we present our views on the actual Formal Moratorium versus “de facto Informal CVA moratorium”.

A Very Brief Guide to The (Formal) Moratorium

Under Schedule A1 Insolvency Act 1986 introduced by the Insolvency Act 2000.

IA 2000 introduced the provision for small companies (less than £5.7m turnover for example) in financial difficulty to make voluntary arrangements with their creditors by providing the option of a moratorium to give the firm’s management time to put a rescue plan to the company’s creditors.

Prior to IA 2000, the only means of providing an equivalent of this protection was for the company to enter into Administration and to set up the CVA after the Administration order was made. Usually this takes several weeks and is much more costly than a standalone proposal

The act says that the directors and nominated supervisor (nominee) need to file certain documents in court. To obtain a moratorium the directors of a company must file in the prescribed format:

  • The proposal for the voluntary arrangement
  • A statement of the company’s affairs (SOFA)
  • A statement that the company is eligible for a moratorium
  • A statement from the nominee giving his consent to act and
  • Critically a statement from the nominee that, in his opinion “The proposed voluntary arrangement has a reasonable prospect of being approved and implemented, and the company is likely to have sufficient funds available to it during the proposed moratorium period to enable it to carry on its business”.

Further the nominee will summon meetings of members and creditors to consider the proposals.

This nominee’s statement is the big issue here. After a few days of talking to a possible candidate for a CVA and preparing the  proposal, will the nominee know enough information about the company and its prospects to actually make that statement (that the company is likely to have sufficient funds available to it during the proposed moratorium period to enable it to carry on its business)?

We believe that most nominee’s are unlikely to want to take that risk of stating categorically that the company will be have sufficient cash available in the moratorium period. Without knowing accurately the statement of affairs, financial forecasts, debtors, stock, work in progress, balance sheet, orders and so forth they will be worried about putting themselves at risk.

This we believe is the reason why tiny numbers of moratoria have been applied for.

The De facto Informal Moratorium (This Does Work)!

KSA Group specialises in working with debtor companies and their creditors to organise a de facto moratorium. We are appointed by the client and then we talk to every unsecured creditor telling them of the Voluntary Arrangement plan. This buys time so that we can put together the proposals in fine detail.

Creditors are told that historic liabilities WILL NOT be paid for as the company has a serious cashflow problem. In the meantime the company is continuing to trade and wants to buy products or services.

Common Sense?

Once appointed to assist the company, KSA Group follows a well worn and successful path.

During the production period we help the client buy goods and services by negotiating pro forma terms. Over a period of weeks the creditors supply on nil risk terms (cash upfront) and this allows them to keep cashflow going and also demonstrates that the company is viable if the proposal was approved.

This pre-CVA trust building is very important and shows that the directors are seriously trying to maximise creditors’ interests, which is a legal requirement.

After 3-5 weeks the proposal is filed at court (see the detailed guide here) and the trade creditors generally support because they want to recover debts and also keep the customer trading with them on nil risk terms.

Due to the Covid Crisis the Government has enacted the Corporate Insolvency and Governance Act 2020 that allows a 20 day moratorium on action against companies affected by the pandemic. The moratorium will require an insolvency practitioner to state that they think the company can be rescued. Call us on 0800 970 0539 if you want to talk about this.

What if a Creditor Starts Legal Actions?

In 1995, case law was reported that provides a very powerful argument. Re Dollar Land (Feltham) & Ors [1995] BCC 740 reported that the court decided that a winding-up order should be rescinded if there was a real prospect that the proposals would be approved by the company’s creditors. In other words let the majority decide.

We use this argument to STOP petitions being issued in the first place, saving the creditor money for costs and fees and also removing the risk of the petition against the client.

If a petition is already issued before we’re appointed to assist, and a hearing date is due before we can file the meeting notice, we talk to the plaintiff to get them to stop their actions as above, or to prevent the advertisement of the petition. Usually the petitioner is the Crown (HMRC).

Most HMRC petitions are stopped or adjourned in this way so we can get on with the proposal production. This is a powerful approach that is built on common sense and a case that said “look is it equitable for one creditor to knock a company down when all the other creditors may agree a CVA”? Obviously not and we’ve defeated petitions in courts across the UK this way.

Aggressive Petitioners?

If the petitioner will not withdraw or threatens advertisement the company could use an application to Court to request a hearing adjournment and seek a Validation order from the Court saying that the hearing is adjourned and the company can progress the  proposal to filing and creditors meeting.

The bank account is always frozen by the bank if the petition is advertised, so by obtaining the validation order the bank can then reopen the bank facilities.

So we believe that by careful discussions and complete honesty with creditors, using powerful case law and common sense we can effect a de facto moratorium that works in virtually every case.

Want to know more? Have a specific question about this page? Please call the UK’s leading company voluntary arrangement experts on 08009700539.

Worried Director What Will Happen To Me After Liquidation?

in Company Liquidation What is …?

"A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?"Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. Guess what? Listening to bar room experts, inexperienced accountants, or no insolvency specialist lawyers can stop decisions being made, this failure to make a decision is really what could land you in trouble. So how will liquidation affect me and how long does it take? Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time. What is more, if as a director, you have been compliant and on the payroll for many years, you can actually claim redundancy from the government like any other employee. But, and it is a big but, if you fail to act in time, fail to act reasonably, fail to keep books and records, continue taking credit KNOWING that the company cannot possibly repay it, then you ARE at risk of personal financial loss or worse such as losing your house. So, act now and get help for your company and more importantly start reducing your own risks.Voluntary liquidation is the quickest most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don't act to put the company into liquidation.If you fail to act and the company is wound up by the creditors (compulsory liquidation) then the Official Receiver (OR) will be appointed to liquidate the business and he or she will investigate the activity of the directors and the business over the last 2-3 years. This is known as a conduct report on each director.  If the OR can prove there was wrongful trading where, for instance, you have taken credit from a supplier or took deposits from customers when you knew that it was highly unlikely that you could pay them back, then you could be made personally liable.This is known as the "lifting of the veil of incorporation" that protects directors under limited liability. If this happens then you could made liable for PAYE, VAT and creditors monies from the time that you should have known the company had no reasonable prospect of surviving the problems it faced.Additionally, the directors may face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years, they can be fined and may face the loss of personal assets like your home, or even personal bankruptcy.Look, if you as directors have acted naively you may not know that you have broken these laws, but now you do know, it is vital to ensure that you protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation; or consider a company voluntary arrangement if the company is VIABLE if the problems are solved. What is Creditors Voluntary Liquidation and what does it mean for me? In short, liquidation usually means, the company's trading stops and it's assets are turned into cash or "liquidated".All other possible liabilities, like employment liabilities, landlord's rent or payments to lease companies are stopped. It really is the end of the company, but the "business" may survive if a phoenix is organised. Liquidation is a powerful way to END creditor pressure and let you get on with your life. What if I have signed personal guarantees? If you have signed personal guarantees or indemnities to lenders, then the liquidation could lead to them being called in if the bank cannot get its money back from the company. There is little that can be done about that, but you should not delay decisions on liquidation to try and prevent a PG being called in: just think what ALL of the company's debts landing on your shoulders would do. Also it should be noted that HMRC now rank ahead of floating charge holders in any liquidation since December 2020.  Consequently, this may well mean that lenders that you have personally guaranteed will get less recovery hence exposing you more.All banks will agree a deal to repay the PG over time - provided you work with the bank to reduce their exposure.One great piece of FREE advice - always make sure that ALL tax returns, VAT returns and annual returns have been completed and sent in and that other "compliance" issues are dealt with wherever possible. These are important processes and will help protect you as individual directors. It shows that you have been acting properly.  I have heard about directors being able to claim redundancy in liquidation If you have been employed by the company and made payments via PAYE then you will be able to claim redundancy from the government and this is in fact a very simple process (20 minutes to fill out a form and we can help with that) so there is no need really to employ a third party to make a claim.  This process has been open to fraud so the HMRC are cracking down on operators that claim to be able to get money back when there is not enough "paperwork".  It isn't worth the risk.  If it sounds too good to be true then it probably is!You need to learn more about the options. This is clearly a general guide so, if you have any worries at all, please, just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:Just one CALL will help relieve the stress and get you out of the mess.Why not call 08009700539 or 020 7887 2667 now?We could help you start the liquidation process today.(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP)  or Eric Walls (IP) on 07787 278527)Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while the stress will go and you can focus on other things that are more important.Want more information on liquidation? Get our new free 2023 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back LoansWe are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, we can help solve your problems but only if you talk to us. Call 0800 9700539 for help.or email us your worries at 

Worried Director What Will Happen To Me After Liquidation?

Notice of Intention To Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

Notice of Intention To Appoint Administrators
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What Is A Winding Up Petition By HMRC or Other Creditor

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

What Is A Winding Up Petition By HMRC or Other Creditor

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