Moratorium Guidelines


This guide focuses principally on the new moratorium period for small company voluntary arrangements (CVA), including the nominee’s role.

Moratorium Period for small Company Voluntary Arrangements (CVA’s)

Part I of IA 86 allows a company in financial difficulties to enter into a CVA.  A CVA is a procedure which enables a company to compromise its liabilities to creditors by an affirmative vote of 75 per cent by value of creditors voting on the proposal.  It was designed to be a simple alternative to a Companies Act scheme of arrangement.

One weakness of the CVA procedure which the Act has addressed is that previously a company proposing a CVA did not have the benefit of any statutory moratorium or protection from creditors.  It was therefore difficult to achieve a successful CVA on its own (although it could be combined with an administration).

It was felt that administration itself has proved to be potentially too cumbersome and expensive a process for small companies.  As a result, a simplified moratorium procedure, with a lower level of oversight by an independent professional, was considered desirable.

The Reforms of the Act
Optional Moratorium

Under the reforms introduced by the Act, an eligible company wishing to propose a Company Voluntary Arrangement will be able to benefit from a 28 day moratorium, while it puts together the CVA.  Many of the features of the moratorium are similar to those which apply while a company is in administration.  With creditor consent the moratorium can be extended by up to two more months.

Eligible Companies

The moratorium is only available to small companies as defined by section 247(3) of the Companies Act.

Section 247(3) defines a small company as a company which satisfies two or more of the following criteria:

  • turnover of not more than £2.8m;
  • balance sheet asset total of not more than £1.4m; or
  • not more than 50 employees.

Note that the definition looks at the company’s historic accounts. It may be that a newly formed company with no previous accounts may constitute a small company.

Excluded Companies

The Act and subsequent regulations provide for certain eligible companies to be excluded from the new Company Voluntary Arrangement moratorium procedure.

A company is not eligible if it:

  • is conducting insurance business;
  • is an authorised deposit taker;
  • is a party to a market contract or a system charge;
  • is a ‘participant’ in financial transactions which are protected by the special insolvency rules in part VII of the Companies Act 1989;
  • is a holding company of a group which is not a small or medium sized group as defined by the Companies Act 1985;
  • is a party to a capital market arrangement under which a party has incurred or is expected to incur a debt of at least £10m;
  • is a project company of a project which is a public-private partnership project and includes step-in rights; or
  • has incurred a liability under an agreement of £10m or more.

Eligible companies may not apply for a moratorium if any of the following apply:

  • an administration order is in force;
  • the company is being wound up;
  • there is an administrative receiver of the company;
  • a voluntary arrangement is in effect in relation to the company; or
  • there is a provisional liquidator of the company.

Further, a company cannot apply for a moratorium if a moratorium has been in force at any time within the previous 12 months.  Nor can a company apply for a moratorium if within the previous 12 months a voluntary arrangement in relation to the company had been brought to an end before it was fully implemented.

It is important to note that under the Act the secretary of state may, by regulations, modify the eligibility requirements for a company to go into a moratorium.  The secretary of state has the power to extend the CVA procedure to larger companies.