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Government proposals for a new company voluntary arrangement (CVA) procedure, advocated by the Insolvency Service, could make the legal framework for business rescue more uncertain and encourage insolvency practitioners to be more conservative and less commercial in their efforts, claims the Society of Practitioners of Insolvency (SPI).
SPI says that if the Government gets it right, the new CVA will create "a valuable, low-cost rescue tool for smaller businesses".
But it fears that the procedure could be costly to carry out, making it unpopular with creditors, debtors and insolvency practitioners.
There is also concern that the proposals could lead to banks becoming more conservative in their lending.
Key elements of the Insolvency Service's idea for a new CVA, to work in conjunction with the existing CVA procedure, are:
An initial 28-day moratorium during which creditors will not be able to take action against a company without leave of the court.
Floating chargeholders will be required to give a company five working days notice of intention to appoint an administrative receiver.
SPI says in its submission to the Insolvency Service, the Government's proposals should create an additional entry mechanism to the existing CVA procedure but in fact goes further to suggest an additional type of CVA which would co-exist with the present one. It says: "We think this is a mistake. The creation of two types of CVA would lead the courts to look at each type differently, and case law for each type of CVA would develop along separate paths."
The Financing & Leasing Association (FLA) submission, produced by head of legal affairs Hilary Plattern, criticises the proposals for "failing to adequately address the position of asset finance and retention of title".
The moratorium proposals present "a serious restriction" and "untenable situation" for members.
The FLA wants a minimum statutory level of supervision during the moratorium.