Updated: 28th August 2020
Recent additions have been introduced as a result of the Corporate Insolvency and Governance Act 2020 (CIGA) including a free-standing moratorium and a new Restructuring Plan. Both of these options are more debtor-led than some existing measures which typically put the focus on creditors. The aim behind both of these measures is to rescue more companies as a going concern where possible, rather than jumping straight into an administration or liquidation procedure without exploring the scope for a possible turnaround.
The moratorium option provides a company with temporary legal protection from its creditors as well as a payment holiday for certain debts. The moratorium initially lasts for 20 business days, although this can be extended to 40 business days without creditor consent. This can be further extended to a full 12 months should creditors give their consent or a court order is issued. Litigation cannot be instigated, nor can ongoing legal action be continued while the company is under the protection of the moratorium.
With the extra time and space provided by the moratorium, it is hoped that this will give financially distressed companies the opportunity to formulate a plan for the future, thereby increasing the chance of rescuing the company as a going concern rather than having to rush into a formal insolvency process when financial pressures reach breaking point.
A moratorium can be entered into by filing documents at court. Consent will not be required by secured creditors or Qualifying Floating Charge Holders; instead they will be notified of the moratorium by the monitor who must be a licensed insolvency practitioner.
Unlike with company administration, with the free-standing moratorium option, the directors remain in control of the company, although operations will be ‘monitored’ by the appointed insolvency practitioner throughout the process.