What is a Moratorium?

A moratorium is a director led process to afford companies some breathing space from creditor actions whilst they attempt to solve their financial problems.

Eligibility

Generally, companies are eligible to use the moratorium if:

• The directors state that the company is, or is likely to become, unable to pay its debts;
• The company has not had a Moratorium in place in the in the last 12 months and
• The monitor is of the view that it is likely a moratorium would result in the rescue of the company as a going concern.

Process

Board meeting:  A meeting of the board of directors will have to:

• Approve the issue of the notices required by statute to place the company into a Moratorium,
• To authorise a director to sign them on behalf of the company and
• Confirm that either an Insolvency Practitioner or a solicitor are instructed to assist them with the formalities of placing the company into a Moratorium.

Out of Court Procedure: A monitor can be appointed without the recourse of the Courts If the company if:

• The company is not based overseas and
• No winding up petitions have been presented against the company (Post 30 September 2021).

Out of Court Procedure:If the two conditions above are not present the directors can file the relevant documents  to obtain a moratorium at Court.  Until 30 September 2021 companies subject to a winding up petition directors will be able to use the out of court process and the directors can file the relevant documents at court.  Post 1 October 2021 if the company if a winding up petition has been presented against the company an application must be made to the Court.

In Court Procedure:If the company is based overseas or the company is the subject of a winding up order (post September 2021) the directors need to make an application to court. The Licensed Insolvency Practitioner or a solicitor can assist with the relevant paperwork.

Effective Date

The moratorium is effective from the date and time the documents are filed at court (out of court process) or when the court order is made (in court process).

Effect of the Moratorium

The monitor sends notice of the moratorium to all known creditors the Registrar at Companies House and (if relevant) the Pensions Regulator or the Pension Protection Fund.

The moratorium provides 20 business days protection from certain creditor action including:

• Landlords not being able to implement any commercial rent arrears recovery;
• No petitions of a winding up order can be made;
• No petition for administration can be proposed and no administrative receiver can be appointed;
• There can be no action to secure or repossess hire-purchase goods in the company’s procession, including those with a retention of title agreement and
• No other legal action can be taken against the company.

During the moratorium, the company must continue to pay certain debts including:

• Newly incurred liabilities;
• Payments for new supplies;
• Rent in respect of the moratorium period;
• Certain payments due to employees and
• Debts under financial contracts, including lending contracts.

If those debts are not paid, the moratorium will end.

There are a number of restrictions on what the company can do, without permission from the monitor, including:

• Paying creditors;
• Disposing of property belonging to the company;
• Granting security over company assets;
• Obtaining credit;
• The company must also continue to pay the following during the moratorium period:
• The monitor’s fees and expenses (agreed between the monitor and the company)
• For any goods or services provided during the period;
• All employment entitlements;
• Rent in respect of the moratorium period and
• Any liabilities arising under financial service contracts.

Duties of the Monitor

The Monitor supervises the moratorium period and must assess whether it is likely that it will result in the rescue of the company as a going concern. 

The monitor will work with the board of directors to ensure the plan to rescue the company as a going concern remains viable and to ensure that all of the above restrictions are being complied with. 

Extension of the Moratorium

A moratorium may be extended:

• For a further 20 days by directors without creditor consent;
• By court on application of directors;
• By court in course of other proceedings;
• Beyond 40 days with creditor consent and
• While proposal for CVA pending.

Conclusion of the Moratorium

A moratorium with be terminated once the company is in a position to resume normal trading outside of the moratorium.  This will usually be after the implementation of a successful rescue plan. Should the company require more time to implement such a plan, the moratorium can be extended or other rescue processes can be initiated. 

If it’s no longer possible to rescue the company or the company cannot pay its moratorium debts, the monitor must immediately bring the moratorium to an end.

Advantages of the Moratorium

The advantages of a moratorium include:

• Provide directors led breathing space;
• It is a process which is instigated and controlled by the director(s);
• It is a stand-alone procedure that has no association with a formal insolvency procedure;
• It can be put in place quickly and easily and
• It provides reassurance to creditors as it is monitored by a licensed Insolvency Practitioner.

Disadvantages of the moratorium?

There are disadvantages to a moratorium.  These include but are not limited to:

• It is a short term solution;
• The company must give notice that it is operating under a moratorium to the registrar of companies, creditors, employees and customers;
• The moratorium can only continue if it is in the opinion of the monitor that the company can be saved;
• No property can be sold without the permission of the monitor and
• Key liabilities must continue to be paid.