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The new moratorium

11 Jun 2020

 

One of the major changes that will be brought about by the Corporate Insolvency and Governance Bill is the introduction of the moratorium.

 

The moratorium is designed to be used by companies that are, or are likely to become, unable to pay their debts and where use of the moratorium is likely to result in the rescue of the company.

 

So, what is the moratorium?  Essentially it is a combination of payment holidays and a stay on certain creditor proceedings that lasts for 20 business days.  Whilst this may sound very similar to the moratorium in administration, in this case the company directors retain control of the company as opposed to this passing over to administrators.  The role of the insolvency practitioners in this general moratorium is one of oversight, although they do have the power to end the moratorium in certain circumstances (such as the moratorium becoming unlikely to rescue the company).

 

Other notable features of the moratorium are:

  1. It will not allow floating charges to crystallise.

  2. It places restrictions on the company in disposing of assets.

  3. The company cannot obtain credit of more than £500 during the moratorium without notifying the person from whom it seeks credit of the existence of the moratorium.

All companies are eligible to use the moratorium unless expressly excluded.  Company directors simply need to file the relevant forms/documents at court.  This can be done even where there is a pending winding up petition against a company, in which case the court will consider whether to make the order winding up the company, or to decline to on the basis that a moratorium will likely achieve a better outcome for the company’s creditors.  Then, once the moratorium is in place, the insolvency practitioner will notify all creditors of the company.

 

The moratorium certainly looks set to bring on a new and interesting role for insolvency practitioners, that will no doubt bring challenges itself with the interaction between those insolvency practitioners and the directors retaining control of the company.

 

For more information please contact Alexandra Withers.

 

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Short Richardson & Forth, 4 Mosley Street, Newcastle upon Tyne, NE1 1DE

Tel: +44 (0)191 232 0283  ·  Email: info@srflegal.co.uk

 

Short Richardson and Forth Solicitors Limited is a private limited company registered in England and Wales under company number 10572065, authorised and regulated by the Solicitors Regulation Authority No 637150.

Short Richardson and Forth Solicitors Limited is a private limited company constituted and run in accordance with the provisions of the Companies Act 2006. The term “partner” has been used to denote individual senior solicitors employed by Short Richardson and Forth Solicitors Limited.