Moratoriums under the Corporate Insolvency

The government has introduced a new package of measures as a result of the Coronavirus with the aim of supporting business. The Bill received its second reading on 3rd June as it moves quickly towards becoming law.

Companies will have an opportunity to apply for a new form of moratorium which will protect them from diligence; provided that the moratorium will be likely to result in a better result for creditors than if the company was wound up. Pre-existing moratoriums will be unaffected.

The moratorium begins when the application is lodged. It initially runs for 20 days. It can be extended by application to the court in various circumstances e.g. where there is a proposal for a CVA pending. The company must be capable of being rescued as a going concern. The court will consider the likelihood of this and also the interests of the pre-moratorium creditors. There are different provisions and requirements depending on whether there is creditor consent or not. It is a condition of the moratorium going forward that all debts are paid as they fall due unless covered by a payment holiday.

The effect of the moratorium is to stop winding up petitions from being presented or resolutions taken without the boards consent. It stops administrators being applied for or appointed. It stops leases being irritated or standard securities enforced, or goods repossessed. It also prevents floating charges being crystallised or otherwise used to prevent the disposal of property. Restrictions are placed on the Company’s ability to dispose of property, obtain credit or to grant security. 

A monitor is appointed to perform certain functions for the course of the moratorium. The monitor is an officer of the court. The position has some similarity with administrators or liquidators i.e. the monitor will almost certainly be a qualified insolvency practitioner, but more supervisory and less active than those roles. The monitor certifies at the outset that the company is capable of rescue as a going concern. The monitor must end the moratorium if he/she thinks that the company can no longer be rescued or if directors fail to keep the monitor informed.  The monitor’s actions are capable of challenge if they unfairly harm the interests of creditors or members.

There is an extensive section of the bill dealing with offences committed before or during the moratorium.

If your company needs a moratorium, or you are a creditor of a company which is in the moratorium process, and you need advice please contact Jones Whyte Law.