Following new government legislation introduced in 2020, Companies can enter a Moratorium. It is designed to provide a short breathing space to protect the Company from creditor action while plans are formed to rescue the Company as a going concern.
What is the Insolvency Moratorium?
A Moratorium differs from other formal insolvency solutions in that it is what is known as a ‘debtor in possession’ procedure. The Directors remain in control of the Company and are responsible for the day-to-day running of the Company whilst the Insolvency Practitioner acts as Monitor and oversees the Company’s trading position and meets the eligibility requirements.
A Company moratorium prevents legal action from being taken against the Company without court permission. This will apply to the following:
· No petitions for a winding-up order can be made.
· No petition for administration can be proposed and no administrative receiver can be presented or appointed.
· Landlords are not able to implement any Commercial Rent Arrears Recovery (CRAR).
· No action can be taken to secure or repossess Hire Purchase or Retention of Title Goods.
· No other legal action can be taken.
This protection is provided for 20 business days and can be extended for a further 20 business days without consent or for longer with the agreement of pre moratorium creditors or the court.
Generally, companies are eligible to use the Moratorium if:
they are incorporated under the Companies Act 2006 or they are unregistered but may be wound up under the Insolvency Act 1986 (this category includes overseas Companies);
the directors state that the Company is, or is likely to become, unable to pay its debts; 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.
During the Moratorium period, the Company must also continue to pay the following:
· The Monitor’s fees and expenses
· Any goods or services provided during the period
· All employee entitlements
· Rent in respect of the moratorium period
· Any liabilities arising under financial services contracts
How does the Moratorium conclude?
There are a number of ways the Moratorium can end, these are as follows:
· Creditors approve a Company Voluntary Arrangement.
· An informal payment plan is agreed with creditors.
· Or it may exit into Administration or Liquidation if no rescue plan is agreed.
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