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What is the Insolvency Moratorium?

Published on:October 16, 2020Author:darcey

The moratorium grants a business ‘breathing space’ from its creditors to allow a plan to be formed to restructure the company’s debts.

Initially a break of 20 business days is granted, however this can be extended by a further 20 business days by filing an extension with the court. Further extensions can be granted, but would require the consent of creditors. In order to officially enter into a moratorium period, the board must appoint a licensed insolvency practitioner to act as the monitor of the company.

During the moratorium, your company will be granted a payment holiday from all debts prior to the commencement of the process. This means you won’t be able to make payments against these debts without permission from the monitor. The moratorium also puts all legal proceedings and recovery actions on hold, including, but not limited to:-

  • Winding up petitions
  • Appointment of administrators
  • High court enforcement officers and bailiffs
  • Landlord actions such as the forfeiture of a lease or commercial rent arrears recovery (CRAR)

The court can however grant permission for these to proceed in certain circumstances so it’s important to act quickly when a moratorium is granted. Employment tribunals will also usually continue in moratorium.

How to apply for a moratorium?

There are two potential routes to entering a moratorium, depending on the circumstances of the company.

Generally it will be a case of having the relevant forms sealed by the court (being an extremely quick process). Alternatively, if there is an outstanding winding up petition, the appointment can only be made by way of a court order.

This is similar to the administration process, which also carries a moratorium, however the main difference is the board retains control of the company, instead of handing control over to the administrator.

To be eligible for a moratorium the business must be a limited company or LLP registered in the United Kingdom. The moratorium cannot be applied for by financial institutions such as banks, building societies and insurers.

Aside from this, the following criteria applies:-

  • The company is insolvent, or likely to become insolvent and cannot pay its debts
  • A licenced insolvency practitioner has agreed to act as monitor
  • The monitor believes the company can be rescued as a going concern

Before accepting the appointment, the monitor will need to carry out a viability assessment on the company to determine the route by which the company will return to being a going concern.

Upon the appointment being made, the monitor will notify the company’s creditors and other relevant authorities of the moratorium taking effect. A notice confirming the company is subject to a moratorium should also be displayed prominently on the company website and physically on any shopfronts.

What happens during the moratorium?

Once the moratorium is officially in place, no legal action can be taken against the company and creditors cannot chase payment for pre-moratorium debts.

However there are a number of restrictions on what the company can do, without permission of the monitor, including:-

  • Paying creditors
  • Disposing of property belonging to the company
  • Granting security over company assets
  • Obtaining credit beyond £500 without the creditor being informed of the moratorium
  • 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
  • Any liabilities arising under financial service contracts

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. 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.

The Debt Advisor and The Business Debt Advisor have been in existence for 21 years and we have gained a reputation as the “go to” practice for debt advice and debt solutions for both companies and individuals. The company is authorized and regulated by The Financial Conduct Authority “FCA”and Beverley Budsworth, MD is a licensed Insolvency Practitioner regulated by The Insolvency Practitioners Association.

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If you would like to speak to one of our team on either business or personal debt, call us on 0800 085 1825 or arrange a callback.

All debt solutions need to be carefully considered and you must take independent debt advice. There are sources of free debt advice and services. You can find out more by contacting the Money Advice Service on 0800 138 7777 or by visiting their website.