How will the proposed moratorium work?
The proposed moratorium would last for three months, with the possibility of an extension if needed. An Insolvency Practitioner would be appointed to act as supervisor and would look after the interest of creditors. During the moratorium creditors would have a general ‘right’ to request information from the Insolvency Practitioner.
In order to qualify for the moratorium, the company must be able to show that it is likely to have sufficient funds to carry on its business during the period of the moratorium, meeting current obligations as and when they fall due as well as any new obligations that are incurred. This is to ensure that existing creditors are no worse off.
The viability of a business is a commercial judgement that depends on a number of circumstances in each case. As part of an application for a moratorium, the company must satisfactorily demonstrate that although it is experiencing financial difficulties, at the outset there is a reasonable prospect that a compromise or arrangement can be agreed with its creditors.
The preliminary moratorium would be available to all businesses (except for certain financial institutions), lasting for up to three months, with the possibility of an extension.
What are the main advantages to the moratorium?
- It would allow the directors time to consider the options for rescuing the company and a restructuring agreement can be negotiated with creditors.
- When a company enters the moratorium, the arrears owed to creditors will be frozen.
- Directors may remain in control of the company’s affairs during the moratorium, with no exposure, subject to safeguards, for personal liability.
- To benefit from the protection of a moratorium, companies would need to satisfy a set of eligibility tests and qualifying conditions.
- An authorised supervisor will be involved in the application process and will monitor the company’s compliance with the qualifying conditions throughout the period of the moratorium.
During the period of the moratorium, in the absence of specific authorisation from the court, creditors are prevented from the enforcing the following:-
- The presentation of a winding-up petition by a creditor, or the making of a winding-up order by the court (except for certain public interest petitions).
- The appointment of an administrator by the directors or a holder of a qualifying floating charge, the appointment of an administrative receiver or the application for an administration order.
- Forfeiture of a lease by peaceable re-entry of business premises by a landlord.
- The enforcement of security over the company's property (or repossession under a hire purchase agreement).
- Meetings of the company being held, except with the consent of the supervisor.
- The commencement or continuation of legal process against the company and its property.
It would seem that the moratorium has the potential to encourage greater business rescue by providing new tools for businesses in distress.