The new standalone moratorium process, once commenced, initially lasts for 20 business days and can be extended by various means up to a year. During the moratorium, companies are protected from creditors who are barred from (amongst other things) issuing a winding up petition against the company, allowing the company time to formulate a rescue plan which could include a restructuring plan or ultimately entering into a formal insolvency procedure.
The moratorium will come to an end either at expiry of the moratorium period, or sooner if ended by the company or the monitor as follows:
Monitor ending moratorium
Under section A38 of the Insolvency Act 1986 (IA 1986) (as introduced by s.1 CIGA), the monitor must end the moratorium in the following circumstances:
- where the moratorium is no longer likely to result in the rescue of the company as a going concern;
- where the company has been rescued as a going concern;
- where the monitor is unable to carry out their duties due to the director's failing to provide sufficient information to the monitor; or
- where the company is unable to pay its (i) moratorium debts or (ii) pre-moratorium debts which are not subject to a payment holiday during the moratorium.
When considering the above circumstances, the monitor must disregard the following:
- any debts that have reasonable grounds of being paid within five days of the decision to end the moratorium;
- any debts which a creditor has agreed to defer until after the end of the moratorium; and
- (until 30 September 2020) any circumstances relating to Covid 19 that would cause the company to be in a worse financial position.
Having carefully considered the company's position, the monitor will need to file a notice with the Court to terminate the moratorium.
Within three business days of the notice being filed, a copy must be sent to the company, the Registrar of Companies and all creditors (of which the monitor is aware).
Company ending moratorium
Under section A16 IA 1986, the moratorium can also be terminated by the company in the following circumstances:
- where the company enters into a scheme of arrangement;
- where the company entered into a restructuring plan; or
- where the company entered into a formal insolvency procedure including administration, liquidation, a voluntary arrangement or an interim moratorium.
When one of these circumstances arises, the directors of the company must inform the monitor within five business days to note that the moratorium has terminated.
Within five business days of receiving notice from the company, the monitor must then give notice to the Registrar of Companies and all creditors (of which the monitor is aware), noting that the moratorium has ended.