The moratorium introduced by the Corporate Insolvency and Governance Act 2020 (CIGA), as described in our earlier article, is for an “initial period” of 20 business days. There are five ways in which this can be extended set out in the new ss A10-A15 of the Insolvency Act 1986 (IA) (as brought in by s.1 CIGA):
- extension by directors without creditors’ consent
- extension by directors with creditors’ consent
- extension by court on application by directors
- extension while proposal for a company voluntary arrangement (CVA) is pending
- extension by court in the course of other proceedings.
1. By directors without creditors’ consent
This option is an ‘out of court’ process (similar to obtaining a moratorium), requiring the company’s directors to file certain documents at court, and does not involve a hearing.
The following documents are required to be filed:
- a notice that the directors are extending the moratorium,
- a statement from the directors that all moratorium debts and pre-moratorium debts for which the company does not have a payment holiday during the moratorium that have fallen due have been paid or otherwise discharged
- a statement from the directors that, in their view, the company is, or is likely to become, unable to pay its pre-moratorium debts,
- a statement from the monitor(s) stating that in their view the extension is likely to result in a rescue of the company as a going concern
The moratorium is extended upon the filing of the documents.
An extension by this method can be made after the first 15 business days of the initial 20 business day period and extends the moratorium for a further 20 business days, to a total of 40 business days.
2. By directors with creditor consent
Creditors’ consent will first have been obtained through a qualifying decision procedure (s.A12(2) IA 1986) to extend the moratorium to a specified date. Extended moratorium can be for up to one year, beginning with the first day of the initial period.
A similar court filing is made by the company’s directors after the 15th business day of the initial period. The documents that are required to be filed are:
- the same as those as listed above, plus
- a statement from the directors confirming that creditor consent has been obtained, and specifying the revised end date of the moratorium for which that consent was obtained.
3. Court application
The company can submit an application to court to extend the moratorium which would be listed before a judge for a hearing. The court may extend the moratorium to the date specified in the application, or such other date (together with making any other order) the court considers appropriate. In deciding whether to make an order, the court must consider the interests of creditors and likelihood the extension will result in the rescue of the company as a going concern.
An application under this section (s.A13 IA 1986) can be made more than once, and must be accompanied by the same documents as the extension methods above.
4. Pending CVA proposal
This option arises under s.A14 IA 86 and applies where a proposal for a company voluntary arrangement has been made and is pending. The court can order that the moratorium is extended until the proposal is “disposed of” as defined in s.A14(3), which includes the CVA being approved, rejected or withdrawn.
5. Pending scheme of arrangement or restructuring plan
Finally, the court can extend the moratorium under s.A15 IA 86 if the company is convening a meeting of creditors to consider a scheme of arrangement or the newly introduced restructuring plan under Companies Act 2006. The moratorium will be extended to the date specified in the order.
Unlike options 1 to 3, extensions arising in connection with CVAs, schemes of arrangement or restructuring plans do not require such a statement from the monitor or directors as discussed above.