New tool to assist corporate restructurings

The government has accelerated the introduction of a long awaited Company Moratorium. Under consultation for some time, this statutory breathing space will allow for directors to retain control of companies while considering restructuring options, without creditor pressure. This “debtor-in-possession” process is a concept familiar in other jurisdictions.

The bill which will bring this into effect has now been laid before Parliament and is expected to receive Royal Assent quickly.

Key features are that the Company Moratorium is available to all companies (with limited exceptions) and will last for an initial period of 20 days. The directors will need to make a statement that the company is, or is likely to become, unable to pay its debts in order to access the moratorium.

The moratorium will leave the management in the control of the directors of the company but a licensed insolvency practitioner will be appointed as Monitor to independently oversee the Company Moratorium and provide objective assessment of whether rescue as a going concern continues to be likely.

During the Company Moratorium, the company has a payment holiday from supplier debts and no legal action can be taken against a company in respect of pre-moratorium debts without leave of the court.

There will be a possibility of an extension of a further 20 business days. Any extension of the Company Moratorium beyond 40 business days will require the consent of creditors (for periods of up to a year) or the court. 

Creditors will have the ability to challenge the actions of the directors or the Monitor on grounds that their interests have been unfairly prejudiced.

Historically, companies under extreme creditor pressure have had no choice but to turn to a formal insolvency procedure such as administration to preserve goodwill and achieve a rescue of the company. This long overdue and highly accessible measure increases the options available to directors of viable businesses under temporary pressure.

For more information on the above please contact Alan Bennett.

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