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Applying For A Moratorium Under CIGA 2020

Applying for a moratorium under CIGA 2020. Written by John A Waller, Director. Reviewed November 29th,2022.

The Corporate Insolvency and Governance Act 2020 (CIGA) was enacted June 26th 2020. The UK Government committed to a review of the operation of CIGA’s three permanent measures within three years of the CIGA commencement.

The evaluation is limited to the consideration of the three permanent CIGA measures: restructuring plans (RPs) under Part 26A of the Companies Act 2006, the standalone moratorium under Part A1 of the Insolvency Act 1986 (the Act), and the restriction on contractual termination (ipso facto) clauses under Section 233B of the Act.

Applying for a moratorium under CIGA 2020 (Corporate Insolvency and Governance Act 2020) requires a meeting with a Licensed Insolvency Practitioner.

A moratorium grants struggling companies formal breathing space, allowing them to consider rescue and restructuring options available while free from creditor action.

How to apply for breathing space

Applying for a moratorium under CIGA 2020 helps distressed companies and provides a company with formal breathing space to explore rescue and restructuring options free of creditor action.

However, insolvency proceedings may not commence upon the company throughout the moratorium period. It prevents legal action against a company without a court’s approval. Therefore, employment tribunal proceedings or proceedings between an employer and a team member do not require court permission.

Directors are therefore still in charge of their limited company and still have to ensure that companies file obligations with Companies House. Late filing penalties remain if accounts are filed late.

Company Directors Roles while the company is in a moratorium.

In a moratorium, the company directors maintain executive powers. However, the directors’ activities can be disputed by a creditor or member of the company by petitioning the court. On the ground, the company’s affairs remain managed so that it unreasonably harms the interests of its creditors.

Creditors or shareholders of the company may then challenge directors’ actions by applying to the court.

The Act adds directors’ criminal liability if they commit an offence of fraud or false representation to secure a moratorium.

The schedules of the law provide sections of the current insolvency rules that apply to the procedure until more detailed rules are introduced in due course.

Suitability to apply for a Moratorium

Limited companies that have applied for a moratorium in the previous twelve months may use it again unless a court approves.

However, other limited companies remain not eligible for the scheme. The ZA1 to the Insolvency Act 1986 (IA 1986) introduced by the Act lists the companies that are unsuitable for applying:

  • Insurance companies; 
  • Banks, or 
  • Companies are subject to a capital markets arrangement of £10 million or more.

The applying company must not satisfy its debts.

Commencing Applying For A Moratorium Under CIGA 2020

The directors remain obliged to file them or apply to a court for approval of a moratorium. However, the moratorium also gives the company twenty business days to consider the rescue options.

A Licensed Insolvency Practitioner manages the moratorium and then assumes the role of monitor.

Extending a moratorium

A moratorium may extend for an additional twenty business days without gaining creditor consent. However, they may extend with creditor consent for a more extended period by filing relevant statements with the court. Application to the court further may be used to extend the period.

An extension requires action before the moratorium expires.

Failure to notify Companies House of any extension period, therefore, endangers the company being noted on the register at Companies House as no longer in a moratorium.

What to send to Companies House

Any notices remain required to be delivered to Companies Houseas promptly as practicable. Therefore, ensure records remain accurately maintained regarding the company’s status.

The monitor remains required to file a notice of the commencement of a moratorium to Companies House.

Companies House will require notice when the Moratorium:

  • Extended;
  • Terminated early;
  • Replaced;
  • An additional monitor appointed;
  • a court order issued authorising property disposal.

Moratoriums terminate 20 business days after the appointment or after an approved extended period.

The monitor has no duty to deliver, then a notice declaring the moratorium has expired if lapsed by time.

The appointed monitor remains required to ensure delivery of notice if it has ended for a different reason, including

  • Early termination by the monitor;
  • Company has started an insolvency procedure.

However, if your company fails to secure its position during a moratorium, though it shows signs of being viable? The directors may then, therefore, wish to consider the following:

However, if the business remains no longer viable, they should consider the following:

Ceasing a moratorium following directors placing the company into an insolvency process.

Directors can terminate the moratorium if they believe the company’s rescue is no longer feasible. They can then consider a liquidation (closure company forever) or put it into administration. The notice must be given to the monitor so that he can file a termination notice.

Applying for a moratorium under CIGA 2020 – Who will apply for a Moratorium?

All the main incorporated entities in the UK.

Regulations will provide an application to:

  • Charitable Incorporated Organisations;
  • Co-operative and community benefit societies;
  • Limited liability partnerships.

Where entities currently benefit from a special administration regime (for example, providers of social housing, gas and electricity supply companies and financial institutions), regulations can be performed to modify the application of or disapply the moratorium for those entities.

Exclusions apply to:

  • Financial services organisation.

Registered companies in the United Kingdom and LLPs may only use the protection of a moratorium through the appointment of a Licensed Insolvency Practitioner.

Arrangements and restorations of companies in financial hardship with a settlement or agreement with the companies creditors

Currently, two procedures exist in the UK for a settlement with company creditors. 

  • A Company Voluntary Arrangement (CVA). (does not settle secured creditors’ claims)
  • A Scheme of Arrangement (Part 26 Companies Act 2006 explained). Therefore, the company needs to settle distinct types of members and creditors with equal rights. So each class votes for or against the scheme. To be agreed upon, 75% of the creditor value must vote for the scheme to be approved.

A court must decide whether to approve the scheme. Once approved, the scheme remains binding on all company creditors, its members, and the company itself. 

The Act introduces a further restructuring method, as Part 26A of the Companies Act 2006, allowing company directors to submit a Restructuring Plan to settle creditors’ demands. A vital point of the new provisions in the new “cross-class cram down” is impossible in a Scheme. Therefore, the court may authorise a settlement or arrangement wherever disagreeing types of creditors remain obligated on specific conditions.

Requiring help with applying for a moratorium under CIGA 2020? Please contact ‘the team at HBG Advisory‘ on: 0330 056 3120 and read further on  coronavirus COVID-19 and business restructuring,

HBG Advisory are experts in business and company debt.

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