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Applying For A Moratorium Under CIGA 2020

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Written by
John A Waller
Director

Applying For A Moratorium Under CIGA 2020

Applying for a moratorium under CIGA 2020 (Corporate Insolvency and Governance Act 2020) requires a first 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

However, insolvency proceedings may not commence upon the company throughout the moratorium period. It stops legal action against a company without authorisation from a court. Therefore, employment tribunal proceedings, or proceedings between an employer and a team member, require no court permission.

So, directors remain in charge of their limited company and are therefore still required to ensure that companies filing obligations with Companies House. Late filing penalties remain if accounts are filed late.

Company Directors Roles while the company is in a moratorium.

When in a moratorium, the directors of the company therefore maintain their 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 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 Act’s schedules provide sections of the current Insolvency Rules to apply to the procedure until producing more detailed rules in due course.

Suitability to apply for a Moratorium

Limited Companies who have used a moratorium in the previous twelve months may however apply again unless approved with a court’s approval.

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 subject to a capital markets arrangement of £10 million or more.

The applying company must therefore not satisfy its debts.

Commencing Applying For A Moratorium Under CIGA 2020

The directors remain required to file them or apply to a court for approval of a moratorium. The Moratorium however also affords the company twenty business days, considering therefore rescue options.

A Licensed Insolvency Practitioner manages the Moratorium, then assumes the role of monitor.

Extending a moratorium

A moratorium may extend in time 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’s current expiry.

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 House as promptly as practicable. Therefore, ensure that 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 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.

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:

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

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

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

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, 75% of the creditor value needs to vote for the Scheme to be approved.

Subsequently, a court is then required to decide whether to approve the Scheme, or not? 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:

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