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Moratorium To Help Distressed Companies

Introduction of statutory “Moratorium To Help Distressed Companies”.

Moratorium To Help Distressed Companies. Clause 1 of the Bill introduces a new Part A1 to the Insolvency Act 1986. A limited company can now receive a moratorium to implement breathing space while rescue and restructuring opportunities are evaluated.  During the Moratorium, the Company Directors continue to be in office and have control of the company, while the selected Monitor (a qualified insolvency practitioner) advises on the company’s affairs.

When requesting a moratorium, a monitor must be satisfied that the proposed moratorium would succeed in rescuing the company as a profitable concern.

All UK companies may request a moratorium, except investment, insurance and other financial institutions, except when in or experienced an insolvency process.

Directors are required to disclose if the company is, or likely to become, unable to pay its debts as and when they fall due.

How Long Can You Have A Moratorium?

Moratoriums last initially twenty business days, though may extend an additional twenty days. No creditor approval is required to do so. If you apply for a creditor or court approval, you may ask for up to one year of protection.

A traditional Insolvency process referred to as a Company Voluntary Arrangement may work alongside the Moratorium.

Moratoriums to help distressed companies provide a payment holiday for pre-moratorium debts, except those listed below.

Bailiffs and Enforcement procedures and Insolvency Proceedings deferred.

Debts not subject to a payment holiday are:

  • Monitor’s fee.
  • supplies while trading in the Moratorium;
  • premises rent for the period of the Moratorium;
  • staff wages or salary;
  • staff redundancy
  • liabilities from a financial services contract (lending, leasing, factoring and financing of any other type of transactions).
  • While a moratorium is in place, payments for debts outstanding before the appointment of the Monitor require monitor consent.

Moratoriums have no end game to achieve, except offer protection while restructuring.

Why choose a Moratorium?

Moratorium’s objective allows a company breathing space to explore restructuring options and begin some form of rescue.

Options exist, including raising further working capital of a Company Voluntary Arrangement.

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