The new director-led moratorium
The new director led moratorium process to save a viable company, introduced in June 2020 by the Corporate Insolvency and Governance Act (CIGA), provides the directors of a company in financial difficulty, the ability to go to court to get legal protection from its creditors. The initial period lasts 20 days whilst the company and its directors receive professional advice, assess options for rescue or restructure and then implement them. This can be extended by a further 20 and longer still with the consent of creditors or order of the court.
The process is not an insolvency procedure, but is monitored by a ‘monitor’ who is an Insolvency Practitioner who checks that the company is making the required payments it remains likely that it can be saved. The required payments include: liabilities arising under a contract concerning financial services (e.g. loans, leases etc.); wages and salaries; goods, services and rent incurred during the moratorium.
The directors do not need to file a notice on any floating charge holders of their intention to enter a moratorium. In practice, those creditors will need to be consulted as it may constitute an event that triggers repayment of their facilities without agreement otherwise.
The monitor must sign a court declaration that the rescue of the company as a going concern is likely and can terminate the moratorium if the required payments are not being made. The moratorium could provide a protected bridge into a consensual restructuring, CVA or Restructuring Plan. Their use is likely surge in 2021 as the temporary restrictions on creditor enforcement action such as issuing winding up petitions and statutory demands, introduced during the pandemic, fall away.
It is often said that “necessity is the mother of invention”. The pandemic has provided the impetus for creating the new moratorium procedure and the Restructuring Plan, with its ability to impose a cross class cram downs. Both will be valuable new additions to the restructuring toolkit over the coming months and years.
Chamberlain & Co can assist you with putting this moratorium in place. It needs formal oversight by a ‘monitor’ who needs to be an Insolvency Practitioner, which is a service that we provide. We are able to move quickly and cost effectively as soon as instructed.
