Company Moratorium

Company Moratorium

The Corporate Insolvency and Governance Act 2020 (CIGA 2020) has introduced several measures to help companies cope with the financial difficulties they may be facing consequent to the COVID-19 pandemic. One of which is the introduction of a new option available to struggling companies: the company moratorium.

What is a Company Moratorium?

A company moratorium gives a viable company facing financial difficulties breathing space from creditor action so that attempts can be made to rescue the company. The initial period for the moratorium is 20 business days, but this can be extended for another 20 days or terminated earlier. Further extensions are also available with the consent of creditors or the permission of the court.

During the moratorium period, the day-to-day running of the company remains with the directors but this is under the supervision of a monitor (an insolvency practitioner). Creditor and lenders are prevented from taking enforcement action against the company and landlords cannot exercise rights of forfeiture.

The company is granted a ‘payment holiday’ for pre-moratorium debts / liability. There are exceptions for certain types of debt, including payments for goods and services supplied during the moratorium and wages. Certain debts, including those incurred during the moratorium period, are afforded ‘super priority’ in the insolvency process following the moratorium process if the moratorium is unsuccessful.

A moratorium may be obtained by filing the following at court:

1. A statement from the directors that the company is or is likely to become unable to pay its debts; and

2. A statement from the monitor that it is likely that a moratorium for the company would result in the rescue of the company as a going concern.