The standalone moratorium, introduced by the Corporate Insolvency and Governance Act 2020, offers a lifeline for struggling UK businesses. Designed to provide breathing space for insolvent or financially distressed companies, it allows them to explore viable recovery strategies without the immediate threat of creditor actions. For business owners navigating financial turmoil, understanding how this process works and what it entails can be crucial to securing a company’s future.
How the Moratorium Process Works
The standalone moratorium is initiated by filing a series of documents with the court, including a statement from the company’s directors affirming that the business is, or is likely to become, insolvent. The process also requires a licensed insolvency practitioner (IP) to act as the “monitor,” ensuring that the business remains viable during the moratorium period.
Once granted, the moratorium lasts for an initial 20 business days, with the option to extend for a further 20 days without creditor consent. With the approval of creditors, it can be extended even longer, up to a maximum of one year. This flexibility provides the company with a window to reorganise its finances or negotiate with stakeholders.
Protections Offered by the Moratorium
During the moratorium, businesses are shielded from certain creditor actions. These include:
- Halting Legal Proceedings: Creditors cannot initiate or continue legal actions, including winding-up petitions, without court approval.
- Preventing Enforcement: Bailiffs or other enforcement agents cannot seize goods or property.
- Pausing Contractual Termination Clauses: Suppliers are prevented from stopping or modifying supplies based on the company’s financial state.
These protections allow businesses to continue trading, stabilise operations, and focus on restructuring plans without the constant pressure of creditor actions.
What Happens During the Moratorium?
The insolvency practitioner acting as the monitor plays a pivotal role during the moratorium. They assess the company’s ongoing viability and ensure compliance with the moratorium’s rules. Directors retain control of day-to-day operations, but they must act in good faith and avoid incurring new obligations that cannot be met.
The moratorium requires companies to pay for goods and services incurred during the period and meet certain pre-existing debts, such as employee wages and secured creditor liabilities, that arise during the moratorium. Failure to do so may result in the termination of the moratorium.
This period is an opportunity to develop a strategy for long-term survival, whether through refinancing, restructuring, or negotiating a company voluntary arrangement (CVA).
What Happens When the Moratorium Ends?
The end of the moratorium can lead to several outcomes:
- Rescue or Recovery: If the business successfully implements a recovery plan, the moratorium concludes, and the company continues trading.
- Extension: If more time is needed, the moratorium may be extended with creditor consent or court approval.
- Insolvency Procedures: If recovery is not feasible, the company may transition to formal insolvency measures such as administration or liquidation.
Is the Standalone Moratorium Right for Your Business?
For UK business owners facing financial difficulties, the standalone moratorium offers a powerful tool to pause creditor pressure and assess recovery options. However, it is not a one-size-fits-all solution. Consulting an experienced insolvency practitioner is essential to determine whether this process aligns with your company’s needs.
By understanding the moratorium’s protections and responsibilities, businesses can make informed decisions that pave the way for a potential turnaround and a more secure future.
To find out more, contact the experienced insolvency practitioners at Voscap today on 020 7769 6831, or email help@voscap.co.uk.
