Could a Moratorium save my business?
What is a Moratorium?
The new Moratorium process has been introduced to help businesses in distress have breathing space to review their position and negotiate with creditors. If a business has been struggling as a result of Covid-19 the new style moratorium could give business owners the best opportunity to save their business.
Essentially it acts as a protective bubble around the company to stop immediate enforcement action from creditors which could lead to the failure of the company.
The Moratorium stops creditors from taking legal action, allowing the company to maximise it’s chance of survival. It also protects jobs and supports the country’s economic recovery.
Struggling businesses get further valuable time to work out what they need to do.
How does it work?
If you are a director and need time to try and put a recovery plan in place the best way to move forwards swiftly is to appoint a Licensed Insolvency practitioner (IP) to help guide you through the whole process and help devise a solid rescue plan.
To get a Moratorium the directors, with the help on an IP, apply to the court and request the Moratorium. Eligible companies do not include, among others, banks, insurers and payment institutions.
Documents are needed to support the application and would include a statement from the directors affirming that in their view, the company is, or is likely to, become unable to pay its debts. This document would need to be supported by an IP (the proposed ‘monitor’) declaring that in their view, a Moratorium would result in the rescue of the company as a going concern.
This final point is key and the Moratorium has been introduced with a view to helping turnaround sound businesses and that need the extra time to consider their options, find the appropriate strategy and be able to exit the Moratorium as a going concern.
The Moratorium stops enforcement action by creditors but debts accrued during the Moratorium must be paid. Certain pre-Moratorium debts also still need to be paid and therefore it is important that the company’s position is assessed in detail before considering whether a Moratorium is viable.
If the moratorium is granted, the IP would notify all creditors.
During the process Companies House would need to be kept informed to ensure all records are updated and accurate and given notice if:
- the moratorium is extended
- the moratorium is terminated early
- the monitor is replaced, or an additional monitor is appointed
- the court makes an order giving permission for the disposal of property
Importantly for Directors they do remain in control of the company and business operations during the Moratorium whilst the Moratorium is supervised by the IP to protect creditors’ interests and ensure ongoing compliance.