The new insolvency moratorium

The Corporate Insolvency and Governance Act (CIGA) introduced various changes to the provisions of both the Insolvency Act 1986 and Companies Act 2006, some of which are of a temporary nature and others are intended to form a more permanent change. 

One of the more permanent changes is the introduction of a new moratorium (a temporary suspension of a certain activity until a future event occurs) which grants companies a period of ‘breathing space’ from creditor action. 

The intention of this breathing space is to allow the company time to formulate a plan to restructure the company’s debts and, hopefully, rescue the company from having to enter an insolvency process.

During the moratorium period, all legal proceedings and recovery actions are put on hold and most pre-moratorium debts will not have to be paid whilst in the moratorium. 

This payment holiday will apply to trade creditors but not financial services contracts such as payments under loan agreements. 

An initial 20 business days is granted under the new moratorium; however, companies can now file an application at court for an extension of a further 20 business days. There is the possibility of further extensions after this, however they require the consent of the creditors of the company. 

The new moratorium will allow companies the time they require to put actions into place to ensure their creditors get paid, something which is beneficial for both the company and its creditors. 

In practice, we have not seen many moratoriums be put in place yet but we expect that will change. If your business may benefit from the above, specialist advice should be sought at the earliest opportunity.

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