Following Government press releases regarding the temporary suspension of a number of Insolvency provisions, the government have now publicised The Corporate Governance and Insolvency Bill which seeks to enact the proposed changes.
The Bill, which is not yet the law and subject to change, includes a number of measures designed to assist and support companies financially struggling as a result of the COVID-19 pandemic.
One such proposed measure is to allow Companies to seek a Moratorium.
Lisa Cooke, Associate Solicitor and Insolvency Specialist, has produced the following clear guidance notes detailing some of the key elements of the proposed moratorium:
It is proposed that an eligible company may apply for a moratorium which will provide additional breathing space from creditor enforcement action and legal proceedings.
If a company is NOT subject to an outstanding winding up petition, and is not an overseas company, it is proposed that its directors can obtain a moratorium by filing the relevant documents at court. The relevant documents are as follows:
• A notice that the directors wish to obtain a moratorium
• A statement from a qualified person (“the Proposed Monitor”) that they are:
1) a qualified person; and 2) that they consent to act
• A statement from the Proposed Monitor that the company is an eligible company
• A statement from the directors that, in their view, the company is, or is likely to become, unable to pay its debts
• A statement from the Proposed Monitor that, in their view, it is likely that a moratorium for the company would result in a rescue of the company as a going concern
If a company IS subject to an existing winding-up petition, it is proposed that the company can make an application to court to obtain the benefit of a moratorium. The application must be accompanied by the documents set out above. The court will only make an Order granting a moratorium (or an Order that it considers appropriate) if it is satisfied that a moratorium would achieve a better result for the company’s creditors as a whole and would be likely if the company were wound up.
It is proposed that the moratorium comes into effect when the documents (set out above) are filed at court or when an Order is made. On filing the documents, or on the making of the Order, the directors are required to notify the Proposed Monitor as soon as reasonably practicable, at which point the Proposed Monitor becomes the Monitor (“the Monitor”). The Monitor thereafter notifies Companies House and all known creditors that a moratorium is in place and the date from which the moratorium commenced.
The proposed initial period for the moratorium is 20 business days beginning with the business day after the day the moratorium comes into force. The Bill provides for the period of the moratorium to be extended, where relevant.
Once a company has entered a moratorium, the draft legislation requires the company to openly publicise the fact that the company is in a moratorium (together with the details of the Monitor) by placing clear notices at its premises, on its website, on invoices and letters etc.
Restrictions will apply to a company in a moratorium including a restriction on the ability to obtain credit over £500 unless the person providing the credit is informed of the fact that the company is in a moratorium.
Applications can also be brought against directors by creditors if, during the moratorium period, the company affairs are managed in a manner that unfairly harms the interests of creditors. Such an application can be made after the moratorium has ended.
The draft legislation also makes any false representation or fraudulent actions, or omissions, of an officer of the company with the purpose of obtaining a moratorium, or an extension to a moratorium, an offence.
For the full Corporate Governance and Insolvency Bill CLICK HERE
Lisa is an Associate in the Insolvency team specialising in all aspects of personal and corporate insolvency. She has comprehensive experience of acting on behalf of both individuals and office holders in their capacity as liquidators and trustees in bankruptcy.
Lisa has experience advising in respect of a wide range of Insolvency Act 1986 and Companies Act 2006 claims including claims relating to void dispositions, transactions at an undervalue, preferences, fraudulent trading, wrongful trading, misfeasance, breach of duty and transactions defrauding creditors.