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UK Corporate Insolvency and Governance Act: Moratorium

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The Corporate Insolvency and Governance Act 2020 introduced provisions to the Insolvency Act 1986 which came into force on 26 June 2020. 

The moratorium is part of a package of significant legislative reforms intended to enhance the UK’s restructuring and rescue culture. The changes allow breathing space for businesses in financial distress giving them an opportunity to explore rescue and restructuring options, free from creditor action. The process was designed to encourage companies to act earlier to restructure debt and improve a company’s chances of success.

The moratorium is focused on the survival of the company rather than the realisation of its assets, with a view to try to save the life of a company as a going concern by effectively allowing a payment holiday from its pre-moratorium debts while it looks to restructure.

The Procedure

The moratorium process is designed to be quick and easy and involves the directors sending a notice to the Court, similar as in an Administration.  The notice requires the directors to make a declaration that the Company is, or is likely to become, unable to pay its debts.

The notice must be accompanied by a statement from a Monitor that they consent to act, and that the process is likely to achieve its goal, which is that the company can be saved as a going concern.

Once filed in Court the notice needs to be circulated to the creditors, employees, pension companies and the FCA, if it is a regulated Company.

The monitor must also ensure that a copy of that notice is filed at Companies House.

The Monitor Role

The Monitor must be a licensed insolvency practitioner, and their initial role is to ensure that the purpose of the Moratorium can be achieved.

The Monitor’s ongoing role is to ensure the conditions for the moratorium to be in place continue to be met and to protect creditors’ interests.

The directors remain in control of the company and will be responsible for the day to day running of the business. However, the Monitor is to have oversight of the Company and its finances.

The Monitor will have a say over what payments can be made, and to review whether sufficient income is being received to cover the costs of the Moratorium process.

The Monitor will also need to be actively involved in any restructuring of the business, to ensure that progress is being made and the purpose of the Moratorium is still achievable.


Generally, companies are eligible to use the moratorium if:

  • They are incorporated under the Companies Act 2006 or they are unregistered but may be wound up under the Insolvency Act 1986 (this category includes overseas companies)
  • The directors state that the company is, or is likely to become, unable to pay its debts; and
  • The Monitor is of the view that it is likely a moratorium would result in the rescue of the company as a going concern.

Companies who are not in or have not been in an insolvency process within the last twelve months, are eligible to apply.  You cannot have two moratoriums in the any one twelve-month period.

Where the company is subject to an outstanding winding-up petition, the court may make an order for a moratorium only if it is satisfied that a moratorium would achieve a better result for the company’s creditors as a whole than would be likely if the company were wound up.

Banks, insurance companies and other financial institutions are also not eligible. Accordingly, most companies will be eligible to apply for a moratorium, if they can satisfy the purpose, which is that the moratorium is likely to result in saving the Company.

The Division of the Moratorium Debts

The Act divides the company’s debts into three categories:

  • Pre-moratorium debts for which the company has a payment holiday
  • Pre-moratorium debts for which the company does not have a payment holiday
  • Moratorium debts.

The company must continue to pay pre-moratorium debts without a payment holiday and moratorium debts during the moratorium.

Pre-moratorium debts without a payment holiday are those pre-moratorium debts which have fallen due before the moratorium, or which fall due during the moratorium and which are amounts payable in respect of:

  • the Monitor’s remuneration and expenses. 
  • goods and services supplied during the moratorium.
  • wages or salary.
  • redundancy payment.
  • rent in respect of a period during the moratorium.
  • debts or other liabilities arising under a contract or financial services including a loan; agreement.

The company is severely restricted to making any payments towards pre-moratorium debts for which it has a payment holiday.

The effect on legal proceedings/enforcement of rights

During a moratorium:

  • A landlord may not exercise its right of forfeiture.
  • There can be no enforcement of security (except financial collateral or a collateral security charge).
  • There can be no repossession of goods under a hire purchase agreement or exercise of a retention of title clause.
  • No legal proceedings or legal process may be raised, carried out or continued (except employment tribunal proceedings, legal processes arising out of such proceedings or proceedings involving a claim between an employer and a worker) in each case without the permission of the court.

During a moratorium creditors and shareholders are restricted from commencing an insolvency process (liquidation, administration, or administrative receivership).

Directors may still put the company into a formal process, and voluntary liquidation is possible if recommended by the directors.

Duration of the Moratorium

The Moratorium lasts 20 business days unless it is extended.

The Monitor has the power to extend the period once for a further 20 business days if they deem it appropriate.

The Moratorium can be extended further if either the Court or the creditors agree, if a CVA has been put forward and is currently pending.  However, the Moratorium cannot last longer than one year.

The Monitor must terminate the moratorium if they believe that:

  • the moratorium is no longer likely to result in the rescue of the company as a going concern.
  • the objective of rescuing the company as a going concern has been achieved.
  • as a result of the failure of the directors to provide information regarding the company required and requested by the monitor, the monitor is unable to carry out the monitor’s functions.
  • the company is unable to pay any moratorium debts or pre-moratorium debts for which the company does not have a payment holiday (which as discussed above includes any sums owed to its lenders).

In addition, a moratorium will come to an end:

  • if the company enters another insolvency process (administration, including filing a notice of intention to appoint, CVA, liquidation)
  • if a restructuring plan or scheme of arrangement is sanctioned
  • if the court so orders.
  • automatically upon the expiry of the moratorium term. 

In conclusion:

While the moratorium appears to be a very debtor-focused process it has been welcomed as a useful addition to the UK’s restructuring toolkit during these difficult times.

There remains uncertainty around some aspects of the moratorium that will need to be navigated and it will be interesting to see how these are dealt with in practice, hopefully with further clarification from the Courts or amendments to the act.

In respect of large, complex businesses we can see how the process will be very useful; however, to date, the procedure has been used very little.  Only four appointments were made in the six-month period to December 2020, with no appointments being made in the first quarter of 2021.

Whether that will change once the other support measures, most notably the ban on winding up petitions have been withdrawn fully remains to be seen.

Creditor Services 

Dealing with insolvent debt can be difficult andin some cases time-consuming. Having a business partner to support you through this process can make a huge difference to the success of your claim.

Our Creditor services team at Restart BTi can assist with the entire claims process no matter what type of insolvency you are dealing with. We will lodge your initial claim, deal with any queries, and make sure that important deadlines are met. We will oversee fee approvals on your behalf and call on our own licensed Insolvency Practitioner when we feel that an independent review or investigation may be required.

We can represent clients at meetings or on committees and will ensure that the difficult questions are asked to endeavour to get the best possible outcome for our clients. With our wide network of support, we can engage with other creditors and seek further support to guarantee that your voice is heard.

Our bespoke case management system, Divisi, ensures that we proactively monitor your insolvency portfolio, providing transparent reporting via our web-based portal.

This service is offered to our clients at no charge so if you want to remove the burden of managing your insolvency documentation and enhance your dividend prospects, then please contact Paul Hughes on 01246 959388 for further information.

What makes Top Service Ltd different? 

As the only credit reference and debt recovery agency specific to the construction industry, we make it our mission to ensure our members receive the most up to date, credit information and company trading experiences which can make a real difference between company profit and painful write-offs. 

Are you struggling to recover the money you are owed?

Top Service members have access to an exclusive combination of no collection, no fee debt recoveryservices.

“We welcome the opportunity to talk to you about any bespoke changes you would like to make to our debt recovery procedures to fit the culture you have for maintaining customer relationships, whilst addressing the need to keep cash flow as fluid as possible for your business.Please contact our collections team to talk through any individual cases or to explore how else we can support you,” Emma Miller, Company Director Top service.

Contact our helpdesk team today on 01527 518800 to discuss how Top Service can support and help you protect your business.