The free standing moratorium is intended to give companies breathing space to explore options for survival.
The directors of an eligible company can get a moratorium by filing relevant documents at court. A company with an outstanding winding-up petition would need a court order to apply for a moratorium.
There must be a statement from an insolvency practitioner (the monitor) that, in their view, it is likely that the moratorium would result in the rescue of the company as a going concern.
The initial moratorium lasts for 20 business days. The directors can extend the moratorium for a further 20 business days, provided they can – among other things – confirm that all moratorium debts have or will be met. Further extensions (up to a maximum of 1 year) require the consent of creditors. The court may also extend the moratorium. There does not appear to be a maximum extension period if the extension is granted by court order.
During the moratorium
Creditor protections
There are protections for creditors (or members) of the company to apply to court for relief on the grounds that the management of the company's affairs, business and property unfairly harms their interests.
Eligibility
Companies are generally eligible, unless they:
A restructuring plan can be proposed between a company and its creditors (and/or members) for the purpose of dealing with financial difficulties.
This will apply to any company liable to be wound up under the Insolvency Act 1986 that has encountered (or is likely to encounter) financial difficulties that affect its ability to carry on business as a going concern.
Any creditor or member whose rights are affected by the plan must be allowed to participate in the process and be given enough information to vote on the plan. However, those with no genuine economic interest in the company can be excluded.
The voting majority for each class is 75% in value. If passed, the plan has to be approved by the court, who will assess whether it's just and equitable. However, it's also possible for the court to sanction the plan where a class has voted against it. It can do that if:
'Relevant alternative' is whatever the court considers would be most likely to happen if the plan were not sanctioned.
Where a plan is proposed within 12 weeks of the end of the new moratorium period, it can't affect the rights of creditors in respect of either moratorium debts or pre-moratorium debts that weren't subject to the moratorium restrictions.