HomeFWJ TakeawayCompany rescueBusiness recovery and rescueCorporate Insolvency and Governance Bill – moratoriums for struggling companies

The Corporate Insolvency and Governance Bill currently making its way through parliament will have a significant impact on debt recovery. Here I examine the proposed moratorium for struggling companies to protect them against certain insolvency proceedings and give them breathing space to recover.


A company is eligible to seek a permanent standalone moratorium unless it falls within the exempted categories (including financial services providers) and/or is or has been subject to a moratorium or insolvency proceedings within the 12 months prior to the moratorium.

If a company is currently subject to winding up proceedings, then the court must also be satisfied that a moratorium for the company would achieve a better result for the company’s creditors as a whole than would be likely should the company be wound up.

Effect of a moratorium

If a company is granted a moratorium then there would be:

  • Restrictions on insolvency proceedings such as the presentation of a winding up petition;
  • Restrictions on the continuation of all litigation proceedings except employment tribunal proceedings and claims otherwise between employers and agency workers or with the permission of the High Court.

This could potentially have important ramifications as it may preclude the commencement of court proceedings to recover a debt against a company which has the benefit of a moratorium. It would also prevent enforcement proceedings against a company in moratorium (e.g. by the HCEO). It could even put a hold on ongoing litigation claims (e.g. where the defendant successfully applies for a moratorium during the course of legal proceedings).

  • No crystallisation of floating charges;
  • Restrictions on the right of forfeiture, enforcement of security, repossession of hirer purchase goods;
  • Restrictions on disposal of property; and
  • Restrictions on the payment of pre-moratorium debt (payment holiday).

Length of a moratorium

The moratorium length is restricted. It will only last for an initial period of 20 business days.

A company’s directors can apply to the court for an extension for 20 business days without creditor consent. It can apply for a further period up to one year, but only with creditor consent.

So, in reality, it is likely that the moratorium process will impact for a possible 40 days (unless the creditors consent to a further extension). But if it is successfully applied for during the course of ongoing litigation by a defendant, it could cause significant delays as the court directions / timetable might need amending accordingly. It is not clear whether this will affect key court dates such as trials (which will presumably have to be adjourned) and whether these factors will be taken into account as part of the moratorium decision making process.


As soon as is reasonable after the moratorium comes into force, all known creditors of the company are to be notified and such notice should detail when the moratorium is to come to an end.

It is not yet clear whether creditors will be able to check whether a debtor company has applied for a moratorium.

Process of obtaining a moratorium

The moratorium process must be supported by evidence prepared by an insolvency practitioner showing that:

  • It is likely to result in the rescue of the company as a going concern (or would do so if not for any worsening of the financial position of the company for reasons relating to coronavirus); and
  • A declaration of directors that the company is, or is likely to become, unable to pay debts.

For further guidance on debt recovery, please get in touch with Shona Houghton.

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