Moratoriums

My trade association R3 is pushing for moratoriums for failing companies looking to put forward a rescue proposal.

While the UK’s corporate insolvency regime is flexible and effective (ranked by the World Bank as one of the best in the world), directors of struggling companies sometimes lack the time to make considered decisions about their company’s future when facing insolvency.

A key reason for this is that anxious creditors can disrupt business rescue plans by petitioning to have a struggling company wound up. This is understandable given creditors want to protect their own financial interests, but it can put directors under pressure.

To avoid this, business rescue deals tend to be quick and confidential. This can leave unsecured creditors in particular feeling out the loop.

Additionally, faced with the risk of losing control of their company upon entering an insolvency procedure, directors may put off seeking advice or taking action until it’s too late, reducing the chances of a full business rescue.

To counter these problems, my trade association R3, has recommended the introduction of a 21-day moratorium for struggling businesses. During the moratorium, creditors would be prevented from taking any action to recover their debts.

Under the proposals;

- The moratorium period will last 21 days. It could be extended either with the issue of a CVA proposal or by applying to court for a 21 day extension.

- The directors would remain in control of the company during the moratorium.

- A licensed insolvency practitioner would act as Moratorium Supervisor over the length of the moratorium.

- Companies in a moratorium must meet debts created during the moratorium and directors must confirm that funding is in place when filing the notice of moratorium in court. Subsequently, if a company cannot pay the debts created in the moratorium, it must enter an insolvency procedure.

- Suppliers may not withdraw supply or change the terms of supply during the moratorium – although suppliers may request to be paid pro forma or require a guarantee from directors.

- Creditors may challenge the moratorium in court.

- There should be a publicly accessible register of moratoriums. This could be funded by a small filing fee for each application.

Moratoriums are already part of the UK insolvency regime but are only available in limited circumstances. Introducing a broader moratorium would be in tune with proposals made by the European Commission and would introduce to the UK a positive aspect of the US insolvency regime without importing the downsides.