Could you benefit from the new rescue and restructuring legislation? The Moratorium

The focus of the Corporate Insolvency and Governance Act 2020, which came into force on 26th June, is to allow SMBs extremely valuable time to formulate a rescue and restructuring plan.

Vital breathing space for SMBs.

This Act introduces a formal ‘moratorium’ – an initial period of 20 business days – during which no legal action from the majority of creditors can be taken against a company without court permission.

The changes will offer concrete opportunities for rescue and restructuring plans for small and medium-sized businesses. It gives you the breathing space to explore all rescue and restructuring options, free from creditor pressure.

This moratorium can be extended for a further 20 business days if appropriate and for up to 12 months with creditor or court consent, if the extension is made before the expiry of the moratorium.

We can optimise this period of calm.

You might have options that allow your business to recover and take positive steps forward. We will listen, take time to fully understand your business and methodically work through your choice of solutions.

And we’re qualified to do so: only a licensed insolvency practitioner can supervise a company entering a moratorium.

If you believe that your or your client’s company has a viable future – but is suffering cash-flow difficulties due to the Coronavirus pandemic – we can use this moratorium to protect the business from creditor action.

The moratorium is a director-led process.

As an insolvency practitioner, we will acting in the role of ‘monitor’ overseeing all the business affairs, leaving the directors in place to run the company.

As ‘monitor’ we have the option of extending the initial period by a further 20 business days if the company does not become cash flow solvent in time but we believe there is still a likelihood of a rescue.

How the moratorium works.

We’re already exploring the use of this helpful tool to give businesses the opportunity to survive.

One import and export client is being put under extreme pressure to pay for fuel it took delivery of on credit some months ago. However, the cash to pay for the fuel is not available until a shipment, severely delayed due to Covid-19, arrives into the UK.

Applying for a moratorium will stop legal enforcement action being taken and buy valuable time to rescue the company.

What must still be paid?

During the moratorium the company has to continue paying certain debts. These include:

  • goods and services supplied during the moratorium
  • rent for the moratorium period
  • debts under financial contracts, including lending contracts
  • wages due under employment contract

For the moratorium to be fully effective, we’ll need to assist with negotiations to obtain the support of lenders and possibly agree a payment holiday with them. Gaining lender support is key as it will be possible for lenders who do not support the moratorium to bring it to an end.

What can – and cannot – be enforced during a moratorium?

An employment tribunal proceeding can continue during the moratorium: this does not require consent from the court to commence or continue.

But throughout the moratorium the following cannot happen:

  • no legal proceeding can be started (except employment tribunal issues)
  • a landlord may not exercise rights to terminate a lease
  • goods under a hire purchase contract cannot be repossessed
  • security cannot be enforced (except financial collateral)

Give yourself the best chance of survival.

If you want to take advantage of this new Act and prepare your business for the future, please get in touch to discuss how we can help you.

Would you like to chat something over with us…

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