Table of Contents
Introduction
Effective from 26 June 2020, the Corporate Insolvency and Governance Act 2020 has introduced a new standalone moratorium on debts. This effectively introduces a mechanism for companies to obtain a statutory payment holiday in respect of various commercial creditors.

What is the aim of the new moratorium?
Many companies are currently experiencing severe cash flow pressures. A moratorium can help with this. Under a moratorium a company can stop paying some of its pre-moratorium debts without fear of creditor action. The moratorium can last for up to 40 days before creditor consent is required. This gives the company some time to improve its position (e.g. via a capital injection; improved trading, debt refinance) or perhaps to propose a CVA.
A moratorium is considered a ‘light touch’ insolvency process. In a moratorium the company remains under the control of the directors and the focus is on finding a way to save the company itself. This contrasts with an Administration in which the company is controlled by an Administrator and in which the business is frequently sold on to a new company.
A moratorium is overseen by a ‘monitor’ who will be an Insolvency Practitioner. The monitor’s role is to ensure the moratorium remains suitable (i.e. that the company is likely to survive as a going concern). The monitor will also be required to provide consent to certain transactions such as grants of security or asset disposals.
What kind of companies can go into a moratorium?
Companies can go into a moratorium unless they are specifically excluded (e.g. insurance companies, banks, electronic money institutions, investment banks and firms and parties to capital market arrangements.)
Normally a company will also be ineligible for a moratorium if it was subject to a prior moratorium or administration or CVA in the previous 12 months. However, up until 30 September 2020 these companies can be eligible. (In this period certain regulated companies which may hold money for clients will, additionally, be ineligible for moratorium.)
Are there any other conditions?
There are 3 categories of company debt to be aware of:
- pre-moratorium debts qualifying for a payment holiday;
- pre-moratorium debts not qualifying for a payment holiday; and
- moratorium debts – debts relating to the moratorium period.
Throughout the moratorium, the monitor will need to be satisfied that the company can continue to pay moratorium debts, as well as pre-moratorium debts that don’t qualify for a payment holiday.
Payment holidays are not available for:
- the costs of the monitor;
- wages and salaries;
- redundancy payments and financial liabilities (including loans); and for
- rent and goods and services supplied during the moratorium.
How does a company enter into a moratorium?
So long as the company is not subject to a winding up petition, a UK company can enter a moratorium by simply filing the appropriate documents in court. If subject to a petition, a court application is required.
The filings required are relatively straight-forward. The directors should indicate that the company is unlikely to be able to pay its debts and that they wish to obtain a moratorium. The monitor must indicate that the company is eligible and that a moratorium is likely to result in the rescue of the company as a going concern.
What’s the effect of the moratorium?
Except with court permission, the moratorium prevents creditors taking certain actions against the company. For instance, no winding up petition can be presented; landlords cannot exercise a right of forfeiture by peaceable re-entry; and, no steps may be taken to repossess goods in the company’s possession under any hire-purchase agreement.
Employees will need to be informed of any moratorium. The monitor will also notify all creditors and Companies House.
There are some restrictions on the company. These include restrictions on taking of credit; payment of those pre-moratorium debts not qualifying for a payment holiday and, disposing of assets.
If you have any questions about the above, or for a free no-obligation consultation, please call us, email or complete the contact form.
NOT LEGAL ADVICE. This information is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Silva Insolvency & Recovery Services Ltd professionals will be pleased to discuss resolutions to specific legal concerns you may have.