Standalone Moratorium For Companies ' Changes Introduced By The UK Corporate Insolvency & Governance Bill

• Published date: 10 June 2020
• Author: Ms Devi Shah and Sheena Frazer
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Coronavirus (COVID-19), Financial Restructuring, Corporate and Company Law, Directors and Officers, Insolvency/Bankruptcy, Financing, Operational Impacts and Strategy
• Law Firm: Mayer Brown

On 20 May 2020, the UK government announced the Corporate Insolvency and Governance Bill (the "Bill"), introducing a mixture of permanent and temporary measures, the latter being in response to the financial challenges companies are facing as a result of the Covid-19 pandemic and lockdown. In the absence of extensive consultation with insolvency practitioners and industry experts, it remains to be seen how effective the measures will be in practice.

As anticipated, a new standalone moratorium, overseen by a "monitor", has been introduced. The provisions largely mirror those put forward during the limited consultation in 2018 - the purpose being to provide a company with the breathing space to explore a rescue or restructuring of the business, which includes the newly introduced restructuring plan. It is not intended that the company has the form of rescue/restructuring in mind at the time the moratorium is applied for and the moratorium is not a gateway to any particular insolvency process. Notably, the moratorium enables the directors to remain in day to day control of the business and enables them to lead discussions regarding rescue and restructuring, albeit we expect that the monitor will provide invaluable knowledge and guidance in crafting the best form of rescue/restructuring. Current timelines indicate that companies may be able to seek this new moratorium as early as the end of June 2020.

Process

A moratorium can be initiated by an eligible company by simply filing the required documentation with the court. We expect that this will be done by e-filing as an out of court process.

Amongst certain other formalities, the relevant documents must be accompanied by: (i) a statement by the directors that in their opinion the company is unable to pay or is likely to be unable to pay its debts; and (ii) a statement from the monitor that it is likely that a moratorium would result in the rescue of the company as a going concern. The moratorium notice does not need to specify the route by which 'rescue as a going concern' is to be achieved.

The moratorium takes effect when the documents are filed with the court or, where an application to court is necessary, the court makes the relevant order.

Eligibility

Companies eligible for a moratorium include English companies and foreign companies with sufficient connection to the UK. In the latter case, we note that the moratorium may not be recognised in other jurisdictions.

Certain companies are simply excluded...