What Is a Company Moratorium? A Guide for UK Directors

1. The directors seek professional advice

The directors provide financial information to a licensed insolvency practitioner who is willing to act as the monitor.

This assessment is likely to consider:

• Current debts and creditor pressure
• Cash flow forecasts
• Assets and liabilities
• Ongoing trading performance
• Funding requirements
• The cause of the company’s financial problems
• The proposed rescue strategy

The practitioner must be satisfied that the moratorium is likely to result in the company being rescued as a going concern.

2. The required documents are filed

For most eligible companies, the directors can obtain a moratorium by filing the appropriate documents at court.

These include statements from the directors and the proposed monitor confirming that the relevant conditions have been considered.

Different procedures may apply where a winding-up petition has already been presented or where the company is an overseas company.

3. The moratorium begins

Once the moratorium takes effect, the company receives protection from many forms of creditor enforcement.

The monitor must notify Companies House and known creditors. The fact that the company is subject to a moratorium will appear on the public register.

4. The company continues trading

The directors remain responsible for managing the company.

They use the protected period to work on the proposed rescue while continuing to meet the liabilities that fall outside the payment holiday.

5. The monitor reviews the company’s position

The monitor must continually assess whether rescuing the company as a going concern remains likely.

The directors must provide the information the monitor reasonably requires. If circumstances change and rescue is no longer considered likely, the monitor may bring the moratorium to an end.

During the moratorium, creditors are generally restricted from taking or continuing several types of enforcement action without the court’s permission.

The protection may prevent or restrict:

• Winding-up proceedings
• Most new legal proceedings
• The continuation of certain existing legal processes
• Landlord forfeiture by peaceable re-entry
• Bailiff and High Court enforcement
• Repossession of goods under hire-purchase agreements
• Enforcement of security over company assets
• The crystallisation of a floating charge

There are exceptions, and the court may permit certain action in appropriate circumstances. Employment tribunal proceedings and some disputes between an employer and worker are treated differently.

A moratorium therefore creates valuable protection, but it does not make the company immune from every claim or obligation.

HMRC is generally subject to the restrictions that apply to creditors during a company moratorium.

This can prevent HMRC from immediately escalating certain enforcement or insolvency action while the moratorium remains in force.

However, a moratorium does not write off tax debt.

The company may still need to deal with:

• VAT
• PAYE
• National Insurance contributions
• Corporation Tax
• Ongoing tax liabilities arising during the moratorium
• Any obligations excluded from the payment holiday

The protected period may be used to negotiate with HMRC, explore a Time to Pay arrangement or incorporate tax arrears into a wider rescue proposal.

Businesses struggling with tax arrears should also understand the options available for HMRC debt before enforcement action escalates.

A moratorium gives the company a payment holiday from many debts that arose before the process began, but there are important exceptions.

The company generally needs to continue paying liabilities such as:

• The monitor’s remuneration and expenses
• Goods and services supplied during the moratorium
• Rent relating to the moratorium period
• Employee wages and salaries
• Redundancy payments
• Certain debts arising under financial services contracts
• New liabilities incurred while the company continues trading

This means a moratorium is only likely to work where the business has sufficient cash flow or funding to meet its essential ongoing obligations.

If the company cannot pay moratorium debts or relevant pre-moratorium debts that do not benefit from the payment holiday, the monitor may have to terminate the process.

Yes. A company moratorium is a “debtor-in-possession” procedure.

The existing directors normally continue making day-to-day business decisions rather than handing control to an administrator.

However, their freedom is not unlimited.

The company is subject to restrictions concerning matters such as:

• Granting security over assets
• Disposing of property outside the ordinary course of business
• Disposing of secured or hire-purchase assets
• Making certain payments relating to pre-moratorium debts
• Obtaining credit without disclosing that the moratorium is in force

Directors must also continue complying with their statutory duties and Companies House filing obligations.

The monitor must be a licensed insolvency practitioner.

Their role is to oversee the moratorium rather than take over the day-to-day operation of the company.

The monitor will:

• Assess whether rescue as a going concern is likely
• Review the company’s financial position
• Request information from the directors
• Monitor compliance with the legal requirements
• Consider requests for consent where required
• Notify Companies House and creditors
• Terminate the moratorium if the statutory conditions are no longer met

The monitor must act independently. Although they work with the directors, their responsibility is not simply to support whatever outcome the directors prefer.

The initial company moratorium lasts 20 business days, beginning with the business day after it comes into force.

The directors may extend it for a further 20 business days without obtaining creditor consent, provided the statutory conditions are met and the required documents are filed before the initial period expires.

Longer extensions may be possible:

• With the consent of qualifying creditors
• Through an application to the court
• In connection with certain restructuring proceedings

A creditor-approved extension cannot generally take the total period beyond one year from the beginning of the moratorium. The court has wider discretion when considering an application.

An extension is not automatic simply because directors need more time. The company must remain eligible, relevant debts must have been paid, and the monitor must continue to believe rescue is likely.

Many company moratoriums can begin through an out-of-court filing process.

A court application may be required in certain circumstances, including where a winding-up petition is already outstanding.

Court involvement may also be needed where:

• The company is applying for a longer extension
• Permission is sought for certain legal proceedings
• The company wants to dispose of secured or hire-purchase property
• The monitor requires directions about their role
• A creditor or other affected party challenges conduct during the moratorium

Directors facing an active winding-up petition should seek immediate advice because delay can materially reduce the available options.

Although directors retain control, the company must trade within specific legal restrictions.

For example:

• A person providing credit of £500 or more must be informed that a moratorium is in force
• Security over company property generally requires the monitor’s consent
• Certain payments of pre-moratorium debts are restricted
• Property outside the ordinary course of business generally cannot be disposed of without consent or a court order
• Secured and hire-purchase property cannot normally be sold without following the required procedure
• The company must disclose the moratorium on relevant websites, premises and business documents

These rules are intended to prevent the company from unfairly reducing the assets available to creditors while it benefits from legal protection.

Potential benefits include:

• Immediate breathing space from most creditor action
• Time to negotiate a rescue without entering administration
• Directors remaining in control
• Continued trading where viable
• Protection of jobs, contracts and business value
• More time to arrange refinancing or investment
• An opportunity to prepare a CVA or restructuring plan
• A potentially less disruptive route than administration

The strongest benefit is not simply delaying creditors. It is creating a controlled period in which a credible rescue can be completed.

A moratorium is not appropriate for every distressed company.

Potential drawbacks include:

• The company must remain capable of paying essential ongoing liabilities
• A licensed insolvency practitioner must be willing to act as monitor
• Professional fees will be incurred
• The process is shown at Companies House
• Restrictions apply to payments, borrowing and asset disposals
• Financial services debts may continue to be payable
• The moratorium can be terminated early
• Creditor action may resume when it ends
• The company may still enter administration or liquidation if rescue fails

A moratorium should therefore be entered with a specific objective and realistic plan, not simply to postpone an unavoidable failure.

Liquidation is designed to close a company and realise its assets for creditors.

A company moratorium is intended to support rescue and continued trading.

If the business cannot be rescued, a moratorium may ultimately be followed by:

• Creditors’ Voluntary Liquidation
• Compulsory liquidation
• Administration
• Another restructuring or insolvency process

Entering a moratorium does not guarantee that liquidation will be avoided.

A moratorium may end because:

• The initial or extended period expires
• The company is successfully stabilised
• A CVA takes effect
• A restructuring plan or scheme is approved
• The company enters administration or liquidation
• The monitor concludes that rescue is no longer likely
• The company cannot pay the debts that must continue to be met
• The directors fail to provide information required by the monitor

A successful outcome does not necessarily mean every debt has been repaid by the end of the moratorium. It means the company has reached a viable next stage and no longer requires that particular protection.

Certain unpaid moratorium debts and priority pre-moratorium debts can receive enhanced priority if the company enters administration or winding up within 12 weeks of the moratorium ending.