Module 7.5 Part A1 Moratorium

Question 1

How long does the initial moratorium period last?

Answer 1

20 days

Question 2

What are the requirements to be a monitor?

Answer 2

Must be an IP
Must be bonded

Officer of the court

Question 3

Which entities are eligible for a moratorium?

Answer 3

Companies
LLPs
Overseas companies

Question 4

What are the eligibility criteria for a moratorium?

Answer 4

Not in an insolvency procedure
No previous CVA/ moratorium / administration in last 12 months

Not eligible:
Banks, insurance cos etc - FSA/ PRA regulated unless written consent from regulator
social housing landlords
public/ private partnership project companies

Question 5

What is the ‘monitor’s view’?

Answer 5

Test= it is likely that a moratorium for the company would result in the rescue of the company as a going concern
 “likely” means “more probably than not”

Legislation:
 does not prescribe upon what evidence that view should be based

 does provide what to do if that view changes – i.e. terminate the
moratorium

Question 6

What documents are needed to file for a moratorium?

Answer 6

A3-Director filing with the court:

 Directors’ Notice of wish to obtain a Moratorium
 Monitor’s Consent to Act
 Joint Monitors’ Statement of division of duties (if applicable)
 Monitor’s Statement of Eligibility
 Directors’ Statement of Insolvency or Prospective Insolvency
 Monitor’s Statement of their view as to likelihood of rescue.

A4/5- Director application to the court:[with the above documents]
 Overseas companies, irrespective of whether there is an outstanding petition or not

Question 7

A When does a moratorium commence?

B How long do directors have to notify the monitor?

Answer 7

A Immediately upon filing or the making of the order

B Directors must notify monitor of commencement ASARP

Question 8

Who must be notified of the moratorium?

Answer 8

 Companies House
 Every creditors of whose claim they are aware
 The Pensions Regulator and Pension Protection Fund
 FCA/PRA, if applicable

Question 9

What are the permissible delivery methods for a moratorium?

Answer 9

Post or email NOT website

Question 10

What are the effects of a moratorium?

Answer 10

 “Payment holiday”

Restrictions on proceedings and remedies:
 Creditors may not commence or continue legal proceedings, except employment tribunals
 Enforcement halted, except with permission of the court
 Hire purchase goods may not be repossessed, except with permission of the court
 Landlords rights of forfeiture by peaceable re-entry may only be exercised with permission of the court
 Floating charges cannot crystalize
Restrictions on insolvency proceedings [except by directors]

Question 11

What moratorium debts are NOT subject to a payment holiday?

Answer 11

 Monitor’s remuneration or expenses (excluding pre-appointment)
 Goods or services supplied during the moratorium
 Rent in respect of a period during the moratorium
 Wages or salary arising under a contract of employment
 Redundancy payments
 Debts or other liabilities arising under a contract or other instrument involving financial services
 [e.g.loans and finance charges]

Question 12

What can’t directors do during a moratorium?

Answer 12

Without the monitor’s consent MUST NOT:
Grant security
Dispose of property other than in the ordinary course of business
Pay pre-moratorium debts above certain limits (£5,000 or 1% of debts)

Without the COURT’s consent:
Obtain credit in excess of £500 without disclosing the moratorium
Dispose of HP or charged property
enter market contracts

Question 13

Do the protection of supplies provisions apply to a moratorium?

Answer 13

 s233B IA 86 applies to moratoria
 Suppliers cannot rely on termination clauses triggered solely by a company
entering an insolvency procedure or moratorium
 Do not apply to terminating events that occur after the commencement of the procedure
 Supplier can apply to Court if continued supply will cause the company hardship

Super-priority given to moratorium debts in subsequent proceedings

Question 14

What limitations are there to the protection of supplies?

Answer 14

 There has to be an existing contract for supplies:
 Suppliers not required to enter into new contracts
 What if suppliers refuse?– No real penalties

Question 15

What is the position of financial service providers?

Answer 15

Financial services providers expressly excluded i.e. can terminate supply BUT:
 Cannot accelerate their liability to obtain increased amounts of super-priority
 Cannot enforce their debts during a moratorium

Question 16

What are the super-priority provisions?

Answer 16

Apply where company enters liquidation (s174AIA86) or appoints an administrator (Para 64A Sch B1 IA86) within 12 weeks of end of moratorium
 Super-priority (after costs of OR and administrator/ liquidator) given to the moratorium debts and pre-moratorium debts for which the company did not have a payment holiday

Order of priority as within the class:
 supplies made under the s233B provisions
 wages or salary arising under a contract of employment
 other debts or other liabilities apart from the monitor’s remuneration or expenses
 the monitor’s remuneration or expenses

Question 17

What are a monitor’s functions?

Answer 17

Monitoring
Providing consent
Permitting extension of moratorium
Terminating
Reporting offences

Question 18

When can/ will a monitor need to provide consent?

Answer 18

Consent may only be given where it supports the rescue of the company as a going concern

Restrictions on grant of securities
Restrictions on payment of certain pre -moratorium debts
Restrictions on disposals of property

Question 19

What are the powers of the monitor?

Answer 19

Requiring information
Directions (about the carrying out of the monitor’s functions)
Refusing extension (ie providing view as to the continued likelihood of rescue)
Terminating when:
Achieved
Unlikely
Unable to perform functions
Debts not being paid
Reporting offences

Question 20

When must a monitor notify relevant parties?

Answer 20

At start and any changes to the end of the moratorium. (Court when terminating)

Question 21

When can a moratorium be extended?

Answer 21

After 15 days up to 20 days

Question 22

For how long can a moratorium be extended

Answer 22

By directors for up to 20 business days.
By directors with creditor consent for 1 year.
Court - extensions for unlimited duration
Automatic: Until disposal of CVA proposal

NB Monitor’s view required as to the likelihood of rescue - may terminate if not satisfied.

Question 23

How do the directors obtain creditors consent to an extension?

Answer 23

By QDP, but not until 15 day period has elapsed - although notice convening QDP can be given (also can’t apply to court in this period - if court application must state whether creditors have been consulted and if not why not)

Question 24

How many days notice must be given for a QDP for the extension of a moratorium? (can’t used deemed consent)

Answer 24

5 days (NOT business days)

Question 25

How many times can QDP be used to extend a moratorium?

Answer 25

More than once, but total period not greater than 1 year

Question 26

What are the creditors' voting rights in a moratorium?

Answer 26

 Secured creditors vote without deducting the value of their security - but can't accelerate debts for voting purposes  Hire purchase creditors vote in respect of the amount due at the decision date  Unliquidated or unascertained amounts vote for £1 (mirroring CVA) Relevant date for voting = date of the decision procedure NOT the date of the moratorium

Question 27

What is the requisite majority for a moratorium?

Answer 27

A decision is made if:  a majority (in value) of the pre-moratorium creditors who are secured creditors vote in favour of the proposed decision, and  a majority (in value) of the pre-moratorium creditors who are unsecured creditors vote in favour of the proposed decision. But a decision is not made if, of those voting either:  a majority of the pre-moratorium creditors who are unconnected secured creditors vote against the proposed end date, or  a majority of the pre-moratorium creditors who are unconnected unsecured creditors vote against the proposed end date.

Question 28

When must a monitor terminate a moratorium?

Answer 28

No longer likely to result in a rescue Rescue achieved Unable to carry out functions Non-payment of debts - debts likely to be paid within 5 days or agreed to be deferred must be disregarded

Question 29

When does a moratorium automatically end?

Answer 29

Expiry of initial or extended period Entry into a compromise, arrangement or insolvency procedure: CVA `approved = success Liquidation/ administration = failure of moratorium - directors must notify monitor 3 days in advance of instigating insolvency Liq/ administrator has right to challenge monitor's fees

Question 30

When can the court terminate a moratorium?

Answer 30

Challenge to monitor's actions by any affected person Challenge to director's actions by a creditor or member

Question 30

How long does monitor have to notify/ file if terminates moratorium?

Answer 30

Court ASARP Other parties within 3 days

Question 31

What DOESN'T the monitor function include?

Answer 31

 Assisting directors with their notification requirements  Assisting with extension [beyond providing a statement]  Advising on exit options

Question 32

What are the fees for a monitor?

Answer 32

'A contractual matter' - no statutory provision