Module 7.5 Part A1 Moratorium Flashcards
How long does the initial moratorium period last?
20 days
What are the requirements to be a monitor?
Must be an IP
Must be bonded
Officer of the court
Which entities are eligible for a moratorium?
Companies
LLPs
Overseas companies
What are the eligibility criteria for a moratorium?
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
What is the ‘monitor’s view’?
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
What documents are needed to file for a moratorium?
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
A When does a moratorium commence?
B How long do directors have to notify the monitor?
A Immediately upon filing or the making of the order
B Directors must notify monitor of commencement ASARP
Who must be notified of the moratorium?
Companies House
Every creditors of whose claim they are aware
The Pensions Regulator and Pension Protection Fund
FCA/PRA, if applicable
What are the permissible delivery methods for a moratorium?
Post or email NOT website
What are the effects of a moratorium?
“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]
What moratorium debts are NOT subject to a payment holiday?
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]
What can’t directors do during a moratorium?
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
Do the protection of supplies provisions apply to a moratorium?
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
What limitations are there to the protection of supplies?
There has to be an existing contract for supplies:
Suppliers not required to enter into new contracts
What if suppliers refuse?– No real penalties
What is the position of financial service providers?
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
What are the super-priority provisions?
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
What are a monitor’s functions?
Monitoring
Providing consent
Permitting extension of moratorium
Terminating
Reporting offences
When can/ will a monitor need to provide consent?
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
What are the powers of the monitor?
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
When must a monitor notify relevant parties?
At start and any changes to the end of the moratorium. (Court when terminating)
When can a moratorium be extended?
After 15 days up to 20 days
For how long can a moratorium be extended
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.
How do the directors obtain creditors consent to an extension?
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)
How many days notice must be given for a QDP for the extension of a moratorium? (can’t used deemed consent)
5 days (NOT business days)
How many times can QDP be used to extend a moratorium?
More than once, but total period not greater than 1 year
What are the creditors’ voting rights in a moratorium?
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
What is the requisite majority for a moratorium?
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.
When must a monitor terminate a moratorium?
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
When does a moratorium automatically end?
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
When can the court terminate a moratorium?
Challenge to monitor’s actions by any affected person
Challenge to director’s actions by a creditor or member
How long does monitor have to notify/ file if terminates moratorium?
Court ASARP
Other parties within 3 days
What DOESN’T the monitor function include?
Assisting directors with their notification requirements
Assisting with extension [beyond providing a statement]
Advising on exit options
What are the fees for a monitor?
‘A contractual matter’ - no statutory provision
