With many companies facing increased pressure due to the coronavirus pandemic, Stockport law firm, SAS Daniels, explains new legislation which introduces the Business Rescue Moratorium, to support businesses facing insolvency.
With the imminent introduction of the Corporate Insolvency and Governance Bill 2019-21 (currently pending Royal Assent), what does the Government’s new legislation to support companies throughout this pandemic period mean?
What Is the Business Rescue Moratorium?
Companies that are unable to pay their creditors, due to the impact of COVID-19, will be entitled to apply for temporary relief by way of a Business Rescue Moratorium application to the High Court.
A moratorium is intended to last for 20 business days, with an entitlement to apply to extend the same (with or without creditor consent) after 15 business days have elapsed.
The recent issue of winding-up proceedings brought by a commercial landlord following an unsatisfied Statutory Demand for unpaid rent was not deemed by the Court as a viable form of recovery. This has been due to the reason for non-payment being the detrimental financial impact of the COVID-19 pandemic. With particular consideration of the industry sector of the tenant in conjunction with the present climate, a temporary lack of payments or reduced rental payments did not, in this case, demonstrate sufficient proof that the commercial tenant would ever be able to recommence trading, nor be able to pay their creditors in the near future.
Despite the example given above, these provisions apply to all companies in the UK and is not restricted to landlords. It is intended to retrospectively take effect from 27 April 2020.
When considering an application of this type, the High Court would need to be satisfied that a moratorium for the company would achieve the best outcome for all of their creditors in the longer term, as opposed to them being wound up.
In summary, no winding-up petition will be permitted to be presented on or after 27 April 2020. This is on the basis of an unsatisfied Statutory Demand that was served within the relevant period of 01 March – 30 June 2020, unless the creditor has realistic grounds for trusting that the debtor’s failure to pay was not due to the COVID-19 pandemic.
What Is Not Permitted During a Moratorium Period?
During a moratorium period, landlords, or others to who sums are owed, are not permitted to commence the following actions without the permission of the High Court, and with exceptions:
- Exercise a right of forfeiture
- Enforce security over the company’s property
- Enforce a collateral security charge
- Repossess goods in the company’s possession under any hire-purchase agreement
- Bring legal and enforcement proceedings
A moratorium will end at the end of a period of 20 business days, beginning with the business day after the day on which the moratorium came into force, or upon the company entering an insolvency procedure.