{"id":174981,"date":"2022-08-23T06:30:44","date_gmt":"2022-08-23T05:30:44","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=174981"},"modified":"2025-07-02T00:40:22","modified_gmt":"2025-07-01T23:40:22","slug":"pre-insolvency-moratorium","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/pre-insolvency-moratorium\/","title":{"rendered":"My Business is Facing Insolvency. What is a Pre-Insolvency Moratorium in England?"},"content":{"rendered":"\n

A pre-insolvency moratorium is an available tool for companies facing insolvency. Insolvent companies with a viable prospect of turning their business around can use a pre-insolvency moratorium to reach an arrangement with their creditors to restructure their debts. This article will explain the effect of a pre-insolvency moratorium and how your business can use it to its advantage. <\/span><\/p>\n\n\n

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This article is Part 1 of our series exploring pre-insolvency moratoriums. If your business is insolvent or will likely be, discover how a moratorium can benefit you. In Part 2<\/a>, we discuss how pre-insolvency moratoria operate if your business is owed money by a company facing insolvency, and their practical effect on you as a creditor.\u00a0<\/p>\n<\/div>\n\n\n

What is a Pre-Insolvency Moratorium? <\/span><\/h2>\n\n\n\n

A moratorium is a court order forbidding any party from bringing legal action against an individual for a certain period of time, called the moratorium period. In the context of <\/span>insolvent companies<\/span><\/a>, either the company itself or its creditors can bring a moratorium. <\/span><\/p>\n\n\n\n

The purpose of a moratorium is to freeze the ability of a company\u2019s creditors to petition the court to initiate proceedings against the company. Absent a moratorium, the court might allow as many creditor actions against the company to proceed as there are creditors. This wastes court resources and prevents the insolvent company from reaching an agreement with its creditors that might maximise all parties’ interests. <\/span><\/p>\n\n\n\n

Pre-insolvency moratoriums are a specific kind of moratorium available to companies whose directors fear the company may imminently become insolvent. To avoid insolvency, the directors intend to arrange a consensual debt restructuring with their creditors. This is where the company borrows more money to pay off old debt. <\/span><\/p>\n\n\n\n

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Importantly, companies already subject to insolvency proceedings such as <\/span>liquidation or administration<\/span><\/a> are not usually eligible to apply for a pre-insolvency moratorium. <\/span><\/p>\n<\/div>\n\n\n\n

What is Insolvency?<\/span><\/h3>\n\n\n\n

Insolvency refers to a company that cannot pay debts exceeding \u00a3750 within three weeks of a creditor serving notice. Alternatively, a creditor with a debt claim against your company can file its creditor action with the court, at which point the court will rule whether the company is insolvent. <\/span><\/p>\n\n\n\n

Purpose of a Pre-Insolvency Moratorium  <\/span><\/h2>\n\n\n\n

The general purpose of a pre-insolvency moratorium is to give a company\u2019s directors breathing room to control the company\u2019s affairs and work towards a consensual solution with its creditors. <\/span><\/p>\n\n\n\n

The extent of solutions available to your company depends on its circumstances and the willingness of creditors to negotiate. If there is a chance the company can turn itself around, directors may try and negotiate a debt refinancing. Debt financing is where the company\u2019s management stays the same, and current shareholders maintain some degree of control over the company.<\/span><\/p>\n\n\n\n

On the other hand, the company\u2019s position may be so weak that its creditors will only entertain a transfer of ownership. In this option, the creditors convert their debt in the company to shares, which wipes out the existing shareholders. A<\/span>lternatively, your creditors may <\/span>engage a third-party buyer t<\/span>o acquire shares and inject cash into the business. In these transactions, the company will likely have new owners and management, meaning you will lose any interest in the business. <\/span><\/p>\n\n\n\n

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While this sounds like the worst-case scenario, this is often preferable to involuntary arrangements such as liquidation and administration. <\/span><\/p>\n<\/div>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n

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