Meaning
A fixed period provides a company with protection from legal action while it explores options for a rescue or restructuring. The insolvency moratorium stops creditors from starting insolvency proceedings or enforcing security without the permission of the court. It is a debtor-in-possession process, meaning the directors remain in control of the company.
Breathing Space
Monitoring of the process is handled by a licensed insolvency practitioner who must certify that a rescue is likely. An insolvency moratorium typically lasts for an initial period of twenty business days, though extensions are possible with creditor consent or court approval.
Debt Holiday
Payments for certain pre-moratorium debts are suspended to allow the company to preserve its cash reserves. During an insolvency moratorium, the company must continue to pay for new goods and services as well as employee wages. This ensures that the business can keep trading while a long-term solution is negotiated with the bank and other stakeholders, such as bondholders or essential raw material suppliers who might otherwise withdraw their support.
Monitor Oversight
Ending the protection early is a requirement if the monitor determines the rescue is no longer viable. The insolvency moratorium provides a structured environment for companies to avoid terminal liquidation. It acts as a bridge to a more permanent arrangement such as a company voluntary arrangement or a restructuring plan.
