Insolvency Moratoriums: Underappreciated?

Article summary: Insolvency moratoriums, introduced under the Corporate Insolvency and Governance Act 2020, give financially distressed but fundamentally viable companies temporary protection from creditor action while a rescue plan is explored. Though rarely used — with only around 60 cases since 2020 — they can be a powerful tool where directors need short-term breathing space, provided eligibility conditions are met, and the role of the Monitor is properly managed. Key case law, including Re Grove Independent School Limited and Re Corbin & King Holdings Ltd, has begun to shape how courts and practitioners approach these processes. Early legal advice is essential to navigate secured creditor rights, contract risks, and the statutory requirements involved.

Since their introduction under the Corporate Insolvency and Governance Act 2020, insolvency moratoriums have remained a relatively rare feature of the UK restructuring toolkit. That is perhaps unsurprising. The process places significant responsibility on the ‘Monitor’, a licensed insolvency practitioner who manages the process, offers limited protection against certain financial creditors, and requires careful judgment calls throughout.

That said, moratoriums continue to have an important (and sometimes under‑estimated) role to play in the right cases — particularly where a fundamentally viable business needs short‑term breathing space to stabilise and explore a rescue.

What is an Insolvency Moratorium?

The moratorium was introduced by the Corporate Insolvency and Governance Act 2020, which inserted Part A1 into the Insolvency Act 1986, and is intended to support business rescue as a going concern. A moratorium under Part A1 allows directors to remain in control of the company, albeit under the supervision of an authorised insolvency practitioner acting in their capacity as a ‘Monitor’. 

The main objective of is straightforward: to give a company temporary protection from creditor enforcement action whilst a realistic rescue plan is explored. 

Eligibility

Eligibility for a moratorium is narrow, and some entities, such as a bank or insurer, are excluded from utilising it. Importantly, the directors must state that the company is, or is likely to become, unable to pay its debts, and the proposed Monitor for the company must confirm that the moratorium is likely to result in the rescue of the company as a going concern. Such conditions should continue to be assessed and satisfied throughout the moratorium period. 

Entry routes and timing 

There are two routes into a moratorium for a company:

• Out‑of‑court filing, which is available to most English companies.
• Court application, which is required where the company is overseas or where a winding‑up petition has already been presented. 

The correct route will depend on the company’s circumstances, and advice is essential to determine which is more appropriate. 

The initial period for a moratorium lasts for 20 business days, which can be extended for a further 20 business days by directors of a company without creditor consent. Further extensions – of up to 12 months or more – require creditor approval or further applications to court. 

Protections provided by a Moratorium 

During a moratorium, most pre‑moratorium unsecured debts benefit from a payment holiday, and creditors are restricted from taking enforcement action without permission.

However, early legal advice is essential as some lenders may retain enforcement rights under any terms of lending to a company which are engaged by the implementation of a moratorium. This needs to be considered to avoid any of these unintended triggers being engaged.

The Monitor

The Monitor’s role in any moratorium is pivotal. As an officer of the court, the monitor must:

• Assess rescue prospects for the company at the outset and keep them under review
• Monitor company conduct and cash flow throughout
• Bring the moratorium to an end if rescue is no longer likely or if non‑holiday debts cannot be paid

Setfords’ role 

Whilst legal advice should be sought immediately under whatever entry route to a moratorium that is being considered, it is particularly important where a moratorium requires a court application. This includes preparing and lodging supporting evidence such as:

• Preparing director statements and supporting evidence
• Advising on secured creditor rights and enforcement risks
• Identifying termination risks within finance and commercial contracts

Early collaboration between IPs and solicitors can materially reduce risk and increase the prospects of a moratorium achieving its intended outcome.

Case Law & Practical Guidance 

There have only been some 60 cases of moratoriums since the legislation was implemented in 2020. Therefore, given that moratoriums are rare and the legislation is relatively new, there are very few reported decisions in relation to them. Guidance was given by the Insolvency and Companies Court in Re Grove Independent School Limited [2023], which set out, in summary, that the Court should be satisfied as that a moratorium would achieve a better result for the company’s creditors than would be likely in a compulsory liquidation. 

Corbin & King Group (Re Corbin & King Holdings Ltd [2022]) set out that, in some cases, certain financial contracts relating to secured creditors (and the debts that arose from those contracts) were not subject to any payment holiday under a moratorium, highlighting the importance of assessing such contracts from the outset. 

How we can help

Insolvency moratoriums can be a powerful restructuring tool, but they are complex. Directors considering a moratorium should seek early legal advice to assess eligibility, manage creditor risk, and ensure compliance with statutory duties.

Setfords advises companies, directors, and insolvency practitioners on moratorium applications, creditor challenges, and related restructuring and insolvency issues.

For tailored advice, please contact Richard Curtin or Tom Donnelly: