If your company is struggling financially to pay its bills, a debt moratorium can provide much-needed breathing space so you can figure out the best steps to deal with the situation at hand.
In this article, we explain what a debt moratorium is and how you can apply for one.
What is a debt moratorium?
The Corporate Insolvency and Governance Act 2020 (CIGA 2020) introduced what is known as a Part 1A moratorium to the insolvency process. This is part of the Debt Respite Scheme (along with the Mental Health Crisis Breathing) and is commonly named Breathing Space Scheme.
Since the 26th of June 2020, financially distressed companies can apply for a short period of breathing space from creditor action whilst they organise their affairs.
Do I have to continue paying the company’s debts whilst the moratorium is in force?
Yes, any debt owed to financial creditors must continue to be paid for the moratorium to remain in force.
However, in most circumstances, insolvency proceedings cannot be instigated against your company whilst the moratorium is in place.
Furthermore, unless court permission is granted, no legal proceedings can be brought against your business during the moratorium period.
How do I obtain a moratorium?
To get a Part 1A moratorium, you must apply to the court. A licenced insolvency practitioner (known as the monitor) will oversee the moratorium, which lasts for 20 days.
The monitor must notify Companies House if a moratorium is in place. Companies House will also need to know if:
- The moratorium is extended
- The moratorium is terminated early
- The monitor is replaced, or an additional monitor is appointed
- The court makes an order permitting the disposal of property
What are the qualifying debts to be eligible for breathing space?
Debts are any sum of money you owe, while liabilities are any obligation you have to pay money. Most debts and liabilities are likely to qualify for breathing space. These will include:
- Credit cards
- Store cards
- Loans
- Overdrafts
- Utility bill arrears
- Mortgage or rent arrears
Can a Part 1A moratorium be extended?
You can extend a Part 1A moratorium for a further 20 days without the creditor's consent. If you need more time, you can apply to the court for a further extension. All extension applications must be made before the existing moratorium expires.
How to apply for breathing space?
To apply, you must provide your debt adviser with your;
- Full name
- Date of birth
- Your business address
- Your trading name or names
- Details of the debts that you owe, including the type of debt you owe
- The name and contact details of the creditor
What is creditor forbearance?
You can also ask your creditors to stop calling or writing to you while you deal with your debts. This is an informal agreement, but most creditors will agree to stop contacting you for a short period if you need time to get in touch with a debt advisor or work out how you will deal with your debt.
This can give you time to help you focus on what to do next while you deal with your debt problems, without the worry of receiving calls from creditors demanding payments.
This is because creditors want to treat you fairly and help you deal with your debt problems. Giving you time to get independent debt advice is an important part of this and will usually make the creditor’s job easier.
Get legal assistance from LawBite
Dealing with business debt can be stressful. If you’re struggling with debt, you should take the appropiate action – you shouldn't just ignore it. To find out how LawBite can help you by discussing your legal options, book a free 15-minute consultation or call us on 020 3808 8314.
