The Part A1 moratorium was introduced by the Corporate Insolvency and Governance Act 2020 and sits in Part A1 of the Insolvency Act 1986. It is the first genuinely standalone moratorium in English insolvency law: a company can obtain formal protection from its creditors without an administrator or liquidator taking over.
Arafino has experience acting as monitor on moratoriums. They are still comparatively rare, they are procedurally demanding, and the difference between one that works and one that collapses shortly after commencement is almost entirely down to the preparation done before it starts.
Why directors care about this one
Most other formal processes involve handing the company to someone else. This one does not.
The directors continue to run the business. A licensed insolvency practitioner acts as monitor: a genuinely different role from an office holder. The monitor oversees whether the rescue remains likely, consents to certain acts such as granting security or disposing of property outside the ordinary course, and must bring the moratorium to an end if the position changes.
For a business whose value depends on its management, its relationships or its licences, that distinction can be the difference between a rescue and a fire sale.
How long it lasts
- 20 business days to begin with.
- A further 20 business days if the directors file the necessary documents between days 15 and 20. No creditor consent required.
- Longer, with creditor consent through a qualifying decision procedure, up to a maximum of one year from the start of the initial period.
- Longer still, or on different terms, by order of the court.
In practice the initial 40 business days is the working window. It is enough to negotiate, to put a CVA or a restructuring plan together, or to run a sale process, but only if the groundwork was done first.
The trap: what you must still pay
This is where moratoriums go wrong, and it is worth being blunt about it.
The payment holiday applies to most pre-moratorium debts, but not to:
- the monitor’s remuneration and expenses
- goods or services supplied during the moratorium
- rent for periods during the moratorium
- wages, salary and holiday pay
- redundancy payments
- debts or liabilities under a contract or other instrument involving financial services
That last one is the killer. Bank facilities, invoice finance, asset finance and similar arrangements are not caught by the holiday. A company that assumed it could stop paying its lender for 40 days has misunderstood the tool, and the monitor will have to terminate the moratorium once the company cannot pay.
There is also a restriction on obtaining credit: the company must not take £500 or more without disclosing that a moratorium is in force.
What it is actually for
A moratorium is not a solution. It is time in which to implement one. It works where:
- There is a deal to be done with creditors, and it needs a few weeks of protection to land, usually a CVA or a restructuring plan.
- A sale or refinancing is close, and enforcement action would destroy it.
- A winding-up petition is threatened and the company needs to stop the clock while it puts an alternative in front of creditors.
- The value of the business is bound up in its management, so an administration would itself damage what is being rescued.
It does not work where the company cannot fund the moratorium period itself, where there is no credible rescue at the end of it, or where the debt causing the problem is financial services debt that has to keep being paid anyway.
What we do
We act as monitor, and we advise directors considering whether a moratorium is the right route. Both start the same way: an honest assessment of whether the rescue is genuinely likely, because the monitor has to be able to say so, and has to keep being able to say so throughout.
The work that matters happens before filing:
- A cash flow forecast for the moratorium period, including every debt that must still be paid (rent, wages, the monitor’s costs and anything under a financial services contract).
- The shape of the deal that will follow the moratorium, whether a CVA, a restructuring plan, a sale or a refinancing.
- Who needs to be spoken to before filing, and in what order.
Get that right and the moratorium is straightforward. Get it wrong and you have spent money to arrive back where you started, with less time.
If someone has told you a moratorium will simply make the pressure go away for a few weeks, talk to us before you file anything.