When a business meets financial pressure, the conversation often jumps to administration, liquidation or a company voluntary arrangement (CVA). Yet one of the most interesting additions to the UK restructuring landscape in recent years is the Moratorium, introduced by the Corporate Insolvency and Governance Act 2020 (CIGA).
Six years on, the Moratorium remains a relatively underused tool. However, for the right business, at the right time, it can provide exactly what directors and stakeholders need: breathing space.
Recent developments in the construction sector, including the widely reported difficulties facing Ardmore, are a reminder of how quickly liquidity pressures, creditor demands and operational challenges can converge. Last week, Ardmore applied for a Moratorium while it explored options for its business and appealed crippling Building Liability Orders. Other companies, possibly not as close to the edge, may use the tool as time to stabilise and restructure a fundamentally viable business, safe from of creditor action while a solution is developed.
In simple terms, a Moratorium is a court-supervised “pause button”. Most creditors cannot generally commence insolvency proceedings, enforce security or take legal action without permission. Meanwhile, directors remain in control of the business and continue to run day-to-day operations. A licensed insolvency practitioner, such as Buchler Phillips, acts as Monitor, overseeing the process and ensuring that rescue remains achievable.
The initial Moratorium period lasts for 20 business days, although it can be extended where additional time is required. Unlike administration, where control passes to an insolvency practitioner, the Moratorium operates as a debtor-in-possession process.
This tool filled a gap: administration could provide protection, but it often came with a degree of stigma, disruption and loss of management control. Alongside new Restructuring Plan procedure and restrictions on terminating key supply contracts, the Moratorium created a stronger rescue culture within UK insolvency law. Where a business is fundamentally viable, the law should provide an opportunity to rescue it rather than see it pushed unnecessarily into a formal insolvency process.
The breathing space can be used to negotiate with lenders, secure fresh investment, agree compromises with creditors, implement operational changes or prepare a wider restructuring transaction. In many cases, it sits alongside other restructuring tools rather than replacing them.
For example, a company may use a Moratorium while preparing a Restructuring Plan under Part 26A of the Companies Act. Alternatively, it may use the protection period to negotiate a consensual refinancing or explore a sale of the business as a going concern.
The number of Moratoriums implemented since 2020 has been relatively modest compared with administrations or CVAs. Some have suggested that eligibility requirements, ongoing payment obligations and the Monitor’s responsibilities have limited widespread adoption.
However, measuring success solely by volume misses the point. The real question is whether the process can preserve value where rescue remains possible.
Ardmore illustrates this well. Construction businesses often operate with complex supply chains, substantial contractual obligations and tight working capital requirements. When financial pressures emerge, directors can find themselves balancing the interests of lenders, suppliers, subcontractors, employees and customers simultaneously.
Several notable Moratorium cases have demonstrated how that breathing space can be used in practice. One high-profile example was Corbin & King, owner of some of London’s best-known restaurants, including The Wolseley. The company entered a Moratorium during a high-profile dispute involving its lender and shareholders. The procedure provided a period of protection while negotiations continued and strategic options were explored, highlighting the Moratorium’s ability to facilitate complex stakeholder discussions.
Another major case was Swissport Fuelling. The company utilised the Moratorium as part of a wider restructuring effort, demonstrating how the procedure can support businesses facing short-term liquidity pressures while longer-term solutions are implemented.
In many respects, the route’s greatest strength lies in its flexibility, rather than forcing an immediate transition into administration or another formal insolvency process.
As with many restructuring procedures, the effectiveness of a Moratorium depends heavily on timing. The process is intended for businesses that have a realistic prospect of rescue. It is not designed simply to delay an inevitable insolvency. Before a Moratorium can commence, the proposed Monitor must be satisfied that it is likely to result in the rescue of the company as a going concern.
That means directors who seek advice early are far more likely to have the full range of restructuring options available to them. Waiting until creditor pressure becomes overwhelming can significantly reduce the available choices.
This is perhaps the most important lesson arising from many recent distress situations. Whether in construction, hospitality, retail, property or manufacturing, businesses that engage with restructuring advisers at an early stage are generally better positioned to consider tools such as the Moratorium before options begin to narrow.
Breathing space can be invaluable. For that reason alone, the Moratorium deserves a place in every restructuring professional’s toolkit. It may not be the most frequently deployed device, but in the right circumstances it can provide exactly what a business needs: time, stability and the opportunity to pursue a genuine rescue.
Written by Guy Poulter, analyst at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.