International Corporate Rescue
Devi Shah and Amy Rothbarth (née Halsall) discuss the UK's first reported contested standalone moratorium.
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Corbin & King is the first reported case involving a contested standalone moratorium. The High Court judgment will be very useful for companies considering the use of the tool in the future and also for insolvency professionals considering taking on the role of monitor. The judgment provides guidance on the degree of latitude a monitor will be afforded with regards to when they 'think' a certain state of affairs exists: and provides further clarity in respect to what is to be regarded as a company being able to pay its debts during a standalone moratorium; when a monitor is under an obligation terminate the moratorium due to it no long fulfilling the requirements; and the court's discretion with regards to the ordering of such a termination.
The first reported case to consider the requirement of a monitor to terminate a moratorium if they think a company is unable to pay certain debts was heard by the High Court on 4 February 2021. The case provides further clarity on the UK standalone moratorium process and is an example of a moratorium being used in order to restrain secured creditor action.
What is the moratorium process?
The standalone moratorium process was introduced pursuant to the Corporate Insolvency and Governance Act 2020 which added a new Part A1 to the Insolvency Act 1986. The moratorium process aims to afford breathing space to a company in financial distress in order that it can assess potential rescue and restructuring options without the threat of creditor action. The moratorium is therefore focused upon the rescue of the company as a going concern rather than on the realisation of assets.
The monitor must be an insolvency practitioner and throughout the moratorium they must monitor the company's affairs in order to assess whether it remains likely that the moratorium will result in the company being rescued as a going concern. Should the monitor 'think' (amongst other grounds) that (i) the company is unable to pay its pre-moratorium debts for which there is no payment holiday or (ii) it is not likely that the company will be rescued as a going concern, then the monitor must terminate the moratorium.
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