Moratorium for failing businesses could ‘damage creditors’

A government proposal to have a 90-day moratorium for failing businesses could have serious consequences for creditors, according to the Chartered Institute of Credit Management (CICM).

The warning comes from CICM Chief Executive Philip King in response to a review of the corporate insolvency framework being undertaken by the Insolvency Service (IS).

One of the main features of the IS proposals is the creation of a moratorium to allow companies to consider the best approach for rescuing the business while free from enforcement and legal action by creditors. The proposed moratorium would last for three months, with the possibility of an extension if needed.

Mr King said the idea is fraught with danger. “It is 90 days in which the less scrupulous can fritter away assets whilst being ‘untouchable’, to the serious detriment of creditors and the stability of the supply chain.”

He is also concerned about the proposed extension of firms that can be defined as ‘essential’ suppliers. “Again, while we understand the logic of preventing ‘ransom’ payments or changes to terms, the flip side is that a wider number of firms may later be caught out should the business ultimately fail.”

Business Secretary Sajid Javid said: “Whether it’s a kitchen-table start-up or massive multi-national, nobody ever wants to see a company in trouble. But, sometimes, insolvency is unavoidable. And should the worst happen to a business, we have a duty to give it the best possible chance to restructure its debts and return to profitability while protecting its employees and creditors.”

The proposals are now subject to public consultation.

Please contact Gavin O’Donovan if you would like more information about the issues raised in this article or any aspect of debt collection and credit control.