In this edition of Restructuring Watch, we reflect on the first court ruling on moratorium proceedings, some recent restructuring schemes and plans, the lifting of remaining pandemic-related restrictions for commercial owners alongside the introduction of the Commercial Rents (Coronavirus) Act 2022 and an extension of the UK directors disqualification scheme.

Corbin & King: First Judicial Review of CIGA Moratorium

In June 2020, the Corporate Insolvency and Governance Act 2020 (CIGA) introduced a new autonomous moratorium procedure alongside the restructuring plan and some temporary measures in response to the pandemic. More than 18 months later, in early February 2022, the English court reviewed (and clarified) some of the statutory provisions relating to the moratorium.

The moratorium was introduced to allow struggling qualifying businesses breathing space for a short period, during which rescue or restructuring options can be explored without creditor action. A monitor is appointed at the start of the process who, during the moratorium, must “monitor the affairs of the company with the aim of forming an opinion as to whether it remains likely that the moratorium will result in the rescue of the company in as an active business.” A monitor must terminate a moratorium if (among other things) the controller “believes” that the company is unable to pay the pre-moratorium debts for which the company has no payment holiday during the moratorium.

The February case arose under the moratorium of certain operating companies (co-ops) within the Corbin & King group, which operates renowned restaurants such as The Wolseley and The Delaunay.

In its judgment, the court focused on the termination provision for inability to pay certain pre-moratorium debts. A “pre-moratorium debt” includes a debt to which the company has become (or may become) subject during the moratorium due to an obligation incurred before the moratorium. A debtor will generally be granted a payment holiday for pre-moratorium debts, subject to certain exceptions, including with respect to “debts or other liabilities arising under a contract or other instrument involving financial services” .

In this case, shortly after the start of the moratorium, claims were made under guarantees given by the OpCos. As these guarantees are considered “contracts involving financial services”, no payment holiday was granted to the OpCos for the amounts claimed. As a result, the joint supervisors had to consider whether to end the moratorium. They chose not to, concluding that it was likely that the OpCos would be saved as a going concern and that the loan to which the collateral attached would likely be repaid in the short term. The case came to court when a class creditor sought termination of OpCo’s moratorium, alleging that the monitors’ failure to terminate had unfairly harmed its interests. In rejecting this request and allowing the moratorium to continue, the court found it was reasonable for the monitors to “believe” the loan was likely to be repaid, given that a third party had made an offer of financing temporary immediately available which was sufficient to repay the loan. This financing offer would have been secured and the group’s facilities were refinanced, allowing the OpCos to emerge from the moratorium and continue to trade.

When the moratorium process was introduced in June 2020, the government anticipated that around 1,250 moratoria would be offered each year. On the other hand, since its introduction until the end of 2021, only 15 moratoriums had been proposed. Although the restructuring community may not have been as quick to use the moratorium procedure as the government had hoped, the court ruling on the Corbin & King moratoriums provides some clarity on the approach that the Supervisors should adopt and the factors to consider in mind, when the question arises of lifting a moratorium for (possible) inability to pay pre-moratorium debts.