Comparing the popularity of standalone moratoria for individuals and corporates in England & Wales

July 2025 | SPOTLIGHT | BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

July 2025 Issue

Amid the temporary restructuring and insolvency measures introduced in the summer of 2020, a permanent standalone ‘moratorium’ for corporate entities was introduced, along with the ‘restructuring plan’ by the Corporate Insolvency & Governance Act 2020 (CIGA), described by the government as the most significant change to the UK’s corporate insolvency regime in 20 years.

Previously, moratoria were only available as part of a formal insolvency process, either by an administration, or the little used schedule A1 moratorium for small companies as part of a company voluntary arrangement proposal. A standalone moratorium, designed to allow a company to have some breathing space to take advice and assess restructuring options free from creditor pressure, was considered by government to be a useful addition to the restructuring landscape in this jurisdiction to maximise the survival prospects of viable companies. However, five years on from its introduction, uptake of the ‘part A1 moratorium’ has been limited; 60 in total between 26 June 2002 and 31 March 2025, compared with government projections of 1000-1500 companies per year.

The two-year review of the new measures introduced by CIGA attributed the relatively low number of companies seeking a moratorium (40 in the initial two years) as being due to the overlap between the introduction of the CIGA permanent measures and the coronavirus (COVID-19) temporary measures then in place. However, since those temporary measures ended there has been a decline in utilisation.

In May 2021, the standalone moratorium for individuals introduced by The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 came into effect. The two types of moratoria introduced are a standard breathing space (SBS) and a mental health breathing space (MHBS), intended to give individual debtors time to pause, take advice and assess the appropriate next steps to take to manage financial difficulties and debts. In contrast to the part A1 moratorium for corporates, update of the SBS for individuals has been significant, with around 70,000 SBSs in its first year of introduction, increasing year on year since then.

What is the reason for the very significant difference in use of these moratoria?

While both were introduced to provide short-term relief from creditor pressure to enable restructuring or debt advice to occur, there are some notable key differences which impact viability. Those key differences include eligibility criteria, how the measures are accessed, the requirement for input of a licensed insolvency practitioner, the relevant debts subject to the protections conferred by the process and the treatment of creditors, duration, cost and challenges by creditors.

An overview of the part A1 moratorium for companies

The moratorium can be accessed by financially distressed companies to provide an initial period of 20 business days of protection from creditor enforcement action, for the purpose of allowing the company to take advice and agree plans for a rescue as a going concern. This protected period is designed to give companies a better chance of survival. It can be extended by a further 20 business days at the end of the initial period, without involvement from creditors or the court. Thereafter, an extension requires either consent of creditors or an order of the court.

It is not available to many mid-market and large companies due to eligibility exclusions. To obtain a part A1 moratorium, an eligible company makes an application to court. Protection exists from the filing of the application, and there is no court fee payable.

If a part A1 moratorium is sought in response to a winding-up petition presented by a creditor, the application is made on notice to the petitioner and determined by the court. The court is required to undertake a balancing exercise to consider whether a part A1 moratorium should be granted. The limited guidance to date suggests that the court is more likely than not to make an order for a moratorium unless there is a complete lack of evidence showing that a moratorium would achieve a better result for creditors. A part A1 moratorium remains possible in such circumstances, but the costs of obtaining it may be significantly greater.

In either case, the company needs a licensed insolvency practitioner who has consented to act as ‘monitor’ for the duration of the part A1 moratorium. Directors remain in control of the company while the part A1 moratorium is in force, and the monitor reviews the company’s affairs during the process to ensure the rescue of the company as a going concern remains likely. The professional costs of a monitor acting as such must be met.

A part A1 moratorium does not provide a company with protection from all its debts. Instead, several “non-payment holiday pre-moratorium debts” fall outside the scope of the process. This includes any “debts or other liabilities arising under a contract or other instrument involving financial services” – encompassing most forms of commercial lending. Therefore, a part A1 moratorium will not provide any protection from lenders (especially qualifying charge holders) which are still able to enforce this type of financial debt during the moratorium. This may not be an insurmountable barrier if lenders in this category are willing to support the business.

If the part A1 moratorium is ultimately unsuccessful and the company goes into a subsequent insolvency procedure (i.e., a company voluntary arrangement, a scheme of arrangement, a restructuring plan, an administration or liquidation), which begins within 12 weeks of the moratorium ending, ‘super priority’ will apply to the moratorium debts and the priority pre-moratorium debts (those where there was no payment holiday). This disrupts the otherwise well understood concept of priority in insolvency.

A monitor must terminate the part A1 moratorium if, among other things, they think that the company is unable to pay any non-payment holiday pre-moratorium debts that have fallen due.

An overview of breathing spaces for individuals

Breathing spaces, of either sort, are initiated by certain debt advice providers. Many of those providers are charitable debt organisations free at the point of use by individual debtors, and applications can be made online. There is no application fee for an SBS or MHBS.

An SBS confers legal protections from creditor actions for up to 60 days. An MHBS lasts as long as the debtor’s crisis treatment, plus 30 days.

An individual is eligible for an SBS if they are not in any form of insolvency procedure and are not already subject to an SBS or have had one in the last 12 months. The same criteria applies for eligibility for an MHBS, and in addition, for an MHBS, an ‘approved mental health professional’ must also certify that a person is receiving mental health crisis treatment.

Generally, therefore, it is a simple, no-cost process for individuals under financial pressure to seek and obtain a moratorium.

While debtors subject to an SBS or MHBS are required to continue making debt repayments, creditors will not be able to take enforcement action, cannot contact the debtors about the debt, and cannot add interest or charges, for the duration of the breathing space.

Creditors do have rights to challenge an SBS on grounds of eligibility or if the creditor has been unfairly prejudiced by an SBS, for example if the SBS has been obtained not for the purpose of exploring debt solutions, but rather to deliberately frustrate enforcement action by a creditor. However, given the relatively short duration of the SBS, there are limited reported examples of challenges by creditors.

There have been rather more instances of challenges to MHBSs by creditors. This includes on grounds of unfair prejudice to creditors, as well as on the basis of eligibility both in connection with the severity of the mental health disorder, and whether the treatment is correctly categorised as ‘crisis’ treatment. The decisions to date show the court will take an objective view of whether the eligibility criteria are met, with the high threshold of “comparable to detention of a patient in a hospital setting”, applied strictly. The court is also prepared to order sufficient disclosure to enable an assessment of the debtor’s position against that eligibility criteria.

The question of unfair prejudice caused to creditors for either an SBS or MHBS have been considered on a case by case basis, with the decisions to date not ruling out the possibility that the debtor’s post-moratorium conduct could make a moratorium unfairly prejudicial.

Comparison

Although the part A1 moratorium has been used successfully, it has not been as enthusiastically embraced as a restructuring tool as anticipated. The reasons for the limited uptake include the exception in its payment holiday for financial debts, plus the cost implications.

By contrast, the measures for individuals, particularly the SBS, have been embraced as helpful and accessible tools for assisting individuals struggling with debt. The ease of obtaining an SBS, its low cost and short duration mean that debtors and creditors alike have adapted well to this new tool in the debt advisory arsenal, leading to successful implementation of the process. The MHBS has seen more challenges, although there is a growing body of authority providing guidance around how to make an MHBS more likely to succeed for the purpose for which it was intended.

Katie Farmer is a partner at Trowers & Hamlins LLP. She can be contacted on +44 (0)1392 612 498 or by email: kfarmer@trowers.com.

Katie Farmer

Trowers & Hamlins LLP