Although there have not been many moratoriums since they were introduced, there have been a few, and according to data collected for this recent interim report, the costs of appointing a monitor and entering into a moratorium appear to be fairly reasonable. This will provide comfort to both corporates and practitioners who (understandably) might be a little nervous about utilising the process given it is still a relatively new tool. So what might those costs be (based on recent experiences) and when might a moratorium be used?
Costs of a moratorium
There are two layers of costs, the costs of the process (filing for the moratorium) and the costs of actually monitoring.
According to the report, the cost of monitoring a company once it has obtained a moratorium are estimated to be between £1,000 to £3,000 a day, with the cost of producing the eligibility report and court documents required to enter a moratorium averaging approximately £15,000.
In total, the costs of obtaining a moratorium were estimated to be between £20,000 to £60,000.
Although only based on the experiences of those interviewed and taking into account the relatively small number of companies that have used the process, for an average SME this is encouraging news.
Why then, use a moratorium?
There are a number of positive points to take from the report for both corporates and practitioners that might encourage greater use:
- Better for turnaround – if the purpose of using a moratorium is to avoid creditor action to allow the company to try to turn the business around, the report observed that the costs of appointing a monitor might better achieve that goal.
- Not overly burdensome – practitioners who have acted as monitors reported that they did not find the process burdensome and could effectively, and swiftly terminate the moratorium if needed. This is also encouraging for practitioners who have shown some reticence to use the procedure.
- Additional Creditor Protection – in cases where a company is already considering a rescue package (such as a CVA) the moratorium was seen to work well. It had been used to hold off pressure from local authorities who interviewees commented were being particularly aggressive creditors at the moment.
The report is interim, and further research will be undertaken but for the time being the report does demonstrate that the moratorium can be used, and used successfully (at least in the SME market) to rescue a business.
In our previous blog, we considered the comments in the report about the costs of restructuring plans and how, in light of those, whether the restructuring plan will be used by SME companies.