A moratorium is a legal process that gives struggling businesses temporary protection from creditor action while directors and their advisers prepare a plan. It does not write off debt, but it pauses enforcement so the company has a chance to explore rescue options.
A moratorium is only granted in very specific situations, most commonly alongside a Company Voluntary Arrangement (CVA) or as part of entering Administration.
Moratorium and Company Voluntary Arrangement (CVA)
A CVA is a formal repayment agreement with creditors, allowing your company to pay back debts in affordable instalments over time. It’s often the right option when your business has a future but needs space to get back on its feet.
Is a moratorium part of a CVA?
No. A moratorium does not come automatically with a CVA. It must be applied for separately, and it will only be granted if strict eligibility conditions are met.
That means you need to show that:
- Your business has a realistic chance of survival if a CVA is approved
- The moratorium would support those chances by protecting the business from immediate creditor action
- Certain debts (such as employee wages, rent during the moratorium and new supplies) can still be paid as they fall due
Without meeting these tests, a moratorium alongside a CVA won’t be approved. Your licensed insolvency practitioner will work with you to demonstrate these points, if they are viable, and prepare the application.
Moratorium and Administration
Administration is a different business rescue route. Here, control of the company passes to a licensed insolvency practitioner, acting as the administrator, who will try to rescue or sell the business for the benefit of creditors.
Is a moratorium part of Administration?
Yes. Unlike a CVA, Administration automatically comes with a moratorium. From the moment an administrator is appointed, creditors are legally prevented from taking most enforcement action.
That means no winding-up petitions, no bailiffs, and no repossessions while the administrator assesses the situation. This immediate, guaranteed protection is one of the main reasons directors choose Administration when creditor pressure is at its peak.
CVA or Administration: how the moratorium differs
The biggest difference is that in a CVA a moratorium requires a separate court application and only applies if your company meets strict tests.
Directors remain in control of the business during this time, working with an insolvency practitioner to prepare the repayment plan. A CVA works best if the business is fundamentally sound and just needs breathing space to negotiate with creditors.
In Administration, by contrast, the moratorium is automatic but directors hand over control to the administrator. Administration is often chosen where urgent protection is needed, particularly if valuable contracts, jobs or assets could be lost without it.
Key takeaways from ‘what’s a moratorium in insolvency?’
- A moratorium is legal breathing space that stops most creditor action
- In a CVA, a moratorium must be applied for separately and only if strict conditions are met
- In Administration, a moratorium is automatic from the moment an administrator is appointed
- The right choice depends on whether the business can realistically recover, how quickly protection is needed, and whether directors want to stay in control
Get advice on moratoriums in insolvency
An insolvency practitioner can confirm whether you meet the criteria for a CVA, whether administration would give better protection, or whether liquidation is the more responsible route.
If you’re under creditor pressure, don’t wait for legal action to escalate. Contact us today for free, confidential advice on whether a moratorium could give your business the space it needs.
