Debt Hibernation Regime

 

The Business Debt Hibernation regime is a new temporary measure being brought in by the Government to assist companies who have difficulties paying their creditors because of the Covid-19 pandemic and to encourage businesses to continue trading and to talk to their creditors.  

The regime enables a company to reach an arrangement with its creditors to hibernate debts the business owes until the company can return to normal trading again. The process designed to be quick and flexible and Directors can commence themselves and if the proposal is accepted it will be binding on all creditors other than employees.  

Conditions:   

  • The level of creditor approval is less, being 50% in number and value (as opposed to 50% in number and 75% in value for an administration or compromise).   

  • Creditors will have a month from the date of notification of the proposal to vote on it.  

  • There will be a one-month moratorium or breathing space on the enforcement of debts from the date the proposal is notified, and a further six month moratorium if the proposal is passed.  

The regime is available to all forms of entities, including trusts and partnerships however, it does not include insurers, registered banks, non-bank deposit takers or sole traders. 

Creditors who continue to trade with the company will be protected from voidable preference claims during this process if the company subsequently goes into liquidation (so long as they are not a related party, have acted in good faith and without intent to deny other creditors).