Scottish insolvency adviser urges earlier use of moratorium for SMEs

A Scottish insolvency specialist is warning that small businesses are waiting too long to seek rescue options, even as the Part A1 Moratorium offers temporary protection from creditor action. The advice comes as economic uncertainty rises and directors are urged to act earlier, before cash pressure and debt levels narrow their choices.

Why it matters: - The Part A1 Moratorium can give distressed SMEs time to assess survival options before creditor pressure escalates. - Earlier use can preserve working capital, improve restructuring choices and potentially protect jobs and creditor recoveries. - Scottish SMEs facing uncertainty may have fewer options if they wait until cash and debt pressures become severe.

What happened: - Christine Convy, director of Dunedin Advisory, said Scottish SMEs are waiting too long to consider the moratorium as a rescue tool. - Convy said the moratorium can provide a 20-business-day breathing space from certain creditor enforcement action under the Corporate Insolvency and Governance Act 2020. - Dunedin Advisory said Convy has used the moratorium in restructuring strategies for Scottish SMEs.

The details: - The Part A1 Moratorium is available to eligible companies and is overseen by a Monitor who must be a licensed insolvency practitioner. - During the moratorium, qualifying pre-moratorium debts are generally subject to a payment holiday. - Ongoing liabilities must still be paid when they fall due. - The breathing space can be used to consider a sale of some or all assets, new investment, operational improvements, liability restructuring or a formal process such as a Company Voluntary Arrangement. - Convy said the initial 20-business-day period is often not long enough to gather information, engage stakeholders and build a full restructuring plan. - Applications to extend the moratorium can be part of a wider restructuring strategy where appropriate. - Convy urged accountants, financial advisers and directors to spot warning signs earlier. - Key warning signs include the viability of the underlying business, future orders and contracts, profitability, management commitment, creditor pressure, secured and unsecured debt levels and available working capital.

Between the lines: - The message is less about insolvency as a last resort and more about using structured advice earlier, while options still exist. - Convy's comments suggest many businesses may be trying to solve short-term creditor pressure without first assessing whether the business is viable. - The moratorium appears to work best as a planning window, not a delay tactic.

What's next: - Advisers and directors are being encouraged to identify distress sooner and decide whether a moratorium, restructuring or another route is the best fit. - More businesses may need to seek extensions or move from the moratorium into a formal restructuring process if the first 20 business days are not enough. - Dunedin Advisory is positioning the moratorium as one option within a broader rescue toolkit for Scottish SMEs.

The bottom line: - For distressed Scottish SMEs, the value of the moratorium depends on using it early enough to create a real restructuring plan, not just to buy time.