Restructuring moratoriums through an information-processing lens

Abstract

Using insights from complex systems theory, it is argued that financially distressed large corporates will seek the protection of a moratorium when the benefits it brings outweigh its signalling and information-processing problems – likely to be in the later stages of distress. Applying this insight, the article offers a somewhat gloomy assessment of the Part A1 moratorium introduced in the UK by the Corporate Insolvency and Governance Act 2020. It is suggested that the UK administration moratorium may be more fit for purpose, but that serious signalling and information processing concerns remain. After touching on possible adaptations of the tools, the article concedes that there may have been a deliberate decision to restrict the usefulness of both of them. The article ends by arguing that if this the case, the decision may not be sustainable in a rapidly changing economic environment, and that recent suggestions for reform should be supported.