In May 2021, the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Moratorium) (England and Wales) Regulations 2020 (the Regulations) took effect.
The Regulations provide debtors in England and Wales with, in most cases, temporary relief from being pursued by their creditors.
Under the scheme, there are two types of breathing space:
- Standard breathing space that is available to any debtor with debt issues, and provides them with protection from legal action by creditors for up to 60 days.
- Mental health crisis breathing space, that is only available to debtors who are in receipt of mental health crisis treatment. This provides breathing space for debtors for as long as the mental health crisis treatment is continuing, plus an additional 30 days.
If a debtor enters the scheme (which they can only do after seeking advice from a debt advisor and/or mental health professional), their creditors are notified by the Insolvency Service and any actions to pursue the debt should stop until after the breathing space has ended.
Whilst allowing debtors time for payment of a debt, the Regulations have been criticised as being open to abuse by some debtors, who may try and use the Regulations to avoid paying the debt altogether, particularly if they qualify for a Mental Health Crisis Breathing Space Moratorium.
The recent case of Kaye v Lees  EWHC 152 (KB) was the first example of a creditor successfully challenging the imposition of a moratorium against them.
Mrs Lees owed Mr Kaye in excess of £300,000 by way of a judgment debt. Mr Kaye sought to enforce the judgment by various methods, including obtaining a charging order and order for sale over a property owned by Mrs Lees.
However, between July 2018 and November 2022, Mrs Lees had obtained one standard Breathing Space Moratorium and four Mental Health Crisis Moratoria. The timings of Mrs Lees’ moratoria were also notable, as they often coincided with times when Mr Kaye was about to enforce judgment, by evicting Mrs Lees from the property.
Mr Kaye sought to have the most recent Mental Health Crisis Moratorium cancelled on the basis that Mrs Lees did not meet the criteria for one to be granted, namely that Mrs Lees was in receipt of ‘any other crisis, emergency or acute care or treatment in hospital or in the community from a specialist mental health service in relation to a mental health disorder of a serious nature’.
Importantly, Mrs Lees did not attend the hearing, but the medical evidence before the court (from Mrs Lees’ approved mental health professional) did not meet the criteria for her to be afforded the protection of a moratorium.
The court also determined that the moratorium should be cancelled, as it unfairly prejudiced Mr Kaye’s interests. Mr Kaye had sought to enforce the debt over a number of years and Mrs Lees had made no attempts to discharge the debt.
The court also granted an injunction against Mrs Lees, preventing her from seeking a further moratorium. This would then allow Mr Kaye to enforce the eviction and eventually recover the monies owed to him.
The case provides helpful guidance to both creditors and debtors regarding the way the courts will construe the Regulations. The courts will not let debtors take advantage of the Regulations by applying for successive moratoria, and debtors will need to provide conclusive medical evidence that they are receiving mental health treatment as set out above. If debtors who are not suffering from a mental health disorder are simply trying to use the Regulations to avoid payment, then the courts have shown that they will cancel the moratorium if it unfairly prejudices the creditor.
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