The Debt Respite Scheme: the court’s first application but certainly not its last

Judgment has this month been handed down in a case involving the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (the Regulations). The High Court case of Axnoller Events Ltd v Brake & Another; Brake and others v Chedington Court Estate Ltd (2021) dealt with a number of litigation issues relating to the mental health of those in debt.

The Regulations came into force on 4 May 2021 to give some breathing space to those being sued for a debt and who are receiving mental health treatment. The scheme is only available to those who have consulted a debt advisor (authorised by the FCA) whereupon there are two types of schemes that can then be applied for.

This case in particular is a first since the implementation of the Regulations and contains some very interesting details. Some of the key takeaways are as follows:

  • The court has to exercise a balancing test between the detriment to the creditor, who is unable to enforce a debt, and the detriment to the debtor if the moratorium is lifted. It must also consider the prejudice caused to other creditors; the wider consideration being that a moratorium applies to all debts, not just the debt subject to the concerned set of proceedings.
  • Concrete medical evidence should be produced if you are in support of maintaining the moratorium; it should detail prognosis, timescale for any improvement of mental health and an explanation on how the removal of the moratorium would hinder recovery. Expert evidence should be compliant with CPR 35 in the usual way.
  • Very importantly, a mental health moratorium does not prevent an order for payment on account of costs being made. Courts will consider each case on its own merits as to whether a costs order should be sought/made; factors such as whether sufficient benefit is to be gained from such an order, the length of the moratorium likely to be in place and the circumstances of each individual will no doubt be key considerations.
  • Whilst the regulations specify that applications to set aside a moratorium should be made in the County Court, they can however, still be made in the High Court if it is sensible to do so. The County Court does not have exclusive jurisdiction.
  • Claim forms are the appropriate way to cancel moratoriums, as opposed to using a standard N244 application notice, even if the application is made in the context of existing proceedings. This is essentially because it's a stand-alone application and not connected to any specific set of proceedings as it affects all debts. This way, the Courts will also get to use their full range of case management powers. Applications to set aside a debt moratorium should be supported by witness evidence.
  • Courts can make a debt tailored cancellation order which will be interesting to see in the future.

What this means for you

This case provides us all with some useful guidance for parties dealing with the Regulations; from a procedural perspective we can see how an application to set aside a moratorium should be dealt with (the form and where to file) and we also know that evidence in support should be in apple pie order. We also now know that the courts are looking at the bigger picture and not just the set of proceedings before them, but very crucially, we have learnt that the mental health moratorium does not necessarily prevent an order for payment on account of costs being made. However, as this is the very first case in connection with the Regulations, and therefore still in the infancy stage, there will no doubt be much more development and progression (and further teachings) to come.

Who to contact

Priya
Sejpal

Associate , London

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