Coming into force to relatively little fanfare in 2021, the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (the Regulations) introduced two significant new avenues for relief for individual debtors.
Less than two years later, the High Court has now had to grapple with the Regulations and their scope for abuse by individuals seeking to evade enforcement of judgments against them. In Kaye v Lees  EWHC 152 (KB) the Court cancelled a Mental Health Crisis Moratorium and granted an injunction preventing the subject of the moratorium from seeking a further moratorium under the Regulations. The Judge held that "the High Court has the power to restrain potential abuses of the scheme by placing sensible limits on the ability to access it".
This is an important decision that sets out clear boundaries on the use of these new and relatively untested regimes. It will be welcomed by those who find themselves seeking to recover debts owed by individuals, especially where those individuals are likely to use any means to prevent them from doing so.
What is a Breathing Space Moratorium or Mental Health Crisis Moratorium?
The Regulations were introduced under the power granted to the Secretary of State under The Financial Guidance and Claims Act 2018 (the Act) for "establishing a debt respite scheme". The purpose of this scheme, as set out in the Act, is to "protect individuals in debt from the accrual of further interest or charges on their debts… [and] enforcement action from their creditors" and to "help individuals in debt and their creditors to devise a realistic plan for the[ir] repayment".
Under the Regulations an individual debtor is entitled to seek either or both (although not simultaneously) of the following types of moratorium:
- A Breathing Space Moratorium; or
- A Mental Health Crisis Moratorium.
In either case these moratoria may be granted upon application to a debt advice provider, provided the relevant eligibility criteria are met.
A Breathing Space Moratorium will last for a fixed maximum period of 60 days, after which the individual will not be able to apply for a further Breathing Space Moratorium for a further twelve months. Breathing Space Moratoria therefore offer a relatively limited reprieve to the debtor.
Mental Health Crisis Moratoria, on the other hand, are much less prescriptive in terms of their length. Under Regulation 32(2), unless it is cancelled or otherwise ended, a Mental Health Crisis Moratorium will be in place until 30 days after the individual stops receiving mental health crisis treatment. As a result, as the Judge in Kaye v Lees noted (citing an earlier decision in the same proceedings), "such moratoriums can endure indefinitely". There is also no limit on the number of Mental Health Crisis Moratoria that can be obtained by an individual, nor a requirement that any amount of time has passed between one such moratorium expiring and another being obtained.
Kaye v Lees
In this case, the defendant, Ms Lees, owed the claimant, Mr Kaye, several hundred thousand pounds in damages under a judgment handed down in July 2018.
Since the judgment was handed down, the defendant had obtained one Breathing Space Moratorium and four Mental Health Crisis Moratoria. These moratoria had, as the judge noted, been obtained "at points in time when Mr Kaye was getting closer to enforcement, including on the eve of scheduled evictions".
Mr Kaye therefore applied to the court to have the most recent Mental Health Crisis Moratorium cancelled (under Regulation 19), and an injunction granted to prevent Ms Lees from obtaining a further Mental Health Crisis Moratorium.
The Judge granted the orders sought.
In doing so he considered three key issues:
- What kind of mental health issues may entitle an individual to a Mental Health Crisis Moratorium?
- Should the existing Moratorium be cancelled?
- Should Ms Lees be restrained from seeking a further Moratorium?
What kind of mental health issues may entitle an individual to a Mental Health Crisis Moratorium?
The Judge first considered the circumstances that must be shown in order to obtain a Mental Health Crisis Moratorium, as set out in Regulation 28(2). The judge noted that the moratoria in respect of Ms Lees had been granted on the basis that she fell within Regulation 28(2)(e): "is receiving 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 disorder of a serious nature".
The Judge concluded that, reading this category of case both on its terms and in the context of the rest of Regulation 28(2), this is to be taken as a high bar, requiring that the individual is suffering from a condition of equivalent severity to one which would require the debtor being removed or detained without their consent. In this case there was a lack of evidence as to the nature of Ms Lees' condition, but the Judge concluded that such evidence as there was did not meet the requirements for the criteria set out in Regulation 28(2)(e).
Should the existing Moratorium be cancelled?
With regard to the cancellation of the existing moratorium, the Judge concluded that Mr Kaye had met the required threshold for cancellation, under Regulation 17(1)(a), that "the moratorium unfairly prejudices [his] interests".
The Judge noted that the debt owed to Mr Kaye was "substantial" and "longstanding", and "no attempts have been made by Ms Lees to discharge it". Further, there was no security for the debt, Mr Kaye had exhausted his own financial means in seeking to enforce the award, and Ms Lees had been protected from enforcement by "a sequence of moratoria the basis for which must now be in doubt".
Should Ms Lees be restrained from seeking a further Moratorium?
Finally, the judge considered whether they were entitled to, and if so should, make an order restraining Ms Lees from seeking a further Moratorium.
As set out above, the Judge concluded that the Court was entitled to make such an order. In this case there was "a real risk, given the history of this case, that were she not restrained Ms Lees might seek to obtain a further moratorium the effect of which would be to frustrate the terms of this judgment and prevent Mr Kaye from enforcing the Judgment debt." As a result, the Judge granted the injunction sought.
Impact for Debtors and Creditors
This case gives an interesting and important assessment of the circumstances in which Mental Health Crisis Moratoriums can be granted, cancelled and pre-emptively restrained. It is right, of course, that the moratoria should be easy to obtain at a point in an individual's life when protection is urgently required. However, the court has made clear that the moratoria, if ongoing, should be capable of justification as they come at the financial expense of another individual.
This judgment is likely reassuring to creditors who now know that the courts will not allow the Regulations to be abused by debtors seeking to take advantage of the blanket protection which the Regulations might be seen to offer.
However, we consider that it will provide certainty and reassurances to both creditors facing a (seemingly) unimpugnable moratorium granted under the Regulations, as well as to debtors seeking to rely on the Regulations. In the case of debtors, it provides guidance on the degree and severity of mental health crisis which will justify the use of the Regulations. This will enable creditors to properly understand when the Regulations will apply to them. It also gives some indication of how (if it becomes necessary) to evidence the necessity for the moratorium, should the matter come to court, such as an assessment by a medical professional.
It will be interesting to see the extent to which these forms of moratorium are used as they become more widely known and whether we see more challenges of this type in the courts.