The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 ("the Regulations") were introduced on 4 May 2021.
Standard breathing spaces confer legal protections from creditor actions for up to 60 days, aimed at allowing time for a debtor to take advice without creditor pressure. Mental health breathing spaces last as long as the debtor's crisis treatment, plus 30 days.
Breathing spaces can only be initiated by certain debt advice providers. In the case of mental health breathing spaces, an Approved Mental Health Professional ("AMHP") must also certify that a person is receiving mental health crisis treatment in order for the application to be made.
Breathing spaces were introduced to assist debtors under pressure from creditors, but were not intended to be measures that prevent creditors and others from enforcing their rights indefinitely. For that reason, the Regulations provide a mechanism for creditors affected by either type to challenge the breathing space. There is a review process with the relevant debt advisor, and the possibility of an application to the County Court.
In the almost 4 years since breathing spaces have been available, there have been a handful of decisions challenging a debtor's use of one of the two types of breathing space. In general, the challenges have either been on grounds of eligibility, or unfair prejudice caused to the creditor, or both.
Standard breathing spaces ("SBS")
West One Loan Limited v Salih CH10CL170 – CC)
In this March 2022 decision, the creditor (West One Loan Limited, on assignment from the original lender) was seeking to enforce a possession order obtained in connection with a short term bridging loan made to four siblings. The debtors had delayed enforcement several times, and eventually the first defendant obtained an SBS. Just before this SBS expired, the fourth defendant obtained his own SBS. The creditor sought a review but the debt advice provider declined to cancel the SBS. Therefore, the creditor applied to Court pursuant to Regulation 17, for an order that the second SBS be cancelled, and also sought an injunction preventing any of the other defendants from applying for an SBS for a period of time.
On eligibility, the creditor argued that as the fourth defendant had already had the benefit of the first defendant's SBS, he was ineligible as Regulation 24 provides that a debtor is only eligible for an SBS if they are “not subject to another breathing space moratorium and, if they have previously been subject to a breathing space moratorium, that moratorium ended more than 12 months before the date of the application”. The Court disagreed, and found that a joint debtor is not "subject to" a breathing space obtained by another debtor.
On unfair prejudice, the Court found that on the facts of this case, the second SBS had been obtained not to explore a debt solution, but rather to frustrate the creditor's attempts to enforce the remedy in respect of the undisputed debt. Therefore the Court granted an injunction preventing all the defendants from applying for any further moratoria under the Regulations for a 12 month period, finding this to be necessary given the defendants' repeated attempts to frustrate enforcement. (The SBS had expired prior to the hearing and therefore the Court did not consider it necessary to cancel the second SBS).
Mental health breathing spaces ("MHBS")
Axnoller Events Ltd v Brake & Anor (mental health crisis moratorium) (Rev1) [2021] EWHC 2308 (Ch)
In a substantial dispute between Axnoller Events and others against Mr & Mrs Brake, which spanned a number of different legal claims, Mr Brake obtained a MHBS. The creditor applied for a cancellation of the MHBS on grounds of unfair prejudice, but made the application to the High Court within an existing set of proceedings, rather than to the County Court. HHJ Matthews found that this was not an exclusive jurisdiction and that there were good reasons for the application to be dealt with in the High Court.
The Judge stated that unfairness is to be assessed objectively, and that this requires the court to embark upon a balancing exercise. While creditors may be affected by the moratorium differently depending on the relevant circumstances, this difference is not automatically unfair. The creditor could not demonstrate a level of prejudice which persuaded HHJ Matthews that there was unfair prejudice.
Also, and in comparison to the West One Loan decision, the fact that the debtor did not appear to be taking debt advice was not a key factor, very much because this was an MHBS, where the debtor may well not be able to attend to debts because of the mental health crisis and the associated treatment he was undergoing. Therefore, in this matter, the MHBS was not cancelled.
IV Fund Limited SAC v Mountain [2021] EWHC 2870 (Ch)
Mr Mountain obtained a SBS after a bankruptcy petition was presented against him by the creditor. The petition was adjourned to allow for the 60 day moratorium conferred by the SBS. After the SBS expired, Mr Mountain obtained an MHBS. As a result, the adjourned hearing of the petition was adjourned again. The creditor made an application to cancel the MHBS, and the Court gave directions for the disclosure of medical evidence.
Here, the debtor's mental health crisis was in large part due to stress caused by his involvement in legal proceedings with the creditor, the bankruptcy petition being the latest set of proceedings, and the Court noted a petition is for the benefit of a class of creditors, not merely the petitioner. The Judge also noted that, notwithstanding such stress, Mr Mountain had been able to conduct himself in the proceedings in the preceding months, and was simultaneously continuing to do so in related proceedings. Additionally, the Judge regarded the medical evidence disclosed to be insufficient.
Accordingly, in conducting the balancing exercise, the Judge found that there was prejudice to all creditors which was unfair, and therefore cancelled the MHBS.
Kaye v Lees [2023] EWHC 152 (KB)
Mr Kaye was a substantial judgment creditor of Ms Lees resulting from proceedings relating to their occupation of adjacent flats. Mr Kaye had been prevented from enforcing the judgment debt against Ms Lees by a series of four MSBSs she had obtained pursuant to the Regulations in relation to treatment she was receiving for Adjustment Disorder.
Following the commencement of the fourth MSBS, obtained on the basis Ms Lees was receiving mental health crisis treatment, Mr Kaye made an application to cancel it, on grounds that his interests as a judgment creditor were unfairly prejudiced and that there was a material irregularity in that Ms Lees did not meet the eligibility criteria.
Ms Lees relied on Regulation 28(e), i.e. that she was suffering from a mental disorder of a serious nature and in respect of that disorder, she was receiving "crisis, emergency or acute" care if treatment in hospital or in the community.
Analysing this, HHJ Dight referred to Regulation 28(e) as a "sweeping up provision which is intended to catch situations which have the same quality as those identified in sub-paragraphs (a) to (d) so far as the severity of the mental disorder is concerned", considering that paragraph (e) provides for an equivalent situation but where the debtor can be treated without being detained. That equivalency is important, with the decision noting that the hurdles for meeting the other criteria is high, given the compromise to an individual's free will and liberty.
HHJ Dight therefore considered that reference to care being "crisis, emergency or acute" relate to and reflect states of urgency and severity, and was not persuaded, on the evidence available, that Ms Lees was suffering from a mental disorder of the severity required by the Regulations, nor that the treatment she was receiving could be categorised as "crisis, emergency or acute". Therefore, the creditor's application was successful and the mental health breathing space was cancelled.
Mr Kaye had also sought, in the event that his application was successful, injunctive relief to prevent Ms Lees from immediately making an application for a further MSBS.
HHJ Dight did consider the MSBS caused Mr Kaye unfair prejudice, noting that the debt was longstanding and substantial, that no proposals had ever been made to settle the debt, that Mr Kaye had exhausted his financial means, and that Ms Lees had continued to work and be economically productive notwithstanding the treatment she was receiving. HHJ Dight was persuaded that it was appropriate to exercise the power to restrain a potential abuse of the Regulations, and injunctive relief was granted, preventing Ms Lees from seeking further breathing spaces (either SBS or MSBS) for a specified time.
This case emphasises the high threshold required to obtain a MSBS, in relation to both the severity of the mental disorder and the nature of treatment being received. In absence of evidence that both disorder and treatment meet the relevant criteria, a mental health breathing space may be cancelled.
During the two months of injunctive relief, Mr Kaye was able to enforce the possession order against Ms Lees' property, finding two potential buyers. However, the sale (of which he had been granted conduct) was unlikely to complete before the end of the period to which the injunction related, and Mr Kaye was concerned that Ms Lees would immediately apply for a new breathing space which would prevent the sale of the property. His position was that the history of repeated applications amounted to misuse of the breathing space scheme by Ms Lees and it was highly likely that, absent an extension of the injunction, a further unmeritorious application for a breathing space would follow and disrupt the sale. Therefore, Mr Kaye applied for further injunctive relief.
Kaye v Lees [2023] EWHC 758 (KB)
The Court was sympathetic to Mr Kaye's position, but considered that this largely amounted to a complaint about the way the debt advisors dealt with Ms Lees' various applications. While the Judge stated that previous MSBSs may have been granted improperly, he did not consider that meant that he could conclude it was inevitable that future applications would result in improperly granted mental health breathing space(s). The learned Judge placed importance on the "complete and unfettered" right of a debtor to apply for a breathing space, noting that there is no provision in the Regulations to constrain the right to make such application even after a prior breathing space had been set aside, which could have been included had that been Parliament's intention.
Therefore, and notwithstanding this differed from the January decision in these proceedings, the Judge held that injunctive relief is only appropriate where a debtor abuses their rights under the Regulations, but as a debtor has an unfettered right to make an application, the Judge did not consider a debtor can be restrained from making an application for a further breathing space. (This contrasts with the decision in West One Loan Limited v Salih in which injunctive relief was granted, and this decision, being more recent, is likely to be more persuasive in future situations).
On present information, he agreed that a further application was "highly, highly unlikely" to meet the test that an MSBS was appropriate, but that did not take into account information not before the Court, such that it was not inevitable that any future breathing space would be unlawful, and therefore he was not persuaded that an injunction was the correct approach.
Interestingly, the Judge considered that the decision of a debt advisor in respect of any further application, as a quasi-judicial decision, could, at least in theory, be challenged by way of judicial review in the event that the debt advisor failed to apply the tests under the Regulations correctly.
The decision highlights in particular the legal duties and potentially quasi-judicial functions of a debt advice provider when adjudicating on applications made by debtors for either an SBS or an MSBS. The judgment describes them as primary decision makers and professionals "expected to understand the role they have been given under the Regulations" and stipulating that the consideration of applications should be undertaken in line with the Regulations, requiring an assessment of whether any application is made for that proper purpose "with a view to devising a realistic payment plan for the repayment of some or all of the debts". The Judge was critical that in this case, there was no evidence that debt advisors had worked with Ms Lees to develop a payment plan.
Updated guidance
These decisions resulted in new government guidance to debt advisors that they should be satisfied that any evidence that has been supplied to support confirmation that the debtor is still receiving mental health crisis treatment is “cogent”, and that if in any doubt, the debt advice provider should consider whether it would be appropriate to seek clarification, further information or confirmation from the AMHP, to ensure that their confirmation has been given on a sound basis, before accepting such confirmation.
The guidance outlines that while debt advisors are not required to assess a debtor's health or second guess medical evidence, and should and can rely on the AMHP's certification, there will be circumstances in which a debt advisor should consider taking additional steps to confirm eligibility.
AMHPs are reminded, in the updated guidance, that Regulation 28(e) should be read as only capturing situations equivalent to those described in 28(a) – 28(d) and that the AMHP must be satisfied that the debtor is in treatment for a disorder of comparable severity to disorders requiring a patient's detention in a hospital setting.
Guy and others v Brake and others [2023] EWHC 1560 (Ch)
Creditors of Mrs Brake (wife of Mr Brake who featured in the 2021 decision detailed above) claiming to be owed £2.3million applied for a review and cancellation of the mental health breathing space under Regulation 17. This was reviewed by the debt adviser administering the MSBS who concluded that the criteria for cancellation was not met. The creditors then applied to Court for an order cancelling the MSBS, based on either (i) unfair prejudice to the creditors or (ii) material irregularity in relation to Mrs Brake's eligibility for the MSBS.
This decision concerned early questions of disclosure and expert evidence required to assist the Court regarding the question of eligibility. The decision considered the relevant jurisdiction for disclosure and the balance with the debtor's right to respect for private and family life under Article 8 of the European Convention on Human Rights. It also considered the nature of expert evidence which may assist the Court, focusing on the need for the Court to address the objective test of whether the debtor is suffering from a mental disorder of a serious nature, and also whether the treatment for that disorder is of a “crisis” nature equivalent to requiring the patient's detention. Taking into account Kaye v Lees, and the updated guidance to the Regulations which followed, HHJ Matthews considered it is not a question of what the AMHP considered, but rather an objective question of fact for the Court to decide, justifying disclosure of documents.
The Court considered that CPR Part 31 applied and that such an order made would not breach Mrs Brake's Article 8 rights, but that such disclosure should be for no more than necessary and could be used only for the purpose for which it was ordered to be disclosed. HHJ Matthews also concluded that it was in the interests of justice that Mrs Brake submit to a medical assessment, noting that such an assessment would be neither intrusive nor intimate and not involve any risk or pain, and will be confidential and dealt with in accordance with CPR rule 31.22 (i.e. can only be used for the purpose of the proceedings).
In relation to the nephrology evidence, which Mrs Brake considered was relevant because she asserted that her mental health crisis is founded in large part on the effects of renal failure she had suffered, HHJ Matthews did not consider this necessary on the basis that the fact of Mrs Brake's renal failure was not questioned in the proceedings. What was in issue was whether she is suffering from a mental disorder of a serious nature, and also whether the treatment she is receiving for that disorder is of a “crisis” nature. Neither of those two matters is within the expertise of a nephrologist, and the cause of the mental health crisis is not an issue for the Court to consider, and to the extent necessary, a psychiatrist will be able to comment in this regard.
HHJ Matthews endorsed the conclusions of HHJ Dight CBE in Kaye v Lees, namely that the test of a serious mental disorder is an objective one, rather than dependent on the AMHP's subjective opinion. When the Court considers that disclosure of relevant documentation and/or expert evidence is necessary to address that question, it has jurisdiction to require this.
Guy & Ors v Brake & Ors (Re Moratorium Cancellation Costs) [2023] EWHC 3179 (Ch)
Mrs Brake's MHBS was subsequently cancelled because she was no longer receiving mental health crisis treatment. It came to an end 30 days after the treatment ceased, in accordance with Regulation 32. The creditor asked the Court to consider her eligibility, but the Court considered there was no longer a need to do so.
Developing principles
From the numbers of breathing spaces registered since the Regulations were implemented, it is clear that individuals value the opportunity to use a moratorium to consider their options. The vast majority of breathing spaces are the SBS, used correctly by debtors to ringfence time to take debt advice to find a suitable solution. Where the SBS was clearly not being utilised for such purpose, the Court was prepared to cancel.
For the MHBSs, debt advisors and AMHPs will doubtless be aware that their decision making against the clear criteria of the Regulations can be challenged. The decisions to date show the Court takes an objective view of whether the eligibility criteria are met, with the high threshold of comparable to detention of a patient in a hospital setting, applied strictly. The Court is also prepared to order sufficient disclosure to enable an assessment of the debtor's position against that eligibility criteria.
Debtors who successfully apply for an SBS should be prepared to demonstrate they are using the scheme for its intended purpose of seeking a debt solution.
Debtors obtaining an MHBS will need to be prepared to provide information about their mental health disorder and crisis treatment, if the MHBS is challenged. They may also be required to submit to a medical examination.
The question of unfair prejudice caused to a creditor, or to creditors generally, will be considered on a case by case basis, with the decisions to date not ruling out the possibility that the debtor's post-moratorium conduct could make a moratorium unfairly prejudicial.
Creditors frustrated in proposed enforcement action by an SBS or an MHBS have locus to make a challenge, but will need to be conscious of the costs associated with doing so, and potential for a debtor to extend the protections on an interim basis, delaying the proposed enforcement action, by defending the challenge.
