Enforcement through the moratorium

We’ve published several articles focusing on creditors applying to cancel a breathing space moratorium. This is a long form article on another option for creditors — applying to the court for permission to take enforcement action.

Reg 7(7) of The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (‘the regs’) lists the enforcement steps a creditor can’t take while a client is in either a standard or a mental health crisis moratorium (MCHM). It’s a long list, but some examples are:

• Enforcing a judgment made before or during the moratorium period
• Obtaining a warrant
• Starting possession action for rent arrears.

An exception to this is if the relevant court gives the creditor permission under reg 7(2)(b). The relevant court will be either:

• the county court
• any other court or tribunal where legal proceedings concerning the debt have been or could be issued or started

The court may not give permission for the creditor to:

6(a) require a debtor to pay interest that accrues on a moratorium debt during a moratorium period,

6(b) require a debtor to pay fees, penalties or charges in relation to a moratorium debt that accrue during a moratorium period,

The court may give permission for the other enforcement steps if the conditions in reg 7(5) are met:

(a) it is reasonable to allow the creditor or their agent to take the step, and

(b) the step will not —

(i) be detrimental to the debtor to whom the moratorium relates, or

(ii) significantly undermine the protections of the moratorium

If the County Court or High Court are the relevant courts:

• the creditor needs to apply for permission on form N244C — As with a cancellation application this must be sent to the client and anyone jointly liable. The debt adviser should also be sent a copy, but isn’t a party in the proceedings.
• following the application the client should be sent notice of a hearing
• they’ll need to send a witness statement and evidence to the court and creditor at least 14 days before the hearing.

If the debt is dealt with by the Magistrates Court — for example council tax arrears:

• the creditor will need to apply to the court in writing (2021 Amendment to the Magistrates Court rules 1981)
• a summons will be issued. A copy of this should also be sent to the debt advice provider.

There are no time limits for this, so the creditor is able to apply for permission to enforce at any point during the moratorium.

We’ll discuss two cases here:

Axnoller Events Ltd vs Brake and another, Brake and others vs Chedington Court Estate Ltd [2022] EWHC 2797 (Ch) — permission to enforce was granted

Ivan Kaye v Amanda Lees [2022] EWHC 3326 (KB) — permission to enforce was not granted

Axnoller Events Ltd vs Brake and another, Brake and others vs Chedington Court Estate Ltd [2022] EWHC 2797 (Ch)

In this case the creditors (known collectively as the Guy parties; the surname of the business owners) were given permission to continue enforcement. As a High Court case, this is a binding decision on County Courts in England and Wales.

We wrote about a previous judgment in this case in our article of January 2022. In brief, a costs order was made against both Mr and Mrs Brake. Mr Brake then entered a MHCM. As the amount of costs hadn’t been set at the point he entered the moratorium it wasn’t a ‘liquidated sum that was due and owing,’ so it wasn’t a qualifying debt for the purposes of breathing space. The Guy parties could continue to enforce the debt through an existing third party debt order (TPDO) against his pension, and took steps to do so, requiring Mr Brake to start the process of drawing down the pension.

Mrs Brake then entered her own MHCM. The amount of the costs order had now been determined so it was a qualifying debt for the purposes of her breathing space. As a joint debt both Mr and Mrs Brake would benefit from the protections of Mrs Brake’s moratorium.

The Guy parties applied to the court for permission to continue enforcement action they had already started.

In considering the legal principles, Judge Matthews ruled that all three conditions in reg 7(5) must be satisfied for the court to give permission, and this will depend on the evidence available in each case. Even if the conditions are met the court has discretion on whether to allow enforcement.

• Is it reasonable to allow enforcement?
• Will it cause detriment?
• Will it undermine the breathing space scheme?

Reg 7(5)(a) Whether it is reasonable to allow the creditor or their agent to take the step)

Conduct will be relevant in assessing reasonableness. In this case the judge found the Brakes had deliberately delayed writing to the pension provider and providing a tax code so that Mrs Brake could enter into the MHCM

It will be ‘highly relevant’ to consider what steps the debtor needs to take in regard to further enforcement. The more ‘time-consuming and onerous’ action is, the less likely it is to be reasonable. The enforcement action here was nearly complete — all Mr Brake had to do was provide his tax code and write to his pension provider and there was no requirement for Mrs Brake to take any action at all.

Reg 7(5)(b)(i) The step will not be detrimental to the debtor to whom the moratorium relates

The judge ruled there was no financial detriment to Mrs Brake as the pension was not hers and was in any case frozen by the TPDO, so was not available as an asset. However the meaning of detriment isn’t limited to financial detriment, so other considerations are relevant, including mental and physical health.

Mrs Brake argued that enforcement would worsen her mental health, and a letter from her Occupational Therapist (OT) stated that enforcement action would be ‘highly detrimental’ to her.

What the evidence needed (and failed) to show was whether enforcement of the order against Mr Brake’s pension would cause her a detriment, ‘in particular by worsening her mental health.’ The OT didn’t address the fact that enforcement action wasn’t being taken against Mrs Brake or her assets.

The fact that the pension was not hers, would never be available to her, and the lack of action needed on her part meant there was no detriment, and the judge noted that enforcement of the TPDO would in fact reduce her debts.

Reg 7(5)(b)(ii) The step will not significantly undermine the protections of the moratorium

Mrs Brake argued that a successful application to enforce would invite other creditors to follow suit, and undermine the ‘safe haven’ of the moratorium. The judge found no reason to believe that the moratorium protections would be significantly undermined — none of her assets or debts would change status and she wasn’t required to do anything. Arguments that it might spur other creditors to take action weren’t found to be relevant as each application should be treated on its own merits.

Ivan Kaye v Amanda Lees [2022] EWHC 3326 (KB)

This was the second breathing space related case involving these parties. It took place before Mr Kaye’s successful cancellation of Ms Lees’ next moratorium, which is discussed in our cancellation case law article [link]. Again the case is binding on the County Courts.

Mr Kaye asked for permission to continue eviction action against Ms Lees, arguing there was no evidence to show this would be detrimental to her mental health or undermine the protections of the moratorium.

The judge ruled that as detriment wasn’t defined in the regs it was to be given its ‘ordinary meaning.’ It wasn’t limited to mental health detriment, whether or not the moratorium was a MHCM, and any material detriment should be considered. Eviction would ‘as a matter of ordinary language’ clearly be detrimental to Ms Lees, and permission to enforce was refused.

What does this mean for advisers?

Every enforcement application will rely heavily on the facts and evidence of that particular case, but some wider legal points have been confirmed:

• All 3 reg 7(5) conditions have to be met for a creditor to be granted permission to enforce a debt
• The court has discretion not to allow enforcement even if all the conditions are met
• The meaning of detriment can be wide. It must be ‘material, which means it has to be more than ‘de minimis’ — something that’s trivial or unimportant.
• Your client can cite the Kaye v Lees case if defending an enforcement application, and should provide evidence to show any likely impact on their health, financial situation or other circumstances
• Eviction is highly likely to be considered detrimental
• Permission to enforce is more likely to be granted where the enforcement step isn’t onerous, has little impact on the client personally and where the client’s conduct has caused problems with enforcement.

Further reading

Our other articles on breathing space cancellation cover:

• How a creditor can apply to cancel a breathing space
• A detailed discussion of case law relating to applications to cancel in practice, including how the courts are interpreting the reg 17 grounds of unfair prejudice and material irregularity
• How you can support your client with potential challenges and address risks from the start of a moratorium

Megan Lloyd is a Debt Expert in the Expert Advice Team at Citizens Advice.

The information in this article is correct as of the date of publication.

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