How can a creditor cancel a breathing space?
An article for debt advisers dealing with breathing space looking at how a creditor can apply to cancel a client’s breathing space
The procedure for cancelling a breathing space moratorium is set out in the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regs 2020 (‘the regs’).
A creditor can apply to cancel a standard or a mental health crisis moratorium for all debts or for their own debt. They need to request a review from the debt adviser under reg 17 within 20 days of the moratorium starting for their debt. The request doesn’t need to be on a specific form, but it must be in writing and contain a statement of the grounds in reg 17(1) that the creditor wants to rely on, and evidence for those grounds.
If the adviser decides not to cancel the moratorium the creditor can make an application to the County Court under reg 19. They must do this within 50 days of the moratorium starting for their debt.
The time limits are strict. In Kaye v Lees [2022] EWHC 3326 (KB) the judge held that the regs ‘contain no provision to extend or alter this timetable’ and that ‘the court has no power to extend time to allow an application to be made.’ Kaye was out of time to request a review, and his challenge failed on this basis.
An application to cancel is not a review or appeal of the debt adviser’s decision. It is an application for the court to make its own decision on evidence.
Grounds
The grounds for cancelling a moratorium are:
17(1)
(a) the moratorium unfairly prejudices the interests of the creditor, or
(b) there has been some material irregularity in relation to any of the matters specified in paragraph (2)
17(2)
(a) the debtor did not meet the relevant eligibility criteria when the application for the moratorium was made,
(b) a moratorium debt is not a qualifying debt, or
(c ) the debtor has sufficient funds to discharge or liquidate their debt as it falls due
Court guidance says creditors should use the same grounds in the court application as they did in the review request to the debt adviser. This isn’t specified in the regs, so it’s still possible you might see creditors adding or amending grounds for the application. It’s worth bringing this to the court’s attention if so — courts aren’t bound by the guidance but can impose sanctions if a party has acted unreasonably.
If a creditor requests a review
You should check the request is in time. If it’s over 20 days since the moratorium started, or that creditor’s debt was included, you should not carry out a review.
If the request is in time, you need to carry out a review within 35 days of the moratorium starting for that debt. (reg 18(1)). This can be done as part of the midway review.
You should look at the evidence the creditor has provided, and also speak to the client if you can. This might not be possible for clients in a mental health crisis moratorium (MHCM) — you could speak to any involved third parties like family members or support workers if you have the client’s permission.
Even if the creditor has provided enough evidence to show there is unfair prejudice or there has been a material irregularity, you don’t have to cancel the breathing space if you think this would be unfair or unreasonable given the client’s circumstances.
If the creditor applies to court to cancel the moratorium
An application to cancel should be made to the client’s local county court, but the courts have said it can be appropriate to make the application to the High Court, for example where there are existing High Court proceedings — if this is the case then the costs risks are much higher.
The creditor starts the application on form N244D, which 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, and they’ll need to send a witness statement and evidence to the court and creditor at least 14 days before the hearing.
We have heard reports of creditors using the standard application form N244. They should still send you a copy, but this form doesn’t prompt them to do so, so it may not happen in practice. You should let your client know they should contact you if they receive any court paperwork to make sure you’re aware of any applications.
Further reading
Our other articles on breathing space cancellation cover:
- 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
- Enforcing a debt through a breathing space moratorium
- How you can support your client with potential challenges and address risks right 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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