Luke HolmesThe Court of Appeal has confirmed that the capital part of a secured debt does not form part of a “moratorium debt” for the purpose of the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Moratorium) (England and Wales) Regulations 2020 (Regulations). Read our article for more information on the judgment and practical implications for lenders.
In the case of Interbay Funding Limited v David Terence Forbes, Mr Forbes had borrowed £1.3m from Interbay on an interest only basis for 10 years on monthly payments. The debt was secured on real estate. He fell into arrears in 2018, and in 2019 Interbay made a formal demand for repayment of the whole capital sum due plus arrears. In 2022 Mr Forbes applied for a mental health crisis moratorium. Interbay started proceedings for possession a year later and obtained a possession order, which Mr Forbes appealed. To determine the appeal, the Court needed to decide what a moratorium debt is under the Regulations, in respect of which enforcement action is prohibited.
A “moratorium debt” is defined as any “qualifying debt” owed by a debtor at the time an application for a moratorium was made (and about which information has been provided to the Secretary of State by a debt advice provider under the Regulations). In turn a “qualifying debt” is any debt or liability other than a “non-eligible debt”. One category of non-eligible debt is a secured debt which does not amount to arrears in respect of secured debt. Secured debt includes a secured credit agreement (including a mortgage), hire purchase or conditional sale agreement.
The Court of Appeal in this case therefore needed to consider whether the capital part of a secured debt would be regarded as being “arrears” once it had been called in for payment. It decided it would not. It said the term naturally meant not the entire debt, but rather the periodic instalments that had fallen due for payment but had not been repaid, and that this interpretation is consistent with the Regulations.
The upshot of this is that the principal sum of a secured debt is neither a qualifying debt nor a moratorium debt, regardless of whether it is called in before the start of a moratorium or afterwards. The consequence is that:
- a lender who has demanded payment of the principal part of a secured debt can start (or continue) enforcement action to recover it regardless of the commencement of a breathing space or mental health crisis moratorium; and
- a lender can take enforcement action if the right to demand arises after the beginning of a moratorium.