Breathing Space Scheme In Action

The Debt Respite Scheme featured in a case before the High Court when two days after the 2020 Regulations came into force Mr Andrew Brake entered into a mental health crisis moratorium and creditors sought to challenge it.

What Is The Breathing Space Scheme?

To deal with the impact of Covid-19 on debt and insolvency one of the government programs is the Debt Respite Scheme arising from The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020.

The Debt Respite Scheme originated in the Conservative Party 2017 Manifesto: Forward, Together: Our Plan for a Stronger Britain and a Prosperous Future in which the concept of Fair Debt was considered.

A research briefing by Lorraine Conway called Debt Respite Scheme – a breathing space for those in debt dated 9 June 2021, set out consideration of the Debt Respite Scheme and these regulations referring to the manifesto’s Fair Debt concept as follows:

For some people, the cost of living can become too great. Problem debt can be hard to escape and can compound family breakdown, worklessness, stress and mental health issues. We will adopt a “Breathing Space” scheme, with the right safeguards to prevent abuse, so that someone in serious problem debt may apply for legal protection from further interest, charges and enforcement action for a period of up to six weeks. Where appropriate, they will be offered a statutory repayment plan to help them pay back their debts in a manageable way. This will give eligible debtors time to seek advice and assistance to apply for a sustainable solution to their debt.

The Breathing Space Scheme In Action

The matter of Axnoller Events Ltd v Brake & Anor (mental health crisis moratorium) [2021] EWHC 2308 (Ch) was a case that involved reliance upon these regulations. An application was made to cancel the moratoriums. The judge summarised the applications as follows which has followed on from extensive litigation in bankruptcy proceedings:

First, the applicants seek an order cancelling the mental health crisis moratorium into which Mr Andrew Brake (second defendant in the Possession Proceedings and second claimant in the Eviction Proceedings) entered on 6 May 2021, under the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (“the 2020 Regulations”). Second, the applicants seek an order that, unless the Brakes pay certain existing costs orders in favour of the Guy Parties, they be debarred from defending and counterclaiming in the Possession Proceedings and claiming in the Eviction Proceedings, and their relevant statements of case be struck out.

Mental Health Breathing Space Application

The judge made some notable comments about the need for suitable evidence from a qualified professional and the suggestion being in this case that such information was seemingly lacking but as we will come onto see this did not determine the matter:

… It will therefore be important on a challenge under regulation 19 to have appropriate evidence from a suitably qualified professional about the debtor’s mental health, the treatment and the prognosis. If this is not provided, it will be very difficult to assess the debtor’s interests for the purposes of any balancing exercise. If the patient is likely to respond to treatment within a short time and return to normal, that is a quite different situation from one in which the health problems are more intractable and will take a considerable time to resolve, or indeed may never be resolved.

38. Unfortunately, the only evidence before the court on this occasion in relation to Mr Brake’s mental health is a short letter, about half a page long, addressed “To Whom It May Concern”, from Dr Suzanne Jefferies, consultant in old age psychiatry at the Bridport Community Hospital, dated 1 July 2021. This is within a week of the application being issued by the Guy Parties, and, I infer, sought and obtained as evidence to respond to that application. This letter gives minimal details of Mr Brake’s diagnosis, states that treatment is in its early days, that the improvements in his mental health are fragile, and that any removal of the moratorium “will likely have a negative impact on his recovery … and would not be advised at this moment in time”.

39. I comment on the letter as follows. Unfortunately, it gives no sufficient detail of the duration and severity of Mr Brake’s illness, no prognosis and no timescale for any improvement of his mental health. Nor does it explain how the removal of the moratorium would hinder Mr Brake’s recovery when at the same time he continues to be involved, both as a party to and as a witness in large-scale civil litigation, including three lengthy trials within the next ten months. Indeed, it is unclear whether Dr Jefferies knows about the forthcoming trials, or understands what a moratorium is in this context and what its consequences may be. As to the latter point, I suspect that, being a doctor and not a debt adviser, she does not. I take this letter into account, but I am afraid that I regard it as of little assistance to the court in resolving this application.

40. I should say that regulation 30(4)(b) requires the debt advice provider to act on evidence from an approved mental health professional that the debtor is receiving mental health crisis treatment. On this application, I have not seen that evidence. On a challenge under regulation 19 made by claim form, that might well be a relevant matter for disclosure.

Concern was expressed that the Debt Respite Scheme was being used to put off enforcement proceedings. However, the key point made by the Court on this front was how the evidence was weighted and matters of timing. Indeed, whilst the Court thought the debtor’s evidence on mental health was lacking it appears that it was not as seemingly deficient as the evidence of the applicants.

It was notable that the argument by the applicant was unsuccessful because they said the debtor was not taking steps to get his debt problems sorted out. However, the Court said that is a likely consequence of mental health problems and that it needed evidence that the mental health problem had improved:

45.              The second argument made by the Guy Parties is that Mr Brake does not appear to be obtaining any advice on debt restructuring and so on. Therefore this moratorium is being used in bad faith, not for the purpose of enabling Mr Brake to get to grips with his debt problem, but instead simply to put off any enforcement procedures for as long as possible. The difficulty with this argument is that the whole point of the mental health crisis eligibility for a moratorium is based on the assumption that a person suffering a mental health crisis is either unable or at least less able, by reason of the mental health problem itself, to engage with debt advice. What I would therefore need to see would be some evidence that Mr Brake’s mental health has improved to an extent that it would be reasonable to expect him to begin engaging with debt advice.

46.              But there is no such evidence. The only evidence in fact (the letter from Dr Jefferies) goes the other way.

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