Case law update

An insolvency case law update prepared by Ronan Butler, Associate Director at Manolete Partners PLC.

Debt Respite Regulations – Breathing Space, Judgment Debts & Costs Orders

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (Debt Respite Regulations) came into force on 4 May 2021 and seeks to provide individuals with legal protection from creditors. The two types of protection provided by the Debt Respite Regulations are: a standard breathing space moratorium of up to 60 days in any twelve-month period; and a mental health crisis breathing space moratorium which lasts as long as the crisis treatment, plus 30 days after the treatment stops. The effect of each moratorium is to stop creditors progressing claims on a qualifying debt or continuing such claims, including any enforcement action.

In Axnoller Events Ltd v Brake and another (Costs) [2021] EWHC 1500 (Ch), the High Court considered the impact of the Debt Respite Regulations on a judgment debt and costs order.   

Following a failed recusal application on 2 May 2021, the Court ordered that the Brakes pay the costs of the application on the indemnity basis, to be assessed if not agreed (the costs order). The costs were subsequently not agreed and the issue before the Court in this instance was the quantum of those costs and an application for an interim payments order against the Brakes. The Brakes resisted the order sought on numerous grounds, including that one of the Brakes was subject to the mental health crisis breathing space moratorium and that making the order would not benefit anyone.  The creditor resisted the Brakes position on the basis that the interim payments order sought was not a “moratorium debt” within the meaning of the Debt Respite Regulations and even if it was, the order sought would not result in any enforcement action progressing.

The Court noted that the protection provided by the Debt Respite Regulations were designed to prevent creditors from enforcing debts in certain circumstances by imposing a moratorium. The Court noted that a moratorium debt is any “qualifying debt” (which includes any amount that a debtor is liable to pay under or in relation to a court judgment) which satisfies three conditions. The first condition is that the debt “was incurred by a debtor in relation to whom a moratorium was in place”. The second condition is that it was owed by the debtor when the application for the moratorium was made. The third condition is that the debt advice provider informed the Secretary of State about the debt.

In this case, the Court proceeded on the basis that the costs order made on 2 May 2021 created a contingent liability for an uncertain amount (costs to be assessed if not agreed) and was made prior to the commencement of the mental health crisis breathing space moratorium on 7 May 2021. In the circumstances, the costs order only created an unliquidated contingent liability and not a debt under the Debt Respite Regulations. The Court found that an order for a payment on account would not be a moratorium debt and also found that the creditor would benefit from the order even if it could not be enforced straight away. In the circumstances, the Court found that there was no valid reason not to make the order sought and required the Brakes to pay £15,391 by 18 June 2021, which was 70% of the claimed costs.

Content courtesy of IPA corporate partner Manolete Partners PLC.