Scott Harrison a Trainee in Humphries Kirk’s Litigation Department in Poole has been looking at two new Debt Moratoriums. In this article he expands on the detail and looks at the implications for both the debtor and the creditor.
In response to the Covid 19 Pandemic, two new Debt Moratoriums have been introduced by statute to provide relief from debts for both personal and corporate debtors. As a creditor of a debt, you will need to consider the type of debtor you are seeking to recover payment from and the impacts of any relevant moratoriums.
A moratorium is a temporary suspension on the enforcement of debts due by a debtor. The debts suspended will have been incurred as a result of an obligation pre-dating the commencement of the moratorium.
The moratorium for personal debtors is provided for by The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020. The Regulations came into force on 4 May 2021.
An individual can be granted temporary relief from most debts through a period known as ‘breathing space’. There are differences depending on the breathing space granted and the two types are: a standard or a mental health crisis breathing space.
As a creditor of a debt you will be given notification of any formal breathing space by the individual’s debt advisor. During that breathing space, you must cease all enforcement and collection action against the debtor. Interest must also cease to accrue for the period of the breathing space.
However, you can accept payments from the debtor during a breathing space as they remain legally liable for their debt. Debts such as rent will continue to accrue during this time and the debtor will continue to increase the balance of their debt through lack of payment.
Qualifying debts covered by the breathing space are generally unsecured debts but do include rent arrears.
Excluded debts from the breathing space are still capable of being pursued. For example, secured debts such as a mortgage or debts that have been incurred resulting from fraud.
As a creditor, we understand that your primary objective is to recover the outstanding debt as soon as possible and at the lowest cost to you. There are options available to you to oppose a granted moratorium which our litigation team can further advise you on.
If you are notified that the debtor has entered into a breathing space, you are able to request a review by the debt advisor, based on specified grounds. The review has to be requested expeditiously, so seek legal advice promptly.
However, should the debt advisor agree then the breathing space will be cancelled and you can resume enforcement, but if it is not agreed the breathing space remains in place. You do have the option to apply to Court for a cancellation of the breathing space.
With effect from 1 October 2021, The Insolvency (England and Wales) (No 2) (Amendment) Rules 2021 (SI 2021/1028) (Amendment Rules) have made permanent the temporary Part A1 moratorium process that was introduced in response to the Covid 19 Pandemic by the Corporate Insolvency and Governance Act 2020.
A company may obtain a moratorium through a Court process whereby the Court will appoint a ‘monitor’. This is an individual who monitors the ongoing moratorium. They must be an insolvency practitioner.
A company may be eligible for a moratorium provided that they are not subject to an outstanding winding-up petition and are not an overseas company.
The moratorium lasts for a short initial period, however, this can be extended by the monitor.
As a creditor to the company you are unable to enforce the debt during the moratorium.
The moratorium can be cancelled by the monitor, based on specified grounds, such as the moratorium is no longer likely to result in the rescue of the company from their financial troubles.
Additionally, should the company not maintain the payments of their debts that are incurred during the moratorium, the monitor will be forced to bring the moratorium to a close.