The Court of Appeal has clarified the meaning of ‘arrears’ under the debt respite scheme in a mortgage case involving lenders Interbay and Seculink.
This 2020 regulation offers a moratorium on debt under mental health grounds, and the settlement of the case “will have a significant impact on bridging lenders,” according to law firm Brightstone Law.
The case involves David Forbes, who took out a £1.3m 10-year loan with Interbay in 2016, Court of Appeal documents say.
However, Forbes fell into arrears in 2018 and in 2019, Interbay demanded repayment of the capital sum, plus arrears of £60,464,10, amounting to just under £1.6m.
Forbes also borrowed £260,000 from Seculink in a bridging loan he entered into in 2018, secured against five properties he owned. Interest was 2.5% per month for four months, with default interest of 12% per month compound in the event of default.
This loan was deemed to have defaulted by 2021, and Seculink also demanded payment.
In April 2022, Forbes applied for a mental health crisis moratorium, having been taken under the care of the Tandridge Community Health Recovery Service.
Brightstone said the debt respite scheme “offers temporary protection from enforcement, interest, fees, and charges for individuals in debt, provided certain conditions are met.
“The scheme includes a 60-day standard moratorium and a longer mental health crisis moratorium, which continues for the duration of treatment.”
This case was the first time the Court of Appeal had considered how these 2020 protections apply to secured debts — particularly mortgage capital sums that have been demanded in full.
Lord Justice Zacaroli, who handed down his judgement on 6 June said: “The question is whether the principal amount owing in respect of a secured debt, where that principal amount has fallen due prior to the commencement of a moratorium, is a non-eligible debt within the meaning of regulation, and is thereby excluded from the definition of a ‘qualifying debt’, and excluded in turn from the definition of a ‘moratorium debt’.”
The court decided that the principal sum of secured debt, whether or not called in prior to the start of the moratorium, is non-eligible debt and thus neither a qualifying debt nor a moratorium debt.
Also, presiding Her Honour Judge Evans-Gordon said: “The scheme is not a blanket release from all future debt … It strikes a balance between preserving or freezing the debt level as at the date of the application for a moratorium and suspending its enforcement while ensuring that creditors are paid in relation to post moratorium debt.
“It does not oblige creditors to continue providing free credit. It is not intended that debtors can live free of cost at their creditors’ expense.”
Brightstone Law senior partner Jonathan Newman added: “The ruling provides welcome certainty for creditors, reinforcing that the moratorium scheme is not intended to restrict enforcement of secured lending beyond missed instalment payments.
“It confirms that called-in capital does not qualify as moratorium debt, resolving a point that had created considerable uncertainty in practice.”
