The principal sum due under a secured debt is not a qualifying debt in a breathing space moratorium.
Summary
The High Court held that the principal sum which has fallen due under a secured agreement is not classed as arrears for the purpose of a moratorium. It therefore does not meet the definition of a qualifying debt in breathing space.
Regulation references in this summary are to the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020.
Background
The defendant, Forbes, took out a bridging loan from the claimant, Seculink Ltd. Forbes failed to repay the loan on time and subsequently entered a mental health crisis moratorium.
Previous court proceedings
This judgment follows litigation in 2024, where the court held that it has jurisdiction to determine whether a debt is a qualifying debt in breathing space.
Read our case summary of Seculink v Forbes [2024] on Shelter Legal.
Regulatory framework
Moratorium protections apply only to qualifying debts under regulation 5.
The definition of a qualifying debt is 'any debt or liability other than a non-eligible debt'. Regulation 5(4) defines non-eligible debt as including 'secured debt which does not amount to arrears in respect of the secured debt'.
The defendant's case
Forbes argued that because the principal sum had been called in, it was arrears of a secured debt and a qualifying debt in the moratorium. The balance had fallen due for payment and remained unpaid.
The claimant's case
Seculink argued that the principal sum of £260,000 was not a qualifying debt under the regulations. That meant the defendant's moratorium would not protect them from possession action. It claimed that the defendant's proposed interpretation of arrears would have unintended consequences, including:
the term of the mortgage would be extended, potentially indefinitely
the lender would be prohibited from charging interest during the moratorium
Seculink pointed out that specific definitions in the regulations, such as 'capitalised mortgage arrears' would be redundant if the definition of arrears was to be read so widely.
The court's decision
The High Court held that for the purpose of breathing space, 'arrears' do not include a principal sum that has fallen due. The Judge stated there was no clear distinction between capital sums that have been called in and those that have not.
The qualifying debt is limited to the periodic payments and interest that remain unpaid.
Comments
This judgment means a creditor could apply to enforce the part of a secured debt that comprises the principal sum without having to follow the creditor review process. The application can be dealt with as part of the enforcement proceedings.