A mental health crisis moratorium does not prevent a creditor from selling a charged property where the charge only secures the debt of a third party.
Summary
Regulation references in this summary are to the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020.
The High Court held that a charge over Mr Slack’s property secured the liability of a third-party company, rather than any liability owed by Mr Slack himself. It was not a moratorium debt protected by his mental health crisis moratorium, as the debt had been incurred by the company.
Selling the property would not amount to enforcement action in relation to a moratorium debt. The moratorium did not prevent the claimant or its receivers from enforcing the charge.
Background
Together Commercial Finance Ltd (TCF) provided a commercial loan to a company. A legal charge was granted over Mr Slack's property as part of the security for the loan. Mr Slack also gave a personal guarantee to pay or discharge the company’s liability.
The company defaulted and TCF demanded the outstanding balance. TCF then appointed Law of Property Act 1925 receivers who took possession of Mr Slack’s property with the intention of selling it.
Mr Slack entered a mental health crisis moratorium before the property could be sold. The moratorium included TCF as a creditor. TCF argued that the moratorium did not prevent it from selling the property. Mr Slack disagreed. He argued that selling the property would constitute enforcement action in respect of a moratorium debt which is prohibited by regulation 7.
The High Court had to determine whether the regulations prevented the receivers from selling the property while the moratorium was in effect.
The court's decision
The court held that the moratorium did not prevent the receivers from selling the property.
Regulation 6 states that a moratorium debt must have been “incurred by a debtor in relation to whom a moratorium is in place”.
The court analysed the charge document and found that Mr Slack’s liability under the personal guarantee was a qualifying debt under regulation 5 and was not a secured debt under regulation 2, so it was capable of being a moratorium debt.
However, it found that the charge secured the company’s liability to TCF, not Mr Slack’s personal liability. The company was not the moratorium debtor and the charge was not a moratorium debt. Enforcing the charge by selling the property was not enforcement action “in relation to a moratorium debt” for the purposes of regulation 7.
Comments
In this case enforcement action could continue because the court found that the charge document secured the company’s liability, rather than Mr Slack’s liability. The wording of an agreement can be pivotal to determining whether enforcement action can continue during a breathing space moratorium or mental health crisis moratorium. The outcome may have been different if the charge had also secured Mr Slack’s liability.
The court also considered whether Law of Property Act 1925 receivers could be viewed as creditors’ agents for the purposes of the regulations. This would contrast with the position under section 109(2) of the Law of Property Act 1925 that receivers are agents of the borrower rather than the lender. The court did not decide the point but stated that it is “well arguable” that the receivers could fall within the definition of agent for the purposes of the regulations.