Forbes v Interbay Funding Ltd

Factual and Procedural Background

The combined appeals concern the interpretation of the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Moratorium) (England and Wales) Regulations 2020 ("the Regulations"). The core issue is whether the principal amount of a secured debt, which has fallen due before the start of a moratorium, qualifies as a non-eligible debt under Regulation 5(4) and is therefore excluded from the definitions of "qualifying debt" and "moratorium debt".

The appellant ("Plaintiff") borrowed funds under two separate secured loans: one from Company A (Interbay Funding Limited) and another from Company B (Seculink Limited). The Plaintiff defaulted on both loans, leading to enforcement proceedings by the creditors. The Plaintiff applied for a mental health crisis moratorium under the Regulations, which commenced on 2 July 2022.

The proceedings related to the Company A debt involved a possession claim based on default and breach of mortgage terms. The County Court granted an order for possession but adjourned the money claim. Permission to appeal was granted but the appeal was dismissed. The present appeal to this court was permitted subsequently.

Regarding the Company B debt, the Plaintiff defaulted under a bridging loan and a Tomlin order. Company B sought a court determination on whether the debt was a moratorium debt. The initial court declined jurisdiction, but on appeal jurisdiction was confirmed. The principal sum was held not to be a moratorium debt, and the Plaintiff was granted permission to appeal that decision. The appeals from both debts were consolidated for hearing.

Legal Issues Presented

1. Whether the principal amount owing on a secured debt that fell due before the moratorium commencement is a non-eligible debt under Regulation 5(4) and thus excluded from "qualifying debt" and "moratorium debt".
2. Whether, if the principal sum is a moratorium debt, the creditor is precluded from enforcement action and from requiring payment of interest during the moratorium period.
3. Whether possession proceedings brought during the moratorium period without court permission are null and void under the Regulations.

Arguments of the Parties

Appellant's Arguments

• The phrase "any sum payable to a creditor by a debtor which has fallen due and which the debtor has not paid" should be interpreted broadly to include the principal sum once called in.
• The use of the phrase "in respect of" in Regulation 5(4)(a) supports the inclusion of the principal sum as an amount "in respect of" the secured credit agreement.
• If the principal sum is moratorium debt, enforcement action including possession proceedings should be barred during the moratorium.
• In cases of mixed debt (principal and arrears), possession orders cannot be severed and thus cannot be granted during the moratorium.

Respondents' Arguments (Company A and Company B)

• The principal amount of secured debt is a non-eligible debt and not a moratorium debt under the Regulations.
• The term "arrears" in the Regulations naturally refers to unpaid instalments rather than the principal sum called in.
• The exclusion of capitalised mortgage arrears from "arrears" supports the distinction between principal and arrears.
• Allowing the principal to be moratorium debt would produce anomalous results regarding interest accrual and enforcement rights.
• The principle of legality requires clear language to interfere with proprietary rights, which is absent here.
• The possession proceedings are not null and void as the moratorium does not cover the principal sum as moratorium debt.

Table of Precedents Cited

Court's Reasoning and Analysis

The court’s analysis focused on the statutory language, context, and purpose of the Regulations. The term "arrears" was interpreted in its natural and contextual meaning as unpaid instalments rather than the principal sum itself, even if the principal sum had been called in prior to the moratorium. This interpretation aligns with the distinction drawn in the Regulations between "arrears" and the secured debt principal, and with the exclusion of capitalised mortgage arrears from "arrears".

The court noted that the Regulations were intended to protect vulnerable debtors from enforcement action and interest accrual on qualifying debts during moratoriums, but not to provide a blanket release from all secured debt obligations. The principal sum of a secured debt is treated as non-eligible debt, preserving the creditor’s rights to enforce and recover interest on that principal.

The court rejected the appellant’s argument that the principal sum should be a moratorium debt, finding that the wording of the Regulations does not support such a broad interpretation, and that doing so would produce anomalous results, including the loss of creditor rights to interest and enforcement that are inconsistent with other insolvency regimes and the principle of legality.

The court also declined to consider a new argument relating to mixed debts and possession orders, as it had not been raised below and required fuller consideration in a separate appeal.

Holding and Implications

The court held that the principal amount of secured debt, whether or not called in before the moratorium, is a non-eligible debt under Regulation 5(4) and therefore not a "qualifying debt" or "moratorium debt".

As a result, the creditor’s rights to enforce the debt and to charge interest on the principal during the moratorium period are preserved. The appeal on this central issue was dismissed.

The decision maintains the balance struck by the Regulations between debtor protection and creditor rights, aligning the treatment of secured debts under the Debt Respite Scheme with established personal insolvency regimes. No new precedent altering the scope of moratorium debts was established beyond the interpretation of the Regulations in this case.