Debt Respite Scheme: Case Law Updates

Why should I read this?

Two recent decisions have tested the boundaries of mental health crisis moratoriums ("MHCMs") under the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (“the Regulation”). In Together Commercial Finance Ltd v Slack [2026] EWHC 1732 (Comm), the High Court confirmed that where a charge over a third party's property secures only the borrower's debt, a moratorium entered by the chargor will not prevent enforcement of that security. In Woodrow v Smith [2026] EWCC 43, the County Court cancelled a sixth successive MHCM, granted a six-month injunction barring further applications without court permission, and allowed bankruptcy proceedings to continue — holding that the respondents had been using the moratorium regime to frustrate enforcement rather than to address their debts. Together, these cases offer important practical guidance for creditors dealing with Breathing Space in the context of third-party security and serial moratorium abuse.

Together Commercial Finance Ltd v Slack [2026] EWHC 1732 (Comm)

Background

In August 2023, Together Commercial Finance Ltd ("Together") lent Ameycroft Leisure Ltd ("the Company") £2.4 million under a commercial term loan agreement. The security package included a legal charge ("the Charge") over property owned by Matthew Slack ("Mr Slack"), the Company director's son, who was not a borrower. Under the Charge, Mr Slack covenanted to pay the Company's liabilities (clause 2.1.a), but recourse was expressly limited to the property (clause 2.1.b), and the Charge was stated to be "security for payment of all the Secured Liabilities" — defined as the Company's obligations under the loan agreement. 

The Company defaulted on the loan. Together appointed LPA receivers over Mr Slack's property in June 2024, and the Company went into compulsory liquidation in July 2024. In April 2026, Mr Slack entered a mental health crisis moratorium under the Regulations, with Toynbee Hall as his debt advice provider. The Insolvency Service notified Together that a debt owed by Mr Slack had gone into Breathing Space, referencing the Company's account number. When the receivers sought to sell the property, Mr Slack contended that the moratorium prevented the sale. 

Outcome and reasoning

The High Court granted summary judgment in favour of Together, declaring that a sale of the property by the receivers is not prevented by the Regulations. Judge Klein's reasoning turned on three key findings:

• The Charge only secured the Company's debt, not Mr Slack's personal obligation. Through detailed contractual interpretation, the court held that clause 2.1.c provided the Charge was "security for payment of all the Secured Liabilities," defined as the Company's obligations — not Mr Slack's personal indebtedness under clause 2.1.a. The limitation on recourse in clause 2.1.b did not extend the ambit of the security, and clause 9 (application of proceeds) only provided for discharge of the Company's liabilities.
• The Company's debt was not a moratorium debt. Although it may be a qualifying debt, it could not be a moratorium debt because it was not "incurred by" Mr Slack (the moratorium debtor) — the Company incurred the debt.
• Regulation 7 did not prevent the sale. Because the Charge only secured the Company's indebtedness, and that indebtedness was not a moratorium debt, enforcing the Charge by selling the property was not "enforcement action" prevented by Regulation 7.

The court also observed that it is "well arguable" that Regulation 7, properly interpreted, prevents enforcement by agents (not just creditors), and that LPA receivers could be "agents" under the Regulations' extended definition, but expressly declined to decide these points.

Woodrow v Smith [2026] EWCC 43

Background

The applicants (the Woodrows) were owed £128,741.79 plus interest arising from a trespass dispute. The respondents (the Smiths) made no payment towards the debt. Beginning in November 2024, the respondents entered a series of moratoriums — initially Breathing Space Moratoriums and then MHCMs — each obtained shortly before scheduled bankruptcy hearings. In total, six MHCMs were obtained by the second respondent (Mrs Smith). Several were cancelled by the debt advice providers due to a lack of documentation, undisclosed assets, or failure to confirm ongoing crisis treatment, only for a new MHCM to be obtained shortly afterwards. The applicants had been effectively prevented from enforcing their costs orders for over a year.

Outcome and reasoning

Judge Carter cancelled the sixth MHCM on two grounds:

• Unfair prejudice (Regulation 17(1)(a)). The debt was substantial and longstanding; the respondents had made no attempts to pay or seek to discharge the debt (e.g. by remortgaging their properties); and the pattern and timing of the MHCMs were "indicative of debtors seeking to prevent enforcement rather than looking to obtain professional advice."
• Material irregularity (Regulation 17(1)(b)). There was no proper evidence that Mrs Smith was receiving crisis mental health treatment at the time of the sixth MHCM as required by Regulation 28. The court emphasised that Regulation 28(2)(e) — receiving crisis, emergency or acute care from a specialist mental health service — must be read as requiring a mental disorder "of a serious nature" akin to conditions justifying detention under the Mental Health Act.

The court also granted a six-month injunction preventing either respondent from applying for a further MHCM without the court's permission. Judge Carter held that the court's inherent jurisdiction and Regulation 19(5) — empowering the court to give "supplemental directions as it thinks fit" — supported the granting of such injunctions.

Finally, the court gave permission for the bankruptcy proceedings to continue, applying the approach in Yianni v Paliouras [2024] EWHC (Ch).

What should I do?

• Review third-party charge documentation carefully. The Together v Slack court engaged in detailed contractual interpretation and concluded that the charge secured only the borrower company's liabilities, not the chargor's personal obligation. If a charge also secured the chargor's own debt (e.g. under a guarantee), the outcome could have been different.
• Distinguish between the borrower's debt and any personal obligation of the chargor. A moratorium debt must be one "incurred by" the moratorium debtor — a borrower company's debt cannot be the third party chargor's moratorium debt even if the third party chargor provided security for it.
• Consider applying for declaratory relief before proceeding to sale where there is any ambiguity about what the charge secures.
• Where debtors are entering serial moratoriums, consider applying to court to cancel the moratorium on grounds of unfair prejudice (Regulation 17(1)(a)) and/or material irregularity (Regulation 17(1)(b)), and seek an injunction restraining further applications without court permission.
• Gather evidence of abuse. Courts will look at the pattern and timing of moratoriums, whether the debtor has taken any steps to address the debt, and whether the debtor genuinely qualifies for crisis treatment under the Regulations.

What else do I need to know about the Debt Respite Scheme?

These decisions highlight ongoing difficulties with the Regulations' drafting. In Together v Slack, Judge Klein endorsed Sir Anthony Mann's observation in Seculink Ltd v Forbes [2025] EWHC 524 (Ch) that the drafting "is impossible to admire". The unresolved question of whether LPA receivers are "agents" under the Regulations is likely to generate further litigation — the court in Together v Slack expressly left this open, noting it would not have granted summary judgment on those points.

On the question of injunctive relief against serial moratorium abuse, there is now a clear judicial divergence. The Woodrow v Smith court sided with HHJ Dight and HHJ Moody KC's approach, rejecting the second Kaye v Lees reasoning that the court should not curtail a debtor's statutory right to apply for moratoriums. This disagreement at first instance may need to be resolved at appellate level, but in the meantime creditors facing serial abuse should take encouragement from the willingness of courts to intervene.

Further reading on the Debt Respite Scheme

• Seculink Ltd v Forbes [2025] EWHC 524 (Ch)
• Kaye v Lees [2023] EWHC 152 (KB) and [2023] EWHC 758 (KB)
• Yianni v Paliouras [2024] EWHC (Ch)