After a turbulent 12 months, where businesses continue to weather the Covid storm and have faced widespread restrictions, we are now expecting the implementation of a further set of measures which will impact upon how we collect debts.  The Breathing Space scheme comes into force on 4 May 2021 and it is important that all businesses with debts understand the impact it will have.

So what is Breathing Space?

It is a period of respite which allows individual debtors protection from creditors pursuing debts.  The period will be a minimum of 60 days.  The aim is to encourage debtors to seek financial advice.

Who will be eligible for Breathing Space?

There will be two forms of Breathing Space: the standard form and a Mental Health Crisis Breathing Space designed for those receiving crisis treatment.  The standard form will apply to:

• individuals and sole traders who are not VAT registered; and
• are residing in England and Wales; and
• who have an eligible debt; and
• who are not subject to a bankruptcy order, IVA or Debt Relief Order; and
• have not entered into Breathing Space within the last 12 months; and
• individuals who cannot repay their debt and are receiving professional debt advice

You should note that there are some excluded debts including secured loans, child maintenance and student loans.

What can I do/not do as a creditor during the 60 day Breathing Space?

• You can’t charge interest, fees, penalties on the debt;
• You can’t request payment of qualifying debts;
• You can contact the debtor about ongoing liabilities or excluded debt and give them  updates as to balances;
• You can speak to the debtor if they instigate contact;
• You can contact the debt adviser;
• You can’t start any legal action including issuing bankruptcy petitions;
• If existing proceedings/petition are ongoing you must notify the court in writing as soon as possible.  The Court must stop the bankruptcy proceedings.  Other court proceedings can continue until further order.
• You can’t apply for default judgment
• Existing proceedings continue after breathing space ends.
• You can’t enforcement Judgments except Attachment of Earnings

 How will I know if one of my debtors is part of the scheme?

The Insolvency Service will be running an online portal.   You may receive an E-notification or postal notification.    It is worth noting that the information fed into the portal will come from the debtor: there is a realistic possibility that information may be incomplete, inaccurate or not provided at all.

What reviews and checks are in place?

There will be provision for a mid-way review to check that debtors are meeting their obligations and are co-operating with their advisers.  The advisers have the discretion to cancel the scheme if the debtor is not co-operating and/or meeting their obligations.  In practical terms, cancellation is unlikely to occur and you will need to wait the full 60 days.

A creditor can request a review if they feel they have been unfairly prejudiced.  You also have the right to apply to court if you do not achieve a successful review outcome.  In reality, this will be time consuming and costly and practically it may be preferable to allow the 60 days to expire.

What happens if I don’t comply?

If you proceed with legal action, it is likely that the action will be void and will have no effect.  You could also find yourself on the wrong end of a costs order.  You should also be aware that you could be reported to your regulator if you have one.

Conclusion

Breathing Space is likely to have a potentially significant impact upon both consumer debt and creditors.  It is imperative that you review your processes and procedures to ensure that you are fully compliant with your obligations.  You will need to consider staff training requirements and system changes to be fully compliant and to ensure that relevant cases are identified and actioned.  Successful challenges to the scheme will require strict compliance and legal support and guidance.   It is important that you ensure you are prepared as this could dramatically alter how you recover debts.