Summary
On 6 June 2025, the Court of Appeal delivered its judgment in Forbes v Interbay Funding Limited; Forbes v Seculink Limited [2025] EWCA Civ 690, in a significant second appeal addressing the interpretation of “arrears” under the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020.
The key question was whether the capital sum of a mortgage loan, once called in, is protected by a moratorium under the Regulations. Mr Forbes, the debtor, argued it should be whilst the lender argued it should not.
The Court of Appeal decided that the principal sum of secured debt, whether or not called in prior to the commencement of the moratorium, is non-eligible debt and not a qualifying debt nor a moratorium debt.
Background
This is the first time the Regulations have been considered by the Court of Appeal.
The Regulations give eligible individuals temporary relief from enforcement, interest, fees, and charges during a moratorium. Creditors are barred from taking recovery steps or adding interest or charges unless the Court permits otherwise. The Standard Breathing Space moratorium lasts 60 days, while the Mental Health Crisis moratorium has no time limit.
Here, the debtor had been subject to a mental health crisis moratorium for over three years, a protection that can be granted even after a debt has become due.
Facts and Legal Issues
Mr Forbes took out a £1.3 million interest-only loan from Interbay, secured against his property in Surrey. After he defaulted on payments, and arrears reached around £60,000, Interbay called in the entire loan. Mr Forbes subsequently applied for a mental health crisis moratorium in April 2022, which became effective from 2 July 2022. Despite the moratorium, Interbay issued possession proceedings in May 2023, based on the called-in capital.
The issue was whether this capital – called in before the moratorium began – fell within the scope of “arrears” and thereby became “moratorium debt.”
- Regulation 5(4)(a) excludes from protection:
“secured debt which does not amount to arrears in respect of secured debt.”
- Regulation 2(1) defines “arrears” as:
“any sum other than capitalised mortgage arrears payable to a creditor by a debtor which has fallen due and which the debtor has not paid at the date of the application for the moratorium…”
It was common ground under the Regulations that (a) “arrears” referred to any unpaid interest payments on a mortgage that became due before the debtor applied for a moratorium; however, (b) “arrears” did not extend to unpaid interest payments (or the loan capital) that became due after the moratorium began.
The key issue was whether called-in capital due before the moratorium could qualify as “arrears.” If it did, it would be protected under the moratorium.
Lower Court Decisions
At first instance, the Deputy District Judge ruled that the called-in capital was not moratorium debt and granted possession to Interbay in July 2023. HHJ Evans-Gordon upheld that decision on appeal in June 2024. Mr Forbes was then granted permission to appeal to the Court of Appeal.
A related appeal (Seculink Ltd v Forbes) was heard alongside the Interbay case. In that matter, the Court reached the same conclusion, relying on the exclusion of capitalised mortgage arrears and finding no logical reason why the principal capital itself should receive protection.
Court of Appeal Decision
Zacaroli LJ delivered the leading judgment (with Males and Baker LJJ concurring), dismissing Mr Forbes’s appeal.
The Court of Appeal decided that the principal sum of secured debt, whether or not called in prior to the commencement of the moratorium, is non-eligible debt and thus neither a qualifying debt nor a moratorium debt.
The Court’s key findings included:
- While the definition of “arrears” may appear broad, its context limits it to missed instalment payments.
- That this reading of the meaning of “arrears” is consistent with its definition under the Regulations, which excludes capitalised mortgage arrears which have been added to the principal balance. As the Court observed, “in order for something to be added to the outstanding balance it must be different from the outstanding balance itself“.
- Regulation 5(4)(a) distinguishes between arrears and the underlying secured debt, reinforcing this interpretation.
- Regulation 7(9) supports this, stating that interest protection during a moratorium applies only to interest on arrears – not capital.
- The appellant’s construction would lead to anomalies such as a creditor being able to enforce on the capital if it happened to call in the loan the day after a moratorium but not if it called it in the day before.
- The Court of Appeal considered its interpretation of the Regulations to align with the personal insolvency framework under the Insolvency Act 1986, which typically does not interfere with the rights of secured creditors.
Significance
This judgment provides the first appellate-level interpretation of the Regulations and brings much-needed clarity. It confirms that called-in capital does not qualify as moratorium debt, resolving a point that had created considerable uncertainty in practice.
Following the decision, it is now clear that where a lender has called in the principal of a secured debt and it remains unpaid, the lender is entitled to commence or continue enforcement action irrespective of the debtor subsequently entering into a breathing space or mental health crisis moratorium. Similarly, a lender may take such action if the right to demand repayment arises after the beginning of a moratorium, for example due to further arrears accruing or because the term of a loan has expired.
This decision provides greater legal certainty for lenders relying on enforcement rights and limits the strategic use of mental health or breathing space moratoria to delay possession or enforcement, reaffirming the primacy of secured creditors’ rights under lending agreements.
The case also underscores the importance of procedural discipline — Mr Forbes was not permitted to expand the scope of his appeal or introduce new grounds. He is now seeking permission to appeal to the Supreme Court.
