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The Debt Respite Scheme (Breathing Space): guidance for schools

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With increased pressure on fee payers resulting from the current economic crisis, it may be that schools are asked to give a fee payer a “breathing space” if they get into financial difficulty more generally. Whilst the legislation has been in place for some time it is only more recently that the consequences of the regime are being felt by the independent schools’ sector, and therefore needs both an introduction and explanation.

What is the Breathing Space regime?

The Government has implemented two different regimes[1] to help individuals who are struggling to pay their debts: a standard breathing space (Standard Breathing Space); and a mental health crisis breathing space (Mental Health Crisis Breathing Space). When a person with problem debt is given either type of Breathing Space they will be given legal protections that temporarily prevent a creditor taking action against them to recover the debt. The purpose of the Breathing Space is to give the individual time and space to deal with their problem debt without having to worry about their financial situation getting worse.

This note explains how the Breathing Spaces work and what to do if a school is notified that a parent has been put into a Breathing Space register. Where there is no difference between the two regimes this note will simply refer to a Breathing Space.

Who is eligible for a standard Breathing Space?

Aside from some exceptions, a Breathing Space is available to anyone who is resident in England or Wales and who has problem debt. In simple terms this means that an individual who is struggling to pay their debts can apply to a debt adviser (Adviser) to be put into a Breathing Space. The Adviser will verify whether the person is eligible for the scheme and that they have debts which are within the scope of the scheme: a so-calledqualifying debt”.

There are some circumstances where a person will not be eligible for a Breathing Space. These include where they: are already in a Breathing Space, have had a Standard Breathing Space in the last 12 months, have a debt relief order or individual voluntary arrangement (IVA) in place, or are an undischarged bankrupt.

If the Adviser is satisfied that a parent cannot, or is unlikely to be able to, repay all or some of their qualifying debt and that a Breathing Space is appropriate for them, the Adviser will add the parent’s details, and the details of their debts and creditors, onto the (centrally administered) Breathing Space register (Register).

Will unpaid school fees be qualifying debts for the purpose of a Breathing Space?

Unpaid fees are likely to meet the requirements to be a qualifying debt for the purposes of a Breathing Space.

How will a school know that the parent is protected by a Breathing Space?

When a person applies for a Breathing Space the Adviser will ask them for the details of their debts and these will be recorded on the Register. If a school is recorded as a creditor the school will be notified (Notification), either by post or by personal service[1] that the Breathing Space applies to the unpaid fees.

What if a school does not think that a parent is eligible for a Breathing Space?

Once in receipt of the Notification a school can ask the Adviser to review the Breathing Space if it considers that the Breathing Space unfairly prejudices the school’s interests. Example grounds are where the school thinks that the parent does not meet at least one of the eligibility criteria for a Breathing Space or has enough funds to repay their debts. The school would need to apply for a review within 20 days of the Breathing Space commencing.

What must a school do if it receives notice of a Breathing Space?

When a school receives a Notification, it must search its records to identify whether all the unpaid fees the parent owes to the school are covered by the Notification. For example, there may be more recent fees that are unpaid or fees that are unpaid in relation to a sibling. If the Notification does not cover all the unpaid fees, the school should tell the Adviser about the additional debt as soon as possible. The Adviser will then decide whether the additional debt qualifies for the Breathing Space.

A school must make sure that it applies the protections required under the Breathing Space to the fees covered by the Notification. The school must do this from the date set out in the Notification or the date on which the school is treated as having received the Notification, whichever is the earlier. If a Notification is sent by post, it is treated as having been received 4 working days after it was posted. A personally delivered notice is treated as received on the day it was left at the school.

A school may consider voluntarily applying the Breathing Space to any additional unpaid fees not covered by the Notification, but the school is not required to do so until it has received the relevant Notification.

What steps must a school take to protect the unpaid fees while the Breathing Space is in place?

A school must implement certain measures (Protections) in relation to the unpaid fees identified in in the Notification from the date the Breathing Space started. These include the school:

  • Not contacting the parent to ask for payment (unless the school has permission from the court to do so),
  • Not applying interest or “late-payment” charges to the unpaid fees,
  • Not applying any charges for chasing the unpaid fees,
  • Not taking any court or other enforcement action to recover the unpaid fees, either from the parent or any person who is jointly liable with them for the unpaid fees,
  • Pausing any steps that the school may already have initiated to recover the unpaid fees,
  • Not trying to enforce a court judgment for the unpaid fees, and
  • Telling any third parties to pause their enforcement action.

Can a school exclude a pupil for non-payment of fees during the Breathing Space?

The Breathing Space legislation does not address this point specifically. However, given that the purpose of a Breathing Space is to allow the parent time to regularise all their debts, not just the money the parent owes to the school, we would typically advice a school should wait until the Breathing Space has ended before taking steps to exclude a pupil for the non-payment of fees.

What should a school do if it has appointed an agent to recover unpaid fees?

If the school has appointed an agent to recover unpaid fees, the school must tell the agent about the Breathing Space and explain what it means. The school must also ensure that the agent takes no further action against the parent until the Breathing Space ends.

What should a school do where it has already started legal proceedings for non-payment of fees?

If a school has started legal proceedings for recovery of the unpaid fees, the school must tell the court / tribunal that a Breathing Space has started. The school must do this in writing as soon as the school has received the Notification. The school can continue the legal proceedings after the Breathing Space ends.

If only one parent has a Breathing Space, can the school ask the other parent to pay the unpaid fees?

If both parents are jointly liable to pay the fees the school will not be able to pursue the parent who is not in a Breathing Space for the unpaid fees until the Breathing Space has ended.

What happens if a school does not apply the Protections?

If a school does not apply the Protections to the unpaid fees during the Breathing Space, any action the school takes to recover the fees or apply interest will be void and the school may be liable for the parent’s costs.

Is a school allowed to contact the parent while the Breathing Space is in place?

A school can contact the parent about anything that is not related to the unpaid fees. The school can also respond to a query or complaint that the parent has made about the fees. However, the school must make sure that any communications it makes are not capable of being interpreted as if the school is asking the parent to pay what they owe at that time (and whilst the Breathing Space is in place).

If the parent contacts the school to discuss the Breathing Space or a debt solution the school can discuss this with them. The school can also contact the parent’s Adviser about the fees that are owed and discuss a debt solution. This would be recommended to understand better the situation and the ability to resolve it.

Will the school receive any payments during a Breathing Space?

A Breathing Space is not a payment holiday. While the school cannot take action to recover unpaid fees during a Breathing Space or charge interest on the unpaid fees, the parent will still be required to pay their debts. During the Breathing Space, the parent can continue to make payments to the school and the school can continue to accept these payments.

How long does the Breathing Space last?

A Breathing Space usually starts the day after the parent’s details are put onto the Register. Unless the Adviser or a court cancels it earlier or the parent dies. A Standard Breathing Space generally ends 60 days from the date it started, and a Mental Health Crisis Breathing Space lasts as long as the person’s mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts).

What happens when the Breathing Space ends?

The school will be notified when the Breathing Space ends. The parent will still owe the unpaid fees after the Breathing Space has ended. This means that, unless the parent has entered a debt solution, for example a debt relief order or bankruptcy, after the school has been notified of the end of the Breathing Space, the school can:

  • Start applying interest or other late-payment charges to the unpaid fees, if permitted under the parent contract,
  • Take action to recover the unpaid fees; and
  • Start or re-start any legal proceedings for the unpaid fees.

There is further guidance on the GOV.UK website.

Advice

This summary reflects the Breathing Space regime as it applies in November 2023. It does not address all aspects of the regime and in complex situations a school should seek specific advice.

This article was originally published by The ISBA.

[1] There is an electronic notification service, but it is unlikely a school will be signed up to this (hence not mentioning in this note).

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, January 2024

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Paul

Paul Jones

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Paul Jones is a commercial contracts expert with an exceptional track record of delivering complex, business-critical projects for high-profile clients operating in the worlds of media, sport, education and culture.

Paul Jones is a commercial contracts expert with an exceptional track record of delivering complex, business-critical projects for high-profile clients operating in the worlds of media, sport, education and culture.

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Katy Ruddell

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Katy is a highly experienced financial services lawyer whose work focuses on conduct of business issues, regulated lending, mortgages and the Senior Managers and Certification Regime (SMCR). Her clients include leading private banks, wealth managers and asset managers.

Katy is a highly experienced financial services lawyer whose work focuses on conduct of business issues, regulated lending, mortgages and the Senior Managers and Certification Regime (SMCR). Her clients include leading private banks, wealth managers and asset managers.

Email Katy +44 (0)20 3375 7343
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Eleanor provides advice to financial services firms including asset managers, wealth managers, private banks, and charitable institutions on a variety of legal and regulatory issues including advice on fund formation and operation.

Eleanor provides advice to financial services firms including asset managers, wealth managers, private banks, and charitable institutions on a variety of legal and regulatory issues including advice on fund formation and operation.

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