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Framework for debt payment takes shape

1 January 04

Rules covering debt arrangement schemes, and reforms to personal insolvency, are out for consultation

by Alistair Burrow

Change in insolvency matters continues apace. Since parts of the Debt Arrangement and Attachment (Scotland) Act 2002 are now in force, readers may be aware of this Act as it affects diligence. However, the Act also contains the framework for a debt arrangement scheme which is intended to assist those with multiple debts. In consultations it appeared that the Scottish Executive saw this as applicable largely to consumer debt and concerns were voiced as to how the detailed legislation would distinguish between consumer debts incurred by individuals and debts incurred by individuals who also carried on a trade. Draft regulations have now been put out for consultation and it is worth noting that these contain no business or size restrictions, no monetary limits and, perhaps surprisingly, “multiple” is defined as being at least two.

The intention of the debt arrangement scheme (“DAS”) is that a debtor will apply for approval of a debt payment programme (“DPP”), which must have the approval of a money adviser and be funded by periodic single payments by the debtor based on his free income after payment of continuing essential outgoings. These payments will be made to an approved payments distributor who will be responsible for paying creditors in accordance with the DPP. Payments may be deducted at source from a debtor’s earnings and there will be restrictions on a debtor obtaining new credit. DPPs will be published on a public register. An approved DPP will stop most enforcement action for recovery, but will not prevent secured creditors from enforcing their security.

A more detailed commentary will be appropriate when the regulations are finalised, but it is worth noting that the DAS administrator will be the Scottish Ministers who, it is understood, will delegate their powers to the Accountant in Bankruptcy. Given that these regulations are currently at a consultative stage and that it has recently been announced that the Accountant in Bankruptcy’s office will move from Edinburgh to a location in Ayrshire still to be determined, the Executive’s stated intention on their website to implement the DAS as early as possible in 2004 appears optimistic.

Applications for a DPP will require to be approved by the DAS administrator, approval being automatic when every creditor has consented, but the DAS administrator may dispense with the consent of a creditor where the amount due to that creditor is 50% or less of the total debt and the amount due to all creditors refusing to consent does not exceed 60% of the total debt. This suggests that a DAS administrator may be able to approve where only 41% in value (the number being irrelevant) of the debtors have consented to the proposed DPP.

The regulations contain detailed procedures for application, approval, variation, revocation and termination of DPPs, for the keeping of the register and, inevitably, for fees to be levied for applications, variations, inspection of the register and approval of both money advisers and payments distributors. Money advisers will be licensed for two year periods and will require to be fit and proper persons. Payments distributors will be licensed for three years and may be permitted to act subject to conditions imposed by the DAS administrator. It is expected that both solicitors and accountants will apply for approval as money advisers and payments distributors, but this will mean yet more fees to Government for licences to do things which the profession has customarily done for many years.

The Enterprise Act 2002 contains provisions applicable only in England and Wales in relation to personal insolvency which is, of course, a devolved matter. The Executive has now issued a consultation paper entitled “Personal Bankruptcy Reform in Scotland: A Modern Approach”, which canvasses amongst other matters amendments to Scots law to reflect the Enterprise Act changes in England and Wales. This would include, for example, the introduction of a one year bankruptcy period for all bankrupts, amendment of the appropriate debt level for creditor led petitions, the extension of voluntary contribution agreements and contribution orders beyond the date of discharge and the introduction of a three year time limit for a trustee to deal with a bankrupt’s family home, failing which it would revert to the former bankrupt rather than (as now) remaining vested in the trustee in perpetuity. The paper also canvasses the introduction of bankruptcy restriction orders (but curiously not undertakings), the transfer of debtor petitions for sequestration from the courts to the Accountant in Bankruptcy (but suggests that creditor petitions would remain with the courts), and the removal from the Court of Session of all jurisdiction in relation to bankruptcy matters and recalls. The paper is well worth perusal and comments are sought by 20 February 2004.

Alistair Burrow, Tods Murray