A summary of the Scottish Government’s response to the public consultation on the review of the Bankruptcy and Debt Advice (Scotland) Act 2014
The Scottish Government has published its report in response to last year’s public consultation on the review of the Bankruptcy and Debt Advice (Scotland) Act 2014. Steven Wood takes a look at the key findings from the report.
The Scottish Government undertook a consultation on the BADAS reforms after a reasonable period of time had elapsed to allow the changed processes to become established. That consultation closed on 11 February 2020, but the publication of the report was delayed due to the Scottish Government’s response to the coronavirus pandemic.
The consultation concentrated on the areas introduced by BADAS that had been highlighted as needing some improvement, and these are looked at in turn below.
Statutory moratorium on diligence
Most respondents do not believe the current 6-week moratorium period is sufficient, with half of those responding believing a 12-week period would be more appropriate.
Two-thirds of respondents believe that interest, fees and charges should be frozen during the moratorium period.
The Scottish Government will therefore give further consideration to an extension of the moratorium period and a freeze on interest, fees and charges during that period.
More work will be undertaken to consider the practical application of introducing further provisions which are currently reserved and the additional protections for those receiving mental health crisis care, which received widespread support from respondents.
Common financial tool
97% of respondents believe that the provision of a common financial tool within insolvency legislation remains appropriate. However, the question of what form that tool should take is less clear.
57% of respondents believe the currently used Common Financial Statement (CFS) is the most appropriate tool, 18% believe it should be the Standard Financial Statement (SFS) and 25% believe it should be some form of alternative.
This is clearly a contentious area, with the Accountant in Bankruptcy twice failing to obtain the Scottish Parliament’s approval to replace the CFS with the SFS, now used elsewhere in the UK, as the common financial tool of choice for Scottish statutory debt solutions.
The consultation report demonstrates a range of opinions over the issue of a reasonable standard of living, with a possible minimum expenditure level being considered as well as a maximum level, and it will not be straightforward for the Scottish Government to find a solution that satisifes all stakeholders.
Debtor contribution order
The vast majority (74%) of respondents do not believe the current timescales for trustees to submit their contribution proposals to the Accountant in Bankruptcy is sufficient. This is mainly due to actions outwith the trustee’s control which impact on their ability to meet the 6-week timescale.
The Scottish Government will consider extending the time allowed for trustees to submit their contribution proposals to 12 weeks.
Minimal asset process (MAP) bankruptcy
The vast majority of respondents do not believe the minimum debt levels should be increased in a MAP bankruptcy, full administration bankruptcy or a creditor petition bankruptcy. Similarly, the majority of respondents do not believe the asset levels for MAP applications should be increased.
Most respondents also consider that a debt ceiling should be retained in MAP bankruptcy, with almost two-thirds suggesting that the ceiling should be set at £20,000.
While most respondents to the consultation agree that intention to address financial education is a positive step, there is less consensus on whether the current content of the financial education modules meets the stated policy intention of promoting financial capability.
A number of respondents queried whether during bankruptcy is the appropriate time for financial education to be administered.
The consultation sought views on two additional areas:
- Discharge of child maintenance debts. This is clearly a very emotive issue. However, around two-thirds of those who responded believe child maintenance arrears should continue to be discharged following the conclusion of bankruptcy or protected trust deeds, so that these solutions continue to provide debt relief and a ‘fresh start’ for individuals.
- Rate of interest. Almost all respondents do not believe the current interest rate for either dividends in bankruptcy or the judicial rate are set at the correct level. Most respondents believe the rate of interest should be either the Bank of England base rate or the Bank of England base rate plus 2%.
The Scottish Government has committed to a wider review of Scottish debt solutions, and that work has now commenced. Full consideration will be given to the feedback and comments given by respondents, to help inform future changes to bankruptcy as part of that review.
However, there will be a wide range of opinions on the direction that review should take and there are no straightforward solutions to many of the issues raised as part of the consultation.
With Scottish Parliamentary elections due in May 2021, and pressures on the legislative timetable both from the coronavirus pandemic and Brexit, any significant changes to primary legislation seem highly unlikely in the short term.
However, there are limited but useful changes which may be made through secondary legislation in the meantime in relation to matters where widespread support was demonstrated through the consultation. Specifically, building in an extended time period to the moratorium on diligence for those undergoing mental health crisis treatment and the amendment of the statutory rate of interest.