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Bankruptcy and Diligence (Scotland) Bill introduced to parliament

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Steven Wood By Steven Wood, Practice Support Specialist (Insolvency)

8 May 2023

  • The Bill was introduced on 27 April 2023 and will now be referred to the relevant parliamentary committees for consideration with the stage one debate expected to take place later in 2023.
  • The Bill brings forward stakeholder-led recommendations from stage two of the wider review of Scotland’s statutory debt solutions, and the review of diligence.
  • Also, some minor or technical amendment to the Bankruptcy (Scotland) Act 2016 that require primary legislation.

The Bankruptcy and Diligence (Scotland) Bill (the “Bill”) was introduced to the Scottish Parliament on 27 April 2023.

Overview

The stated purpose of the Bill is to bring forward stakeholder-led recommendations to introduce improvements to current insolvency solutions. As well as making technical changes to bankruptcy legislation, its aim is to help and improve the lives of people who are struggling with problem debt and serious mental health issues.

The Bill also brings forward stakeholder-led recommendations to improve existing debt recovery processes (diligence) and make them more efficient.

The Bill contains provisions that broadly fall into three areas as set out below.

Mental health moratorium

Section one of the Bill introduces an enabling power for the establishment of a moratorium on debt recovery action by creditors against individuals who have a mental illness.

The Bill does not provide any detail of how such a moratorium would operate but sets out that regulations made in accordance with the enabling power may include provision about matters such as:

  • eligibility criteria.
  • debt types that the moratorium would be applicable to.
  • the time-period for which the moratorium is to apply.
  • actions creditors may or may not take during the moratorium period.

However, the matters currently listed in the Bill are neither exhaustive nor mandatory in any future regulations. No draft regulations have been issued alongside the Bill, and, as always, the detail of the regulations will be crucial to evaluate whether such a moratorium will achieve its intended outcome, while at the same time offering sufficient safeguards to prevent abuse. It is however of note that the Bill suggests an application in relation to those who have a mental illness and the scope and extent of how this is to be interpreted will be crucial to the regulations.

Minor or technical amendments to existing bankruptcy legislation

The Bill proposes minor or technical amendments to the Bankruptcy (Scotland) Act 2016 (‘BSA2016’) covering four areas as set out below.

  • The amendments made by section two of the Bill seek to clarify existing processes for applying for recall of an award of sequestration and to remove ambiguity in the operation of the relevant sections of BSA2016. The changes are not intended to have any practical effect and are essentially proposed to clarify the sections of BSA2016 that apply in the three possible recall scenarios – i. where the AiB is not the trustee, ii. where the AiB is the trustee, and another party makes the application for recall, and iii. where the AiB is the trustee and initiates the process for recall.
  • S22 of BSA2016 is to be amended to clarify that the AiB must award sequestration forthwith if satisfied that all relevant criteria have been met, whether the application was made under the minimal asset process (‘MAP’) or full administration. S22 previously only cross-referenced to the provision that sets out the criteria for full administration bankruptcy.
  • S98 of BSA2016, which deals with gratuitous alienations, is to be amended to correct a cross-referencing error. This will amend s98(7) so that it cross-refers to subsection (5) rather than subsection (6) of the same section. The purpose of s98(7) is that, where a court grants a decree in relation to an alienation, the decree does not affect any right acquired by a third party where the parties undertook the transfer in good faith and for value. However, s98(7) currently cross-refers to the wrong subsection. It should refer to s98(5) which obliges the court to grant a decree, and not to s98(6) which outlines the exceptions which would prevent the court from granting such a decree.
  • Section five of the Bill deals with time periods for appeals against decisions by the AiB. Specifically, it proposes modifications to s69(12) and s134(3) of BSA2016 Act to specify that an appeal to the sheriff against a determination by the AiB must be made within 14 days. These sections are currently silent on timeframes for appeals. S134(4) of BSA2016 is also to be modified to clarify that a debtor may appeal under subsection (3) of that section, only if the debtor has a financial interest in the outcome of the appeal.

Diligence measures

Sections 6-10 propose a series of technical modifications to the law of diligence (Scotland’s formal debt recovery mechanisms), specifically in relation to:

  • Arrestment and action of forthcoming.
  • Diligence against earnings.
  • Provision of debt advice and information package in relation to diligence on the dependence.
  • Exceptional attachment notice and redemption periods.
  • Money attachment when premises are open.

Next steps

The Bill will now be referred to the relevant parliamentary committees for consideration with the stage one debate expected to take place later in 2023.

Subject to the will of the parliament, it is currently anticipated that the Bill will come into force by summer 2024, with regulations laid that autumn, and the new moratorium available to individuals from April 2025.

We will be involved in ministerial discussions on the plans for the introduction of the mental health moratorium and other live issues later this year. If you have any comments on the Bill, please email swood@icas.com.


Subscribe to the ICAS Insolvency Technical Update

New bankruptcy and DAS amendment Regulations to come into force

By Steven Wood, Practice Support Specialist (Insolvency)

26 January 2023

Technical updates

2023-05-xero 2023-05-xero

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