Accountant in Bankruptcy Notes for Guidance for Trustees Updated
By Steven Wood, Practice Support Specialist (Insolvency)
5 June 2019
The AiB’s Notes for Guidance for Trustee’s (NFG) have recently been updated, with several significant changes included. Steven Wood looks at the amendments in more detail.
Unless otherwise stated the changes relate to the 2015 and 2016 versions of the NFG only.
Claims
Paragraph 2.19 has been updated to clarify the action the AiB considers should be taken by a trustee on receipt of claims outwith the 120-day timescale imposed by s122(5) of the 2016 Act.
The updated guidance advises that, if a creditor has not provided a reason for not being able to submit their claim within the 120-day period, the trustee should contact the creditor to obtain the reason, before they decide if the claim can be considered. Where the trustee does not consider the circumstances justify the claim being considered as part of the adjudication, they should provide the creditor with the reasons, in writing.
The guidance goes on to clarify that there is no right of review or appeal against the trustee’s decision in relation to such a claim, as it will fall outwith the formal adjudication process. However, the creditor may make an application to the sheriff under section 50(7) of the 2016 Act, to request a direction be made to the trustee to adjudicate on their claim.
If the trustee decides that the circumstances for not submitting the claim within the required 120 days were exceptional, they must adjudicate on the claim. However, the trustee should not make any reference in their adjudication decision notes and letters to the fact the claim was received outside the 120-day period. The AiB consider that this is not relevant to the adjudication decision, which should be based only on the evidence provided in support of the claim.
The NFG remains silent on what may be considered as exceptional circumstances.
Paragraph 2.19.1 has been expanded to clarify the action to be taken by trustees on receipt of claims from a local authority (LA) for council tax arrears.
The guidance is provided in acknowledgement that a full year’s council tax is payable from the start date of the council tax year. Therefore, an LA may submit a claim for a full council tax year, regardless if the debtor was made bankrupt before the end of the council tax year. However, this is applied inconsistently in practice across the various local authorities and the trustee needs to establish the position in order to ensure that the debtor’s DCO is set at the correct level. The trustee also needs to clarify whether the debtor has paid their council tax liability for a period included in the LA’s claim, prior to completing the adjudication and distribution.
Refusal to grant debtor discharge
Paragraph 2.22 has been updated to set out the action required by a trustee following the refusal to grant a debtor’s discharge.
Where the discharge of a debtor was not granted after 12 months from the date of award, the trustee is required to submit a subsequent report when they consider it appropriate for the debtor to be discharged. Evidence should be provided to confirm that the behaviour of the debtor that resulted in discharge not being granted has been resolved. The guidance goes on to list the evidence requirements and notes that where a DCO had not been made at the time of the original report that at least 10 months has passed since the making of a DCO and the debtor has maintained contributions during this period.
Debtor Contribution Orders
Paragraph 4.13.6 has been expanded to highlight the consequence of non-compliance by an employer or third person to pay a DCO following instruction to do so. The employer or third party is liable to make the payment to the trustee and cannot subsequently recover this from the debtor. This update is derived directly from Regulation 20 of the Bankruptcy (Scotland) Regulations 2016.
It should be noted that the same paragraph also indicates that Section 94(4) of the Act states that the trustee may give a third-party an instruction to make deductions from income if the debtor fails to comply with the request, ‘or’ if the debtor fails to make two payments. This should correctly be ‘and’ fails to make two payments.
Paragraph 4.13.7 has been amended to reflect that where the debtor’s circumstances have changed the CFT assessment must be completed using the AiB’s CFT system, as opposed to directly through BASYS. The trustee should then create an amended DCO form (Appendix Q) and update BASYS.
Heritable property
Paragraph 6.11 (2008 NFG also) has been expanded to set out in detail the AiB’s expectations regarding valuations of heritable property. The additional guidance makes it clear that it is expected that a chartered surveyor, or other suitably qualified third party, should complete the valuation. The valuation should detail the maximum market value and should be specified as the current Royal Institution of Chartered Surveyors (RICS), Red Book equivalent of “Open Market”. The valuation should further not impose other restrictions such as a forced sale or the sale price expected for a transaction concluded within a truncated period.
Paragraph 6.11.9 (2008 NFG also) has been updated to clarify that where consent is given by the AiB to the trustee’s proposed action in relation to a property, and the trustee is not able to progress the proposed action within 12 months of agreement, an update should be provided to the AiB’s Adjudication and Supervision Team.
Funeral expenses
Paragraph 6.18 (2016 NFG only) has been amended to significantly revise the wording on payment of funeral expenses.
Paragraph 6.18 previously stated “For avoidance of doubt, the term ‘where the debtor is dead’ in Section 129(1) (c) of the Act refers to a debtor who was deceased at the date of bankruptcy and not to a debtor who has died subsequent to being sequestrated. A trustee has no liability for deathbed and funeral expenses of a debtor who dies after the date of bankruptcy.”
The updated guidance states “Section 129(1)(c) of the Act refers to a debtor who has died prior to, or after, the date of their sequestration and prior to the distribution of the debtor’s estate by the trustee. If a claim for funeral expenses and administration costs is received by the trustee in respect of a debtor who has died prior to the distribution of the estate funds, the trustee should record in the bankruptcy accounts, for determination by the Accountant, the amount of the funeral expenses and administration costs that they consider have been reasonably incurred and should be paid as an outlay from the debtor’s estate.”
This is a significant shift in guidance and may be an unintended consequence of the change in wording between Section 51 of the 1985 Act and Section 129 of the 2016 Act. The 1985 Act referred to a deceased debtor, which was taken to a be a debtor deceased at the date of sequestration. However, the 2016 Act simply references “where the debtor has died”.
Clarification is being sought by ICAS on this change as consolidation Acts such as the 2016 Act are not intended to change policy and it is not clear whether this change is as a result of legal advice obtained by the AiB.
Recall
Paragraph 6.22.7 (2008 NFG also) has been inserted to clarify that, in recall cases, the date of recall will also be the date of the trustee’s discharge.
Suspected Offences Reports
Paragraph 6.25.3 has been updated in relation to Suspected Offences Reports. This removes the paragraph recommending that the trustee should consider applying for the deferment of the debtor’s discharge in circumstances where the Crown Office have indicated they are taking further action. This appears to be an update simply to reflect the changes within legislation regarding the discharge of a debtor brought about by the Bankruptcy and Debt Advice (Scotland) Act 2014.
Curing defects
A new section 6.34 has been added to provide some useful explanation surrounding the process for curing defects in the procedure. The guidance sets out the circumstances in which the Sheriff and AiB may make an order and the processes for both applying to Court and applying to the AiB.
It goes on to highlight the role of the Adjudication and Supervision Team and the actions available to the AiB.
Other matters
All versions of the NFG have been updated to reflect any changes resulting from ‘Dear Trustee’ letters issued between 23 March 2011 and 12 March 2019.