AiB Response to Debt Arrangement Scheme consultation published
The Accountant in Bankruptcy has published a response to the ‘Building a Better Debt Arrangement Scheme’ consultation which launched on 31 October 2018. Steven Wood considers the amendments proposed.
The Accountant in Bankruptcy (AiB) has published a response to the latest DAS consultation carried out last year. The consultation followed on from the changes made as a result of The Debt Arrangement Scheme (Scotland) Amendment Regulations 2018, which came into force on 29 October 2018.
The consultation had the stated intention of making DAS more attractive and sustainable for money advisers, both in the free and fee-charging sector. It broadly focused on four areas:
- proposed changed to DAS payments distribution;
- a new fee structure;
- reducing bureaucracy; and
- improved flexibility.
Proposed changes to DAS payments distribution
The AiB will recommend to Ministers that the Continuing Money Adviser (CMA) role be extended to include payments distribution responsibility. During the consultation, 74% of respondents agreed with this proposal. ICAS broadly welcome this change, although reiterate concerns over potentially restricted market competition in view of the requirement for FCA authorisation.
The AiB also intend to recommend to Ministers that they be allowed to offer a payments distribution service. The debtor will be able to nominate their own payment distributor (PD) where the PD holds the relevant FCA permissions. Where no PD is nominated in a case, AiB will effectively be appointed as PD by default. The AiB will also offer the PD function for cases where an existing PD ceases or is unable to act.
Although pleased to note that the AiB will not act as PD in all cases, ICAS remain concerned that this additional function will create a further conflict of interest for the AiB, is anti-competitive and without justification in the public interest.
New fee structure
The consultation proposed changes to the DAS fee structure, extending the statutory PD fees to cover the full range of services offered by a CMA (by removing all existing CMA fees and instead including initial set up costs, administrative duties and payments distribution services) under one fee.
Despite most respondents favouring a fee level of 15%, the AiB will take forward recommendations to Ministers for legislation to set the statutory administration fee for CMAs at 20%. The AiB have put particular weight behind creditor responses, with 54% of that group favouring a fee level of 20%.
ICAS believes that this change further alters the nature of DAS and makes it more explicitly simply an alternative insolvency solution or form of composition. Creditors are now being asked to bear the full cost of the programme in the same way as they would in a trust deed or bankruptcy. Unsurprisingly, the AiB say they disagree with this point of view as the debtor repays their debts in full. This ignores that insolvency can be demonstrated by being unable to pay debts as they fall due.
The consultation put forward the suggestion that Debt Payment Programme (DPP) proposals should be approved automatically if the debt due to objecting creditors is less than a specified percentage of the total debt.
98% of respondents agreed with this suggestion, however, there is no clear consensus on the level of creditor objection which should prevent a DPP being approved automatically. As a result, the AiB propose to put recommendations to Ministers that a DPP is automatically approved if the proportion of total debt held by dissenting creditors is less than 10%. Due to significant support for the trigger point being higher (two-fifths of respondents favoured 20% or more) this will be kept under review.
Due to the overwhelming agreement of respondents, the AiB will take forward recommendations to Ministers that deemed creditor consent should be introduced for DPP variations, and that variation proposals which will lead to a reduction in the duration of the DPP should be approved automatically by the DAS Administrator.
The AiB will also recommend that the AiB should be able to submit variations on behalf of the debtor in specific circumstances, if the money adviser is unavailable to do this and where the variation will reduce the term of the DPP. The AiB have clarified that the policy intention behind this change is that any variations submitted by AiB would be for purely administrative purposes – such as removing a debt which has been cleared – and would not involve any variation based on a change in the debtor’s financial circumstances.
The consultation sought views on the potential introduction of a new type of variation to address situations where debtors experience a short-term financial crisis.
Respondents agreed that short-term breaks should be introduced to address periods of crisis, with 94% of respondents agreeing that money advisers should be responsible for authorising the proposed short-term breaks without having to consult creditors. These changes will, therefore, be taken forward by the AiB.
There was less consensus about how many short-term crisis payment breaks should be available each year. The AiB intends to recommend that there should be no more than two breaks, each lasting one month.
Subject to ministerial approval, the proposals will be brought forward in secondary legislation which the AiB have indicated they would hope to lay in the Scottish Parliament before the summer. It can be anticipated therefore that any new legislation approved by the Scottish Parliament could become effective as early as late Autumn 2019.