Restructuring and insolvency analysis: The Coronavirus (Scotland) Act 2020
This analysis focuses on the impact of the Coronavirus (Scotland) Act 2020 (‘the Act’) on restructuring and insolvency practice in Scotland during its period of operation.
What is the Coronavirus (Scotland) Act 2020?
The purpose of the Act is to respond to the emergency caused by the coronavirus pandemic. The Act complements and supplements the Coronavirus Act 2020, passed by the UK Parliament on 25 March 2020, and which the Scottish Parliament gave its consent to on 24 March 2020.
When did it come into force and how long will it be in operation?
The Bill for the Act was passed by the Scottish Parliament on 1 April 2020 and the Act came into force on 7 April 2020, after receiving Royal Assent.
Section 12 of the Act provides for the main provisions of the Act to expire on 30 September 2020, unless the Scottish Parliament passes regulations providing for its effect to continue until 31 March 2021. If the Scottish Parliament does pass such regulations, it may then pass regulations allowing one further, final extension, until 30 September 2021, at which point any remaining provisions in the Act will expire.
The Scottish Ministers also have the power, by regulations, to suspend any of the main provisions of the Act, to revive the effect of any suspended part and to cause any of the main provisions of the Act to expire earlier than the schedule set out. This power allows any provision which is no longer, in the view of the Scottish Ministers, appropriate or proportionate, to be removed entirely or to be suspended if it may become necessary to use again.
What changes does the Act introduce?
Broadly, the Act takes the following measures:
- it adjusts the law on evictions to protect those renting their homes during the coronavirus outbreak;
- it adjusts criminal procedure, and to other aspects of the justice system, to ensure that essential justice business can continue to be disposed of throughout the coronavirus outbreak; and
- it makes a range of provisions designed to ensure that business and public services can continue to operate effectively during a period where controls on movements have been imposed, and when pressures on public services are acute.
What are the measures that will specifically impact the restructuring and insolvency profession?
Moratorium on diligence
The main change directly impacting the restructuring and insolvency profession is brought about by Section 3 of the Act. This section introduces Schedule 2, which provides for a temporary extension of moratoriums on diligence.
The Accountant in Bankruptcy advises that this change is being made to:
- reduce stress and protect the mental health of those worried about the prospect of creditor enforcement action during a time of increased uncertainty;
- give additional time for options to be considered properly before potentially irreversible decisions are taken, particularly as advisers may find it difficult to see the volume of clients that need help; and
- protect individuals whose problem debt is a direct result of COVID-19, and whose finances will normalise after the pandemic without the need for a formal debt solution.
The moratorium is available to individuals, or certain legal persons who are permitted to apply for sequestration under the terms of the Bankruptcy (Scotland) 2016 Act (including trusts and partnerships).
Paragraph 4(a) of Schedule 2 increases the length of the moratorium against diligence created by sections 195 to 198 of the Bankruptcy (Scotland) Act 2016, from 6 weeks to a period of 6 months, for moratoria established during the period covered by the emergency legislation.
Additionally, paragraphs 2 and 3 of Schedule 2 remove the prohibition against an individual benefitting from more than one moratorium in any 12-month period, so that those who have recently had a moratorium are not excluded from the effect of the changes.
Section 5 of the Act introduces Schedule 4, which includes provisions surrounding courts and tribunals conducting business by electronic means.
This provides for electronic signatures to fulfil the requirement for certain documents to be signed and allows for documents to be transmitted electronically. This will only impact insolvency practitioners to the extent that the courts are prepared to deal with insolvency-related matters. At the time of writing several Scottish courts are known to be essentially deeming insolvency business as non-urgent.
The description of “court” within the Act extends to any office holder of a court. As the Accountant in Bankruptcy falls within that description, Schedule 4 will allow it to accept debtor bankruptcy application forms submitted with electronic signatures. The signature must be created by the individual and can be done through use of various software solutions or by the applicant emailing their money adviser/proposed trustee with a simple statement averring that the relevant form is being submitted electronically with their consent. The statement must include the applicant’s name, address and date of birth. It should be uploaded to the Accountant in Bankruptcy’s case management system along with the relevant form(s).
Commercial leases and evictions
Insolvency practitioners dealing with landlord insolvencies or debtor evictions will need to be aware of the provisions of the Act surrounding lease termination and dwellinghouse evictions.
Normally, a landlord must give a tenant at least 14 days’ notice before terminating a commercial lease due to non-payment of rent. Paragraph 7 of Schedule 7 of the Act increases the notice period from 14 days to 14 weeks.
Schedule 1 of the Act also provides increased protection from eviction for private and social tenants. The minimum notice period for eviction has been increased from 6 weeks to 6 months in most cases, depending on the grounds for eviction.
This article has been prepared by ICAS and has also been published by LexisPSL.