Bankruptcy and Debt Advice (Scotland) Act 2014

Significant changes to legislation in Scotland affecting personal insolvency procedures commence with effect from 1 April 2015. These changes have been brought about through the Bankruptcy and Debt Advice (Scotland) Act 2014 ("BADAS Act") and supporting secondary legislation.

The following provides a summary of the main changes and useful resources. In the main the changes will only apply to sequestration awarded or protected trust deeds granted on or after 1 April 2015 although some of the provisions are applicable to cases with an award or granting date prior to 1 April 2015. Where provisions will apply to existing cases these are highlighted below.

Summary of changes coming into effect 1 April 2015 relating to sequestration and protected trust deeds

General/Common application

  • Debtors can obtain a moratorium on diligence offering a period of protection before entering DAS, a trust deed or applying for sequestration
  • Use of the Common Financial Tool to calculate any contribution under DAS, protected trust deed or sequestration is now mandatory

Sequestration

Advice, education and debtor applications

  • Debtor to receive mandatory money advice from a money advisor, Insolvency Practitioner or approved member of Insolvency Practitioner staff prior to completing debtor application. Content of money advice is prescribed in legislation.
  • Evidence of debtor income and expenditure pre debtor application to be obtained and retained for minimum of 2 years
  • Required debt for debtor application increased to £3,000 (remains at £1,500 for Minimal Asset Process sequestrations)
  • Low Income Low Asset provisions withdrawn and replaced with Minimal Asset Process with reduced application fee (£90)
  • Financial education course to be undertaken by debtors where trustee considers it would be appropriate for the debtor
  • New Statement of Undertakings to be signed by debtors
  • Certificate for Sequestration form amended
  • In the case of a deceased debtor the Executor can apply for sequestration by debtor application

Debtor contributions

  • Debtor Contribution Orders (DCO) replaces Income Payment Agreements and Income Payment Orders. For debtor applications this will be issued by AiB when granting the application. For creditor petitions the trustee has to make initial proposal to AiB within 6 weeks of the award of sequestration and AiB will then issue the DCO.
  • Payments due under DCO's may be deducted from employment or other income
  • Contribution period extended from 3 years to 4 years (although can be shorter if 100p in £ plus statutory interest can be paid with shorter period of contributions, and can be extended to cover unpaid contributions)
  • Payment break from contributions for up to 6 months may be applied for by debtor where disposable income assessed under Common Financial Tool drops by more than half as a result of certain prescribed events

Administration of the sequestration

  • Trustee required to serve a notice on banks where it is known debtor held funds
  • Creditor claims must be submitted within 120 days of sending notification of whether a statutory meeting is to be held or not, or within 120 days of notification of creditor not included within that circular. Claims submitted after the relevant 120 day period may only be considered for adjudication where there were exceptional circumstances that prevented the claim from being submitted.
  • First accounting period can be reduced from 12 months where any early dividend can be paid. The first accounting period cannot be shorter than 6 months.
  • Acquirenda period extended from 3 years to 4 years.

Discharge

  • No longer automatic at 12 months – report to be submitted by trustee 10 months after sequestration awarded (or whereabouts known or contact received from debtor in situations where debtors whereabouts have been unknown)
  • Requirement to disclose undischarged status when obtaining credit extended to situations where credit to be obtained is £2,000 (previously £500) or more or where credit obtained is any amount but debtor has new debts of £1,000 or more
  • Debtor discharged after 6 months under Minimal Asset Process

Debtor unable to be traced / New discovered assets

  • Trustee can apply to be discharged where debtors whereabouts remain unknown after having made reasonable enquiries
  • AiB would be appointed as replacement trustee in such circumstances
  • Original trustee unable to claim any remuneration or outlays but may rank as a claim in any final distribution
  • Debtor remains undischarged until minimum of 12 months after subsequently being traced or being in contact with replacement trustee
  • Where newly identified estate (vested estate previously unknown to the trustee) of at least £1,000 in value is discovered within 5 years of the award of sequestration and trustee has already been discharged, an application can be made to the AiB to be reappointed as trustee. If no application to be reappointed is to be made, former trustee is under an obligation to report the newly identified estate to the AiB.

Functions transferred from court to AiB

  • Application for directions now to be made to AiB
  • Recall of sequestration where debtor's debts able to be paid in full
  • Application for replacement trustee
  • Contractual powers of trustee
  • Awarding sequestration when converting from trust deed to sequestration
  • Power to cure defect in procedure where correction is as a result of clerical or incidental error, or where waiving a failure to comply with a time limit specified in the Bankruptcy (Scotland) Act 1985 (as amended)
  • Bankruptcy Restriction Undertakings withdrawn. Bankruptcy Restriction Orders now issued by AiB where restriction period is 5 years or less. BRO still to be made by court if restriction period being applied for is more than 5 years.
  • Provisions introduced to allow review of AiB decision with subsequent right of appeal to sheriff

Miscellaneous matters

  • Partnerships can now apply by way of debtor application without requiring a concurring creditor to provide consent.
  • Application for replacement trustee in more than one sequestration to AiB introduced
  • Application to remove a trustee (resignation) extended to situations where it is impractical for the trustee to continue acting
  • Commissioners can be removed by order of the sheriff if no longer acting in the efficient conduct of the sequestration
  • Unclaimed dividends and unapplied balances should be lodged directly with AiB
  • Sederunt book to be lodged in electronic format with AiB. Content of Sederunt book amended to take account of other legislative changes.
  • Composition has been repealed
  • Petition for recall to be included in Register of Insolvencies and not advertised in Edinburgh Gazette
  • Numerous Forms under regulations have been replaced or renumbered. New forms have been also been introduced.

Protected Trust Deeds

  • Form 2A introduced for the statement of debtor's income and expenditure and to be sent to creditors along with notification of trust deed for protection
  • One valuation fee incurred prior to the date of signing the trust deed in relation to each heritable property may now be payable as an outlay of the trustee
  • Trustee to consider discharge of debtor once contribution period finished (rather than currently at 48 month anniversary)

Changes applicable to existing cases/situations

  • Moratorium on diligence may be applied for not withstanding that a debtor application has been submitted pre 1 April 2015
  • Variations of Income Payment Agreements or Income Payment Orders should be made with regard to the common financial tool
  • Applications for recall
  • Unclaimed dividends or unapplied balances to be sent direct to AiB
  • Petition for recall to be included in Register of Insolvencies and not advertised in Edinburgh Gazette
  • Recall of sequestration where debtor's debts able to be paid in full
  • Awarding sequestration when converting from trust deed to sequestration
  • Review of AiB decision about interim trustee (s13A), not to award sequestration (s15), replacement trustee (26A), adjudication of creditor claims (s49), decision about discharge of trustee (s57), miscellaneous other matters as listed in s63C.
  • Minor amendments relating to Renewal of inhibition (s14), Division and sale of family home (s40), debtor discharge (effect of discharge not to apply to student loans),

Resources

Summaries of secondary legislation

Topics

  • Guidance
  • Insolvency

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