Interest rate reform required in personal bankruptcy

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david-menzies By David Menzies, ICAS Director of Insolvency

2 September 2016

ICAS has responded to the informal consultation on the draft consolidated Bankruptcy Regulations which will underpin the Bankruptcy (Scotland) Act 2016 when it is introduced in November 2016.

ICAS has issued a call to the Scottish Government to reform the rate and way in which statutory interest is calculated in personal bankruptcy in Scotland.

Responding to an informal consultation by the Accountant in Bankruptcy on draft consolidated Bankruptcy Regulations which shall underpin the introduction of the Bankruptcy (Scotland) Act 2016 in November 2016, we have highlighted that the interest rate of 8% set in the draft regulations is overly penal, particularly where recall of sequestration may apply and the interest is suffered by a solvent debtor.

With interest currently at an all-time low for a sustained period, we have suggested that the approach recommended in a Scottish Law Commission report on Interest on Debt and damages should be followed. They identified that the interest payable should be compensatory in nature rather than penal and recommended that interest should fluctuate at a statutory rate above Bank of England base rate, suggesting that the statutory rate should be 1.5% above Bank of England base rate.

We have welcomed the consolidated approach to the Regulations which has reduced the number of sets of Regulations which need to be referred to by half. We also support the proposed modernisation of the way in which claims in foreign currencies are converted and which will be easier to apply in practice than the current provisions.

The consultation response also calls for the Regulations to be strengthened in a number of areas and in particular to address situations where the Accountant in Bankruptcy have a conflict of interest. This includes the provision in statute for a Review Committee to oversee the process of appeals against AiB decisions.

Further reform of the Regulations has also been called for to address the situation where regulation of money advisors is effectively controlled by the Money Advice Trust rather than the AiB or the regulated professional bodies that authorise insolvency practitioners. The response highlights that the Regulations require money advisers to have a licence to use the Common Financial Statement which is solely within the gift of the Money Advice Trust, an independent charity registered in England and Wales, to grant or withdraw. There is also a disconnect between the licence which is at a firm level and the status of money advisers which is personal to an individual.

Further safeguards are also called for in the Regulations where money adviser status is to be withdrawn by the AiB as currently there is no provision for either prior notification, right to make representations against such a decision or a right of appeal within the Regulations.

In total, nearly 50 further detailed technical changes to the Regulations and supporting forms have been identified as being necessary or appropriate for further consideration.

Read ICAS' Response

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  • Insolvency

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