The Wyman Report: A review of debt advice funding

The Wyman Report: A review of debt advice funding

Peter Wyman’s review into the funding of the debt Advice sector in England, Wales, Northern Ireland, and Scotland, is disappointing. It contains few observations of note, is uninspiring and was not insightful.

The one statement I found myself agreeing with was when he stated: “However, as all good authors say, the opinions, conclusions and recommendations in this report are mine and mine alone.”

Hear, hear. I agree.

Just because a report is commissioned, doesn’t mean it’s recommendations must be adopted. In this case, Peter Wyman’s report fails to rise to the challenge of the problem it purports to address, whilst its recommendations are underpinned by an ideology which is now reaching the end of its shelf life in the UK. I would suggest therefore, that is where his report should be left: on the shelf.

The report makes 20 recommendations, which when I read them, made me wish the author had stopped at 5. At least that way he would have embraced the ideological spirit of the austerity that he seems so keen to accept in his report.

The Cost of Free Advice Services in the UK

He estimates the cost of free debt advice services in the UK is £200 million. He then calls for this to be increased in 2018/19 across the UK, albeit only for a temporary period, by £10 million. This is a 5% increase, just under double the rate of inflation. However, coming after years of funding cuts and stagnation in the free sector, this would still be poor compensation and an inadequate response to a personal debt sector where the level of personal debt jumped by 10% last year and is expected to continue increasing in years to come.

In a country which has one of the largest financial sectors in the world and in which Peter Wyman acknowledges the demand for free sector money advice services is currently outstripping supply, it was disappointing to note that he finds the current costs unsustainable and makes recommendations to improve the efficiency of services by reducing duplication and encouraging, wherever possible, greater use of technology and the lowest cost delivery channels.

It must be asked what duplication is he referring to? Even in the areas where I work, there may be agencies doing the same thing, but no-one is idle. Demand outstrips supply. Where that demand is greatest is in relation to face to face services.

There also appears to be no shortage of supply in telephone and online services, and certainly some of the largest free sector providers of these services currently have the reserves to increase capacity if so required. Why, therefore, suggest other free services should further increase delivery using these channels, whilst cutting face to face delivery? This appears to an argument for further duplication, not the curtailment of it.

Banks may be abandoning their customers by closing branches, but this should not mean the advice sector must follow suit.

Missed Opportunities in the Wyman Report

Peter Wyman also argues for an extension of those who pay under the Fair Share Scheme, which is where creditors agree to revert a percentage of the sum paid to them through free sector debt management plans back to the provider. He, however, does not argue for an extension of the providers that can participate in the scheme. This would be a novel and innovative solution to the challenge that publicly funded services are facing, by moving more to a creditor funded model.

It would also arguably, allow increased capacity to be introduced into the free sector by the private sector, to meet unmet demand. He also makes no recommendation it could be put on a statutory footing with the introduction of a statutory breathing space scheme, in England, Wales and Northern Ireland. That would allow the free sector to cope with the increase demand that scheme will place on them. There is also no suggestion that possibly the limited availability to access the Fair Share Scheme is possibly an area worthy of investigation by the Competition and Marketing Authority.

Furthermore, his proposal to transfer 100% of the fee from a Debt Relief Order application back to the advice provider is barely worth mentioning. It is effectively arguing for the poorest debtors to pay for the services they are being provided. In Scotland the £90 application fee for a Minimum Asset Bankruptcy, barely covers the costs involved in administering the solution. Transferring 100% back to the advice provider would only increase the cost somewhere else for the public sector and inevitably result in a fee increase elsewhere.

His recommendations fall vastly short of the recommendations of the Money Advice Service in their Report on UK Debt Solutions, which proposes reintroducing fee remissions for Bankruptcy.

Over anticipated and under delivered is how I would summarise Peter Wyman’s report. It’s clear he has little understanding of the sector and delivers what is a relatively bland, unambitious, and unimaginative report, that contributes nothing to the debate other than to argue for a continuation of the culture of cuts and austerity.

Another alternative is possible, however

Taking Scotland as an example, the Improvement Service estimates that the cost of local authority, publicly funded money advice services to be approximately £11 million. Based on Mr Wyman’s estimate of £200 million across the UK, this would suggest another £9 million is being spent in Scotland by other providers and funders (based on approximately 10% of that £200 million being spent in Scotland). The Accountant in Bankruptcy service then costs £12 million approximately (but the costs of which are largely recouped through the ingathering of fees). There is then approximately £81 million distributed to creditors through statutory debt solutions, after private sector fees and outlays are recovered. This leaves plenty of scope for a fee increase to be used to protect existing face to face services and arguably increase provision of it to meet the current demand Mr Wyman identifies. This is easily achievable and sustainable.

What Peter Wyman should have addressed in his report was the fact that creditors are currently getting debt advices services too cheap. Instead, it appears, he argued for the profits to be privatised, but for the costs associated with dealing with consumers struggling with debts to continue to be socialised. In return he offered us a short-term increase to pay for the new headsets for our phones.

The report can be accessed here.

Bankruptcies Down, Protected Trust Deeds Up

The Accountant in Bankruptcy in Scotland have released their third quarter Statistics for 2017-18.

The figures show that the number of sequestration in Scotland have fallen, whilst the number of debtors granting protected trust deeds has increased.

There has also been a slight increase on the number of debtors who have entered debt payment programmes under the Debt Arrangement Scheme.

Speaking on the release of the figures, the Minister for Business, Innovation and Energy Paul Wheelhouse said: “The longer term trend for bankruptcy is very much a downward one and it is heartening to see this reflected in these recent figures.

“There is absolutely no doubt in my mind the UK Government’s persistence with its failed policy of austerity is causing real hardship and strain for financially vulnerable families all across Scotland. They face even more challenges once the impact of the UK Government’s reckless determination to pursue an economically damaging Brexit becomes known.

“However, these Accountant in Bankruptcy figures indicate the numbers of people falling into bankruptcy and signing protected trust deeds are around half of what we saw eight or nine years ago. The Scottish Government is doing what it can to mitigate the worst of these Westminster policies.

“The Debt Arrangement Scheme is the only statutory debt management programme in the UK and we are rightly proud of its success in providing a viable option for those seeking to pay their debts without plunging into insolvency.”

The full report can be accessed here.

Old Debts Create Debt Sewers

Old Debts Create Debt Sewers

As the practice of buying and selling old debts has grown, money advisers across Scotland are now witnessing a rise in the number of people being pursued for old debts.
Over the last few years, I have seen many clients in this situation and have heard of similar cases from other advisers. Many of the clients cannot either remember the debts being taken out or long believed they were written off.
When challenged to provide more information, it is not unusual for the new owners of the debt to struggle to provide documentary proof that the debts are even owed.
They often struggle to produce copies of the consumer credit agreements, they don’t have the account statements showing how the sums were accrued and they cannot point to the contractual basis for charges and penalties that have been applied.
There is also no chance they will ever produce the assignation agreements with which they bought the debt, even if it is the only evidence they own it (presumably not wanting anyone to see how little it was sold for in the first place).
To compound matters, when challenged on whether the debt is statue barred (meaning it cannot be recovered) under the Prescription and Limitations (Scotland) Act 1973 (1973 Act), it’s not unusual for them to reference English Law and the Limitations Act 1980 (1980 Act), which gives them longer to pursue the consumer for the debt.
This is no doubt the situation Mike Dailly of Govan Law Centre found himself in recently, and why he was in Glasgow Sheriff Court yesterday (22.01.2018) in front of sheriff Reid.
In his case Mike made an argument that can best be summed up in his own blog (The paper chase: Can an English governing law clause oust Scots law rights in a consumer contract?), but to summarise, it goes along these lines:

An English debt recovery company (DRC) buys an old debt and intimates to their solicitors to raise proceedings in Glasgow Sheriff Court. The debt has not been relevantly acknowledged for the purposes of the 1973 Act in over 5 years, but the DRC claims the debt is still recoverable as it involves a credit card agreement, within which the governing law is stated to be English Law and, therefore, the 1980 Act applies (meaning the debt is not statute barred until after 6 years).
Mike’s argument is the contract is a consumer contract for the purposes of the Rome I Regulation, Regulation (EC) No. 593/2008, and as such should be governed by the law where the consumer habitually resides (Scotland). However, the Rome I Regulation allow the consumer to choose the governing law that shall apply to their contract, meaning English Law can apply.
However, despite that choice, the law that governs cannot deny the consumer the protection they would normally enjoy under Scots Law, where that is greater than it would be under the chosen legal system. Therefore, the 1973 Act still applies, as it provides greater rights, and the debt becomes statute barred after 5 years if there is no relevant acknowledged or claim.

Consumer Credit Act 2015

Not having the benefit of being a solicitor, I have in the past made a different argument, but similar in approach and one that was recently argued successfully against another law firm resulting in them abandoning their claim against a client prior to it going to court. They too had relied on the 1980 Act.

My approach was under S62(1) of the Consumer Rights Act 2015 there is a requirement for the terms of a consumer contract to be fair. Where it is not, it is not binding on the consumer and the govering law clause is void, unless the consumer chooses to be bound by it.

As to what constitutes fair, section 62 states:

(4) A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.
(5) Whether a term is fair is to be determined—
(a) taking into account the nature of the subject matter of the contract, and
(b) by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or of any other contract on which it depends.

My argument is a clause in a consumer contract which states the governing law is English law, when the consumer is habitually resident in Scotland, is unfair where the terms of the contract are not individually negotiated. There being no real choice.

Also, with regards to the resources available to the lender, who is acting in the course of a business, the significant imbalance results from the fact the contract is governed not by the consumer’s legal system, but the one which is preferable to the business, which results in a detriment for the consumer as they lose the protections of their own legal system.

This argument is not without some support. The Consumer Rights Act 2015 superseded the Unfair Terms in Consumer Contract Regulations 1999 (1999 Regs) which was essentially worded along the same lines.

In relation to those regulations the Office of Fair Trading (prior to being superseded by the Financial Conduct Authority) had stated in their guidance on the 1999 Regs:

17.4 It is not fair for the aggrieved consumer to be forced to travel long distances and use unfamiliar procedures. International Conventions lay down rules on this issue [The Rome Convention – Mike’s argument], which are part of UK law.

Terms which conflict with them are likely to be unenforceable for that reason, too.

A similar clause is included in the Competition and Marketing Authority’s Guidance on the Unfair Terms in the Consumer Rights Act 2015 at paragraph 5.29.7:

Consumers should not normally be prevented from starting legal proceedings in their local courts – for example, by a term requiring resort to the courts of England and Wales despite the fact that the contract is being used in another part of the UK having its own laws and courts. It is not fair for the consumer to be forced to travel long distances and use unfamiliar procedures to defend or bring proceedings.

Treating Customer’s Fairly

Considering this, it must now be questioned whether those lenders and debt purchasers who are relying on English Law in Scottish consumer contracts are having due regard to the interests of their customers and treating them fairly, as required under Principle 6 of the Financial Conduct Authority’s Higher Business Principles.

It is also not the first-time concerns have been raised about the lack of evidence creditors and debt buyers can produce when raising actions. In 2009 the Sheriff Courts Rules Council produced an Act of Sederunt that required lenders to produce a copy of the regulated agreements when raising an action, but after last minute lobbying by the credit industry and debt recovery solicitors, the regulations were withdrawn. Their concerns were that many creditors would not be able to produce actual copies of the agreements and would only be able to produce “re-constituted” copies.

It is clearly now time for the Scottish Civil Justice Council to re-examine this area. It is clear Scotland’s lower debt courts are being treated like sewers with claims being raised for debts that are either statute-barred or cannot be proven. The calculation being most consumers lack the knowledge or resources to defend such actions.

For more information on statute barred debts, see here or visit our Forum on statute barred debt.

Can Benefit Overpayments be Recovered during a Formal Debt Solution?

Can Benefit Overpayments be Recovered during a Formal Debt Solution?

It is not unusual for clients in formal debt solutions to find they are still subject to debt recovery action by the Department of Works and Pensions (DWP) for benefit overpayments, when they believed such action should have stopped.

So can the DWP still recover overpaid benefits whilst a claimant is in a formal debt solution?

The answer depends on whether the debt owed is included in the solution or not.

How do you know?

Personal Insolvency

In terms of personal insolvency in Scotland, there are two types of formal solutions: the first is a protected trust deed and the second is sequestration (which includes bankruptcies accessed through the Minimum Asset Procedure).

In terms of both these solutions all debts are included up to specific dates. For sequestration, that date is known as the “date of sequestration”. So any benefits overpaid up to that date are included.

In terms of Protected Trust Deeds, the relevant date is the date when the trust deed was granted.

Date of Sequestration

What date constitutes the date of sequestration depends on the route that was taken to make the debtor bankrupt.

If a creditor makes the debtor bankrupt, then the date of sequestration is the date the petition to sequestrate the debtor was warranted by the court. This is also known as the first order date ; and is always before the date when the court awards the bankruptcy.

Where the debtor has applied for their own bankruptcy, the date of sequestration is the date the bankruptcy is awarded.

Can the DWP recover debts that are included?

In essence, the DWP don’t, although arguably they could during the bankruptcy or protected trust deed if they were to use direct deductions from benefits or a Deduction from Earnings order.

The Department of Works and Pensions recover benefits according to guidance (see here).

This guidance states in relation to personal insolvency, at paragraph 6.3:

Once the insolvency period has commenced, any deductions from benefit
should cease, and any deductions made after the start date of the insolvency should
be refunded to the debtor. This includes any monies recovered for a fraud debt

And at paragraph 6.7 in relation to sequestration, it states:

Where the recoverable overpayment period is entirely before the start date of the bankruptcy order, or where the overpayment period spans the bankruptcy order, recovery should be suspended until after the end date of the order. This is regardless of when the overpayment decision is made, for example a decision could be made after the order date. On discharge the outstanding balance is written off unless it is a fraud overpayment, when normal recovery action should commence.

What, is important, therefore, is the date the overpayment occurred, not the date that it was decided there had been an overpayment.

Protected Trust Deeds

In terms of Protected Trust Deeds, the law is similar, although the important date is not the date of sequestration, but the date the trust deed was granted.

It is also important to note the guidance only applies to trust deeds that are protected and not unprotected trust deeds. Recovery action, therefore, does not cease until the trust deed actually becomes protected.

It also important to note, that the overpayment is only written off when the debtor is discharged. If the debtor is refused a discharge by his Trustee, recovery action can be commenced again.

In terms of whether the debt is included or not, all debts are included providing they arose in a period prior to the trust deed being granted.

The relevant paragraph in the guidance is at 6.9, where it is stated:

The recoverable overpayment(s) must be included in the Protected Trust Deed and any debts not included will not be discharged at the end of the period. Recovery is suspended until discharge at which point any debt included in the Protected Trust Deed is written off unless it has been classed as fraud when normal recovery action can commence, or recommence. Unprotected Trust Deeds are not considered a form of insolvency and recovery will continue as normal.

The Debt Arrangement Scheme

The Debt Arrangement Scheme is different from protected trust deeds and sequestration, in that it is not a form of personal insolvency, albeit it is a formal debt solution.

Debts remain owed until they are paid off in full, although all interest, fees and charges are stopped from the date an application is made to the scheme, providing it is subsequently approved.

In terms of benefit overpayments, this is also covered by the DWP guidance at paragraph 6.15, where it states:

DAS is NOT insolvency, but is a government-run, voluntary debt solution administered by the AiB [Accountant in Bankruptcy], but not involving the courts. It allows the debtor to freeze any interest, fees and charges on their debts whilst repaying their debts in full over a longer period by way of a Debt Payment Programme. The debtor makes agreed regular payments to an approved payments distributor who then makes payment to DWP Debt Management if included in the DAS. If our debt is included in the DAS we would suspend recovery until the period ends, but where it is not included we would continue with deductions throughout the DAS period.

All debts are normally included in debt payment programmes, but unlike with trust deeds and sequestration, where they are included by operation of law, in the Debt Arrangement Scheme the claimant must notify their adviser they have the debt and the adviser must include it.

If the debt payment programme is subsequently revoked, the debt again becomes recoverable .

Poorest paying nearly 50% of income to debt

A new report by the Institute of Fiscal Studies, carried out on behalf of the Joseph Rowntree Foundation, has found that one in five on low incomes have problem debts, compared with one in twenty on the top pay scales. It also found that on average the poorest fifth, are under pressure to spend £457 a month on paying back their debts out of an income of £1,012.

About a third of the poorest tenth of households are also likely to owe more than they have in savings, compared to only 10% of those in the top 10% income groups.

Key findings of the report, which can be found here, are:

  • 50% of UK households between 2012-14 had some unsecured consumer credit debt, with over 10% having more than £10,000;
  • Although those on lower incomes are less likely to hold any debt, where they do, they are more likely to hold more debt than they do savings;
  • Those who held debt in 2012-14 are likely to have held it for a number of years;
  • Whilst debt can be a sign that a household is struggling, it can also be an appropriate response to an income shock or anticipated drop in income.

Are young financially savvy, renters driving the credit boom?

New research by the Financial Conduct Authority (FCA) and the Bank of England, suggests the 10% increase in borrowing, which we have seen in recent years, is being driven, not by sub prime borrowers, but those with better than average credit ratings.

The research, which was carried out by the FCA, and was based on data provided by Credit Reference Agencies, for one in ten UK Consumers, also found consumer credit borrowing in the UK was being driven by borrowers without mortgages.

This suggests the increased borrowing is either being taken out by people who own their property outright, or by people who do not own their property at all, and rent instead.

Finally, the study also found that people were remaining in debt longer and although people may be clearing their balances on products sooner, their overall indebtedness was not falling, suggesting they were possibly switching to 0% interest products.

What the study suggests to me, is although the rise in debt may well be by those with above average credit ratings, the fact that borrowers were not clearing their debts, but switching them, means the long term affordability of their borrowing may be getting masked.

The fact the report did not decisively identify who the group were that did not have mortgages, also makes me suspect it may be younger, financially savvy borrowers, who know how to protect their credit ratings, but still lack the means to get on the property market or clear their debts.

The Money Advice Service: has it over-reached itself in Scotland?

The Money Advice Service: has it over-reached itself in Scotland?

The UK Money Advice Service (MAS) has released a new report, Debt Solutions in the UK: Recommendations for Change.

Now as a Scot, I am instinctively suspicious of such reports. It is not the role of the Money Advice Service to make policy recommendations for formal debt solutions in Scotland.

These are devolved matters, exclusively for the Scottish Parliament to consider and are devolved under the Scotland Act 1998.

Policy Over-Reach?

The question needs to be asked, is this policy over-reach by the Money Advice Service?

We arguably have seen this before, with the Standard Financial Statement and the efforts to get it adopted as a UK wide tool (Is it Time to Call in the Common Financial Tool).

If it is, we need to be cautious. It would be the ultimate irony if, at this point in Scottish legal history, the independence of our debt laws were now eroded.

Scotland’s debt law have always been distinct, they even pre-date the Union. The Diligence Act of 1469 remains on the statute books, as does the 1661 Act of the same name, alongside the Adjudication Act of 1672.

This is legislation that existed not just prior to the modern day Scottish Parliament, but before the Act of Union and was made by the Parliament that sat in the current home of Scotland’s Court of Session, half a mile down the road from its successor. These laws survived 300 years of being in the custody of Westminister.

Even prior to devolution and the Accountant in Bankruptcy taking over as the policy lead in this area, this area of law has always been developed in Scotland, even if it was not made here. There are no shortage of historic Scottish Law Commision reports, concerning all areas of law in Scotland, relating to debt.

You could say we are not lacking in expertise.

There is certainly, however, a risk of erosion as the information revolution continues apace, and banks retreat from the High Street. With money now flowing seamlessly across borders and lenders increasingly lending on a volume basis, using algorithms to decide who to lend to, Scotland’s unique debts laws will increasingly feel like an inconvenience to them.

However, a country’s debt laws are a personal statement: how a society treats it’s debtors says something about that society.

This is what devolution was all about surely? About making these decisions ourselves. About steering our own path as the different parts of the UK continue to diverge.

However, I don’t believe this means we cannot learn from each other and even co-ordinate our direction of travel.

We have seen this before when England and Wales got one year bankruptcies with the Enterprise Act in 2003; followed by Scotland in 2008. Or that England and Wales followed the Scottish example of Low Income, Low Asset Bankruptcies with the adoption of Debt Relief Orders in 2009.

This legal dialogue has not just been restricted to the legal borders of the UK, however, but extended to the Republic of Ireland in 2012 with their Personal Insolvency Act and the creation of Debt Relief Notices and Debt Settlement Arrangements.

Maybe their Personal Insolvency Arrangements, which are used for mortgage debts, will find their way to our shores one day.

Another example of this exchanging of ideas and lessons can also be found in the Money Advice Service’s new report, with proposals for the introduction into England, Wales and Northern Ireland, of a form of the Scottish Debt Arrangement Scheme.

The report also makes other recommendations, such as a review in England, Wales and Northern Ireland of debtor fees in Bankruptcy, including the reintroduction of fee remissions when people cannot afford them.

This echoes a call that was made by Govan Law Centre after the UK Supreme Court decision on Employment Tribunal Fees (see here), which I supported.

The Accountant in Bankruptcy is currently consulting on their fees and how they are funded, and I largely support their policy objectives, as outlined in their consultation document.

However, I would urge them to now extend their consultation to accept the MAS recommendation for a debtor application fee review.

The Scottish Government cannot come to Money Advisers and ask them to accept Money Advice Service initiatives, such as the Standard Financial Statement, when, as it stands, it is likely to make our clients situation worse, and then ignore other recommendations, which may benefit them.

Likewise, the Money Advice Service need to be aware of the risks of policy over reach. They cannot produce financial tools that are detrimental to consumers, and which contain financial trigger figures that have to be kept a secret from consumers and then expect them to be rubber stamped through the Scottish Parliament.

As has always been the case and is a major feature of the UK: for the Union to succeed, there must be mutual respect between the different legal systems and traditions.

It has been that respect that has ensured there are still laws that predate Mary Queen of Scots on the statute books (although we do want to get around to repealing them).

Harmonisation of debt laws across the UK may not be possible, but to borrow a phrase from Brexit, broad regulatory alignment probably is and may even be desirable.

The Money Advice Service Report, Debt Solutions in the UK, can be downloaded here.

Money Advice Service Release Recommendations for Changes to UK Debt Solutions

The UK Money Advice Service have released its recommendations for change for UK debt solutions (albeit only a couple of the recommendations will impact on Scottish debt solutions).

The recommendations are contained in a report that can be downloaded here and follows on from a comprehensive study that was carried out by the Money Advice Service into UK debt solutions.

In carrying out the research, the Money Advice Service and the University of Bristol engaged with the Money Advice Sector through expert workshops, interviews, group discussions and a consultation process, which approximately 60 individuals and organisations responded to.

A summary of the recommendations are:

  • A review into fees for debtor applications for bankruptcy in England, Wales and Northern Ireland;
  • The re-introductoon of fee remissions for low-income applicants;
  • Better online information about going bankrupt;
  • More prominent and easy to understand information and tools on the online bankruptcy application portal;
  • Further exploration of debt rehabilitation, including better recognition of debt repayment;
  • The introduction of a statutory debt management scheme for England, Wales and Northern Ireland;
  • Innovations in the equity release market for people who are asset rich, but cash poor;
  • The development of one online income and expenditure portal.

Credit & Debit Card Fees to Go Please

From Saturday, the 13th of January 2018, it will no longer be possible for consumers to be charged a fee for deciding to pay a bill by credit card or debit card.

The new rules are aimed at stamping our current practices, where many businesses and government agencies routinely levy a surcharge on consumers who opt to pay by card.

Ironically, however, businesses will still be able to charge a fee where payment is made using cash or a cheque.

The rule will not just affect businesses dealing with consumers, but also Government departments, such as local authority departments, HMRC and the DVLA.

HMRC has already said it will no longer accept credit card payments for tax bills, but will continue to accept debit cards.

Firms, however, will not be prevented from refusing to accept card payments altogether, although it is expected this will only apply to the smallest retailers.

Fears Businesses will Raise Prices

There are some fears that some businesses, in response to the changes will now just raise their prices for all customers, to ensure they do not lose out as a result of the changes.

Business Accounts Not Affected

The new regulations will not extend to business credit cards. However, where service providers are hoping they can charge fees in relation to the payment of business debts, they will only be able to do so where the card is a business card. What will be important is the type of card being used, not the purpose of the transaction.

Panorama Bankruptcy Expose Misses the Target

Panorama Bankruptcy Expose Misses the Target

Monday evening’s bankruptcy expose by BBC Panorama, of former millionaires, now bankrupt and still apparently living the high life, was confused and misleading (Millionaire Bankrupts Exposed).

The investigation, which looked at a handful of bankrupts, attempted to show how they were still enjoying the benefits of luxury mansions and cars, whilst their creditors were being left out of pocket.

The investigation tried to apportion blame for these abuses on the UK state run Insolvency Service and the Accountant in Bankruptcy’s Office, and concluded with, Fiona Coulson of Moon Beaver Solicitors stating the only way to avoid such abuses was through increased use of private sector trustees.

However, where the programme fell short was it first focused purely on abuses that arose from formal bankruptcies, primarily provided for by the public sector, whilst ignoring the same abuses that occur in protected trust deeds and individual voluntary arrangements, which are wholly administered by the private sector.

The second shortcoming, was it presented the case of Alan Yeoman, a Derbyshire businessman, as an example of the abuse and fraud which occur in bankruptcy. However, Yeoman’s fraudulent attempts to hide assets was eventually uncovered by the Insolvency Service (IS), and Yeoman received a custodial sentence for an assortment of offences, which only became known as a result of their investigations.

It also presented the case of the ex-treasurer of the Scottish Conservative Party, Malcolm Scott, who after making himself bankrupt, attempted to hide his assets. Fortunately, this was uncovered by the Accountancy in Bankruptcy, and Scott was awarded a five-and-a-half-year Bankruptcy Restriction Order (BRO) by Edinburgh Sheriff Court.

However, in the case of Scott, the BBC have accused him of being in breach of his Bankruptcy Restriction Order, by being involved in the formation and management of companies. Conduct prohibited by his Order. These allegations were put to Dr Richard Dennis, the Accountant in Bankruptcy (AIB), during the programme.

Who is Responsible for Bankruptcy Restriction Orders?

This revealed another mistake made by the programmers, in assuming the AIB was responsible for monitoring and enforcing BROs.

The uncomfortable truth for Panorama, is it isn’t. In terms of Malcolm Scott, if he fails to abide by the terms of his BRO, then he may be committing an offence. Like other offences in Scotland, this is a matter for the Police and the Lord Advocate’s Office, not the Accountant in Bankruptcy.

The reality is, although the AIB can award BROs, and can apply to Court for them (when the order requested is for more than 5 years), the responsibility for enforcing them does not lie with them.

Equally, as Panorama highlighted, if Scott has been able to form a company, then responsibility for this lies with Company House which allowed him to do so, despite the Court ordered BRO, and not because of the actions of the Accountant in Bankruptcy (or lack of them).

Interestingly, since the programme has been broadcast, it has been revealed the number of BROs awarded by the AIB, fell by almost two-thirds in 2016/17, when compared with the previous year. The reason for this being the AIB are now using new powers, introduced in April 2015, to refuse non-cooperative debtors discharges, thereby allowing the AIB to retain scrutiny powers over debtors when they are non-compliant.

The programme also highlighted other bankrupts, with high levels of debt, who still appear to be driving around in high value cars, but failed to show in the programme where ownership of these cars lay. This is a common problem which arises in bankruptcy and a frustrating one for creditors, who often assume the debtors own the assets they have access to.

However, it is not unusual when things are good, for many people to share the benefits of their success with their family: so, homes do get put into the name of spouses; and children do acquire assets. These assets do not vest with a trustee in bankruptcy, once a debtor is made insolvent, and, therefore many bankrupts still have access to them during their insolvency, to the frustration of their creditors.

However, in some cases, it’s also true some debtors do dispose of assets in anticipation of their bankruptcy, either by sale or “gifting” them, or by moving them offshore. In the examples of this presented during the programme, it appears many of them were discovered, and appropriate action was taken against the debtor.

Bankruptcy Scrutiny is Robust, but also Proportionate

The final error the programme appeared to make was in suggesting that checks in bankruptcy were not robust enough. However, this is wrong. There are obviously routine checks performed in all bankruptcies, and then there are investigations which are performed when intelligence becomes available to suggest they are warranted.

Routinely, those applying for bankruptcy must provide 3 months bank statements, wage slips, proof of benefits, proof of employment and even proof of routine expenditure. In addition to this credit reports are run, and land searches are performed to find undisclosed assets.

If the aim of the programme was to suggest that a greater detection of abuse would be possible by the private sector, then this would also be wrong.

In Scotland, for example, most bankruptcies are already administered by private sector firms, who have service agreements with the Accountant in Bankruptcy. The cost of administering these cases are usually paid for from the public purse, but are now nowhere near what they used to be when between 1985 and 1993, they rose from £86,000 per annum to £26 million. This was at a time when only private sector insolvency practitioners could be trustees in bankruptcy.

Today the AIB’s costs are just over £12 million and most of these costs are recovered from cases themselves in the form of fees, minimising the impact on the tax payer.

The Panorama programme exposed, quite correctly, that there are some who do try and abuse the bankruptcy process: but rather than showing the system was failing, it showed a system, overall, that was working, as most of the abuses revealed had been detected.

However, if anything is required, it is probably greater awareness within the creditor industry and the public, that Trustees in Bankruptcy are heavily dependent on information being provided to them to stamp out abuses. That information, where it is available, therefore must be provided.

Equally, the limitations of Bankruptcy Restriction Orders must be appreciated. These are civil sanctions. If people want more severe sanctions to be used against the worst abuses, or for those who flagrantly ignore the restrictions of BROs to be punished, then the solutions lie not in the civil, but the criminal courts.