Bankruptcy Fees Regulations revoked by Minister

Bankruptcy Fees Regulations revoked by Minister

Paul Wheelhouse, the Scottish Government Minister for Business, Innovation and Energy, has written to the Economy, Jobs and Fair Work Committee to state he will revoke the Bankruptcy Fees (Scotland) Regulations 2017.

Govan Law Centre and the Institute of Chartered Accountants of Scotland (ICAS) had opposed the fee increases, which increased the AIB fees for selling a debtor’s home by 188% in some cases.

In his letter to the Chairman of the Committee, Gordon Lindhurst, Minister Wheelhouse wrote:

In light of the issues raised, and my desire to ensure that we are able to best address the points raised by the Committee, I can confirm that the proposed regulations will be revoked and an appropriate revocation instrument will be laid in the Parliament today.

I particularly want to ensure that the Committee has comfort that any revised measures benefit from engagement with our key stakeholders. Therefore I propose that AiB will consult on our behalf on revised proposals, taking into account constructive points raised by the Committee in the evidence session, and your letter, before we bring forward a new set of regulations to the Committee, in due course, with a view to seeking the Committee’s support.

The Minister’s letter can be read here.

Bankruptcy fees: Scottish Parliament takes evidence

Bankruptcy fees: Scottish Parliament takes evidence

Evidence was taken on the Bankruptcy Fees (Scotland) Regulations 2017 by the Scottish Parliament’s Economy, Jobs and Fair Work Committee on Tuesday the 21st March 2017.

Evidence was provided by Mike Dailly and Alan McIntosh of Govan Law Centre and David Menzies of the Institute of Chartered Accountants of Scotland.

The Fees proposed a number of changes to regulations that govern bankruptcy fees in Scotland, namely to increase the fees the Accountant in Bankruptcy (AIB) could charge when selling the home of debtors. In some cases, these fees would increase by up to 188%. Other fee amendments related to the Accountant in Bankruptcy audit fees in sequestrations and also included introducing interest at 8% for late payment of fees to the AIB by Insolvency Practitioners.

The second part of the evidence session involved evidence being delivered by the Minister, Paul Wheelhouse and the Accountant in Bankruptcy, Dr Richard Dennis.

Bankrupt Home Owners to lose out because of Fees

Bankrupt Home Owners to lose out because of Fees

Bankrupt home owners in Scotland, from the 3rd of April 2017, will pay substantially more when their home is sold by the Accountant in Bankruptcy (AIB) in a sequestration.

The massive fee hikes, being proposed by the Bankruptcy Fees (Scotland) Regulations 2017, will see the AIB increase their fees, when selling a debtors home, by as much as 188%.  What this means is where a debtor’s home is sold, more of the money realised from the sale will now go to the AIB, a government quango, and less will go to creditors or be returned to the debtor after creditors have been paid.

What makes these increases the more shocking, is they come 2 years after the Scottish Government changed the law to make Scottish debtors pay for longer: on the pretext it was necessary to increase returns to creditors.

However, the AIB’s concerns for increasing dividends appears to have subsided with the new proposed fee increase, where the Scottish Government quango will max out its potential revenue from the sale of family homes.

As the table below shows, under the old rules, the AIB took significantly less to what is now being proposed under the new regulations, with the increase being as much as 188%, where there is £50,000 equity in a home.

AIB Costs and Full Cost Recovery

There is a growing concern what lies at the heart of these fee increases, and indeed the Scottish Governments decision that debtors should pay for longer, is the need to fund the Accountant in Bankruptcy, an organisation whose entire business model appears to be to increase fees when revenue drops from falling caseloads, without making any corresponding efficiency savings to reflect their reduced workload.

As the graph below shows, despite the level of debtors seeking formal debt remedies over the last 9 years being on the decline, there has been no corresponding reduction in the AIB’s staffing levels, or costs overall to reflect this.

The irony of all this is, that many of the cases that will be impacted by these increases will be creditor petitions, where it is the creditors who makes the debtor bankrupt. These tend to be local authorities, who do so to try and recover unpaid council tax. The result will be less funds will be returned to these local authorities, who have suffered budget cuts imposed by the Scottish Government, whilst the AIB, a Government quango has been allowed to insulate itself from cuts by increasing fees on debtors, creditors and the personal insolvency industry.

Funding of Personal Insolvency

It is clearly time there was an open discussion about how personal insolvency in Scotland is funded and whether a policy of full cost recovery is sustainable, whilst the AIB make no cuts to their own staffing levels and costs.

Until there is such a discussion, there should be no further fee increases for the AIB authorised by the Scottish Parliament.

Already, it has been shown that as a result of the introduction of the Bankruptcy and Debt Advice (Scotland) Act 2014, the number of debtors applying for sequestration and the Debt Arrangement Scheme (DAS) has reduced (50% reduction in relation to DAS). Over the long term this will mean a reduction in fees recoverable by the AIB, which whilst they continue to pursue a policy of full cost recovery and no cuts to their own services, can only result in a greater short fall that will need to be met by future fee increases.

These fee increases will only result in remedies becoming less accessible by debtors and creditors and result in a further decline in numbers using the remedies.

At some point we must ask who is the intended beneficiaries of Scotland’s personal insolvency regime?

The Bankruptcy Fees (Scotland) Regulations 2017

The regulations were laid before Parliament on the 20th February 2017 and are a negative procedure instrument. The Lead Committee is the Economy, Jobs and Fair Work Committee. The report date for the instrument is the 27th March 2017.