Gratuitous alienation did not breach human rights law

Gratuitous alienation did not breach human rights law

Lord Armstrong has held in a decision dated the 11th May 2017, that the provisions contained in s34 of the Bankruptcy (Scotland) Act 1985, relating to gratuitous alienations, were ECHR compliant.

The Background

Miss Farrell had married Mr Walker in November 2007 and they were subsequently divorced in August 2010. Mr Walker was sequestrated in April 2009. The Accountant in Bankruptcy was appointed the trustee in his sequestration.

Prior to the sequestration, Mr Walker was the sole owner of a property at 1A Beechwood Avenue, Rutherglen, but in December 2007 the property was sold for £435,000. After the mortgage on the property and the costs of sale were deducted, this left Mr Walker with £178,723.82.

Mr Walker then transferred this sum to Miss Farrell. Miss Farrell then purchased a new property using these funds and funds from the sale of her own home for £866,000. The purchase was funded by

  1. The funds transferred to her by Mr Walker as a gift;
  2. £313,000 from the sale of her own property; and
  3. A mortgage of £380,000.

The Pursuer’s Case

The trustee in sequestration sought to challenge the transfer of the funds from Mr Walker to Miss Farrell as a gratuitous alienation under s34 of the Bankruptcy (Scotland) Act 1985 and raised an action for payment of money.

Arguments for the Defender

Miss Farrell did not dispute that the transfer of funds from Mr Walker was a gratuitous alienation. She instead claimed that the statutory defences available in s34(4) did not take into consideration the circumstances of the alienation, or the reasonability or proportionality of making the order on her personal or financial circumstances. She claimed in this regard s34(4) was incompatible with her rights under Articles, 6,8, 14 and Article 1 of the First Protocol of the European Convention of Human Rights.

Article 6 – The Right to a Fair Trial

The court held that Miss Farrell’s complaint that her right to a fair trial was denied was misconceived. Miss Farrell’s complaint was about the fact that s34(4) did not allow her a stateable defence, not that the process itself was unfair.

Article 8 – Right to Respect for Family life and Home

Miss Farrell argued that the effect of the order sought by the pursuer would be that she would have to sell her home and this would constitute an interference in her family life and that of her children. This argument, the court held, was also misconceived. The action was one for payment of money, not for the sale of her home, although if successful it may have resulted in Miss Farrell being sequestrated and her trustee looking to sell her home. However, in that event, Miss Farrell would have access to the defences allowed under s113(2) of the Bankruptcy (Scotland) Act 2016 (formerly S40 of the Bankruptcy (Scotland) Act 1985).

Article 14 – Protection Against Discrimination

The defender also argued s34(4) discriminated against her in that it allowed gratuitous alienations, made for the benefit of associates, to be challenged where they occurred within five years of the date of sequestration, rather than for two, where the beneficiary was not an associate. The court dismissed this argument as although Miss Farrell had argued her family had been discriminated against, she failed to specify the basis of the discrimination under any grounds prohibited by Article 14.

In addition, under the circumstances of the cases, the gratuitous alienation had taken place within two years of the debtor’s sequestration, so would have been challengeable even if Miss Farrell had not been an associate.

Article 1, First Protection – Peaceful Enjoyment of Property

Finally, Miss Farrell argued that the order sought would interfere with her peaceful enjoyment of her property, namely her home. Again the court dismissed this argument, as the order sought was for payment of money, not for the sale of the debtor’s home.

The court also held that aims of S34 of the Bankruptcy (Scotland) Act 1985 were legitimate and did strike the correct balance between the interests of the debtor’s creditors and Miss Farrell. It held they were reasonably proportionate to that aim.

Unjustified Enrichment

Interestingly, the Court also held that Miss Farrell would not be able to claim unjustified enrichment or be able to make a claim in the sequestration, if the order sought was granted and payment made, as the transfer of funds were a gift and unjustified enrichment could not be claimed.

The full case can be read here.

Personal Insolvency Seminar

Personal Insolvency Seminar

In the last ten years, over 183,000 Scots have been subject to Scotland’s Personal Insolvency Laws. In this seminar, Protected Trust Deeds and Sequestrations will be examined from the perspective of a money adviser

Since 2007, there has been three primary pieces of legislation that have largely dealt with this area of law, not including the consolidation act, the Bankruptcy (Scotland) Act 2016.

In that time, the law and practice relating to sequestration and protected trust deeds has seen substantial change, with a greater emphasis on adminstrative procedure, rather than judicial processes.

However, the courts continue to play a significant role in this area of law.

This one day seminar, is aimed at money advisers and legal practitioners who advise consumers on personal insolvency, before they enter an insolvency process, during those processess and after they have received a discharge.

It focuses on when insolvency is appropriate and when it is not; what form proposals can take and what are the rights and obligations of debtors who have been sequestrated or are party to a protected trust deed.

This seminar will be invaluable for practitioners who wish to gain an insight into the issues that debtors can face and will look at the law and practice that can enable them to negotiate and represent their client’s interests more effectively.

For more information see here.

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.

Do No Harm: Scotland’s New Financial Health Service

Do No Harm: Scotland’s New Financial Health Service

As the Scottish Government announces plans to launch their new Financial Health Service with the introduction of the Bankruptcy and Debt Advice (Scotland) Bill 2013, there is a real opportunity in Scotland to create a new system of debt management and relief.

The idea that should underpin such a service is that our legal system should contain provisions that allow for financially distressed debtors to be nursed back to health and no more than we would expect a doctor to amputate a broken leg, should we expect this new service to leave distressed consumers permanently disabled or disadvantaged.

On the face of it the Scottish Government appears to recognise this and in introducing the bill have identified three broad principles they want to underpin the new legislation, these are that:

• the people of Scotland should have access to fair and just processes of debt advice, debt management and debt relief; that
• those that can pay their debts, do pay their debts; and that
• the best returns for creditors are secured by balancing the rights of debtors with those of creditors and businesses.

At first glance, who could disagree?

However, the new bill does give rise for concern. The first problem is the Scottish Government views it as their response to not only the credit crunch, but the economic and social changes that Scotland has undergone over the last 28 years: from being a society where there was more social housing than in cold war Poland, to one where now over two thirds of homes are privately owned; and from a society where once credit was difficult to access, it is now widely available.

But the problem with this analysis is it is behind the times. We no longer live in a society where an abundance of credit causes problems, but one where the suffering caused by austerity and falling living standards makes it a harder for more and more consumers to maintain their financial commitments.

So the question needs to be asked, is the Scottish Government on the right page in their approach to bankruptcy and debt advice?
Well one of the major changes that will be introduced with the new bill will be the extension of the duration people in sequestration and protected trust deeds have to pay, from a three year minimum to four years. They will also introduce new provisions which will abolish the current low income, low asset route into bankruptcy and replace it with a more restrictive remedy known as a No Income, No Asset bankruptcy, only accessible to those with less than £10,000 of debt and who are in receipt of social security benefits.
Other measures that will be introduced will be a new Common Financial Tool that will aim to ensure people pay more to their debts than they currently do.

There will also be a significant transference in power from the courts to the Accountant in Bankruptcy (AIB), meaning in future more decisions will be executive decisions rather than judicial ones and not just in relation to non-controversial matters. This will include the right to award Bankruptcy Restriction Orders and make Debtor Contribution Orders and will reverse the current position where the Accountant in Bankruptcy has to apply to the courts for such powers. In future, if debtors disagree, they will have to incur the cost and trouble of appealing.

Other changes will include an end to automatic discharges for debtors in sequestration, introduced in 1985, ironically to deal with the numbers of debtors that were left lingering in bankruptcy for lengthy period of times without a discharge.

So is this a Financial Health Service that will nurse more debtors back to health? I don’t think so.

Personally I feel like there is an element of mis-representation taking place.

Why? Well I suspect the real purpose of the bill is to help the Scottish Government to realise its goal of making the Accountant in Bankruptcy’s office fully self-funding and I suspect it’s also because policy development has been left to the AIB’s office, which see it as an opportunity to implement self-serving reforms.

If I was to summarise the new Bankruptcy and Debt Advice (Scotland) Bill 2013, I would not call it a Financial Health Service. I would describe it as a drifting out of the tide of progressive debt reform in Scotland and a return to a system which debtors will view as being overly coercive and hostile.

The Scottish Government are correct, Scotland has changed, its economy has also changed – many times over since 1985 – but when other legal systems are looking to liberalise their bankruptcy laws, it appears bizarre Scotland is heading in a different direction.
I am reminded of the comments of Kenneth Galbraith in his book the Great Crash of 1929, that the best form of protection is memory, with the problem being once people forget they repeat their mistakes. I suspect we are displaying those signs just now and are in danger of forgetting many of the lessons that led to the Bankruptcy (Scotland) Act 1985.

Just don’t break your financial leg.

Civic Scotland Owes Scotland

Civic Scotland Owes Scotland

Civic Scotland Owes Scotland

Alan McIntosh looks at the recent scrutiny of the new Debt Arrangement Scheme Regulations and argues a debt is owed to the people not just by the Parliament, but Civic Scotland.

Alan Cochrane, Editor of the Scottish Telegraph recently wrote a wonderful piece on the Scottish Parliament Committee’s that summed up what many are thinking but few have expressed: that the committees are no longer doing their job[i].

The cause of such failure? The iron clad fist of the Scottish Government which refuses to tolerate dissent from its MSPs.

It’s definitely one of the drawbacks of the SNP’s 2011 landslide and has exacerbated the weakness inherent in our unicameral system.

Cochrane cited the example of the Justice Committee and their consideration of the proposals to close 10 Sheriff Courts and 7 Justice of the Peace Courts; and featured the example of Roderick Campbell MSP, one moment expressing his disappointment Justice Minister, Kenny MacAskill wouldn’t reconsider his plans, but who then voted for them anyway, despite the fact his constituency’s Cupar Sheriff Court would be closed.

Another example was provided last week by the Economy, Energy and Tourism Committee and their consideration of the new Debt Arrangement Scheme Regulations. In addition to the Committee failing in its functions to provide proper scrutiny, what was also revealing was the growing political weakness of Civic Scotland. ­­­

The committee invited only three organisations to make written submissions and of these, the two that represented the advice sector both failed to identify key issues affecting their members’ client’s interests.

One of these was the fact the new regulations fail to go as far as they could to protect consumers from the now ubiquitous pay day lender. The new regulations do allow interest on debts to be frozen earlier, but fail to bring protections forward to the earlier point of when a debtor intimates that they intend to apply: a proposal that was overwhelmingly supported by the advice sector during the consultation stage of the Regulations.

The arguments for such increased protection is strong and would benefit not only debtors, but also other lenders who often see their proportion of a debtor’s total debt being reduced during the time it takes for a debtor to get advice and apply to the Scheme. The effect of this is socially responsible lenders then receive less each month and wait longer for their debts to be repaid.

In defending his decision not to make such changes, the Minister, Fergus Ewing, cited the fact currently only 41% of those that intimate an intention to apply actually apply. However, this ignores the fact most advisers only submit an application once the intimation period expires.

Also as the current intimation procedure only protects debtors’ from diligence, where there is no threat from those procedures, intimations are rarely use, which is in the majority of cases. Were, however, it to provide an interest freezing facility, it would be used in almost all cases.

In addition to this Fergus Ewing argued that such increased protection would only create additional problems, in that interest would be frozen and then have to be reapplied if the debtor didn’t make an application; however, as money advisers know, in the majority of cases interest never ceases to be applied anyway and is only written off at the end of successful plans.

In addition to this, another issue that Civic Scotland failed to raise was the implications of new provisions that will see the possibility of all interest and charges being reapplied to a debtor’s debts when they pass away during a plan, despite the adverse effects this may have on their family.

Rather than allowing balances to be frozen at the date of death, to allow a debtor’s estate to be wound up and the outstanding amount paid off, it would appear the Scottish Government is content to allow payday lenders to reapply interest at 4,000% APR to debts that may have been in programmes for several years. In addition to this they failed to raise the issue of what happens in a joint plan when one member of a couple passes away and the other participant only has 21 days to reapply before the interest on their debts are reapplied. Maybe money advice services need to be provided from local co-operative funeral parlours.

These aren’t the only issues that were missed by Civic Scotland. There are others, such as the limiting of payment breaks to 6 months, despite the fact this may result in new mothers being unable to avail themselves of family friendly policies like 9 months statutory maternity pay and may see those that do being penalised; but essentially the big issue is the failure of not only the committee to hold the Minister to account, especially in relation to some of the poorly informed evidence, but also the failure of Civic Scotland to identify and raise issues of concern to their broader constituencies. This may not be surprising considering Kenny MacAskill’s threat to the UK’s Supreme Court that “he who pays the piper, calls the tune” and possibly also the funding crisis that many Civic Scotland organisations are facing. However, the Scottish people deserve better from both the Committees and from Civic Scotland.

Arguably, however, the failure of Civic Scotland is the greater of the two. MSPs are political animals and can often be expected to try and perform the role of a herdsman rather than that of a champion of their constituents. Civic Scotland, however, it could be argued have a moral duty, if not a political one to perform the functions of a second house in our unicameral system and ensure legislation is properly scrutinised and the voices of the people heard. This is what they did with the Scottish Constitutional Convention in the 1990?s when the democratic deficit was at its most acute and arguably has always been their role; arguably even prior to 1707 the General Assembly of the Church of Scotland (an earlier manifestation on its own of Civic Scotland?) did this by wielding not only moral, but political power.

The current weakness of the Scottish Parliament’s committees is a major cause for concern, especially as other legislation such as the new Bankruptcy and Debt Advice (Scotland) Bill will soon be passing through them and if implemented will see huge amounts of powers transferred from the courts to the Accountant in Bankruptcy’s office, creating access to justice issues.

It may be unrealistic to expect Government MSPs to speak out, but it is imperative Civic Scotland does with all its constituent parts, and performs its moral and historical duty of ensuring parliament is held to account.

Scotland’s Bankrupt Debt Strategy

Scotland’s Bankrupt Debt Strategy

It goes without saying that policy that underpins the decision to make legislative reforms, or not as the case may be and is based on premises that are not supported by evidence, produces bad laws or allows bad laws to remain in place.

We have already seen this in relation to the Bedroom Tax and calls to amend S16 of the Housing (Scotland) Act 2001. The Scottish Government’s position is that such reforms are not necessary because if local authorities adopt no eviction policies, then there will be no evictions. However, as tenants throughout the country begin receiving threatening eviction letters from Housing Associations (and councils), such reassurances deliver no comfort.

Equally as dubious is the Scottish Government’s stated intentions that in the coming year they will rebalance Scotland’s personal debt laws by introducing a series of legislative reforms that will make it fairer and more effective.

This may appear reasonable, but when the premises that such legislation is being built on is unfounded, such as the Scottish Government’s view that financially distressed debtors are not paying enough, it should come as no surprise to realise we may end up with debt laws that are unfit for purpose and cause untold hardship.

Evidence of this is transparent in the first of the Scottish Government’s measures to reform the law in this area. The Debt Arrangement Scheme (Amendment) (Scotland) Regulations 2013 should send a warning blast from the whistle of Scotland’s personal debt flagship. It’s not that it doesn’t introduce some welcome reforms, such as the ability for debtors to get adverse decisions reviewed and widens access for joint couple applications; but it also introduces provisions that will reduce the length of time many will be allowed as payment breaks and most worryingly, it doesn’t use the Parliament’s full powers to protect debtors from the rising problem of pay day loans by freezing interest at the earliest opportunity.

This is particularly concerning as arguably a more pressing issues is the number of Debt Payment Plans (DPP) that are being revoked. There is some evidence to suggest that if the Debt Arrangement Scheme was any other financial product, promoting it to debtors could be mis-selling. Recent statistics show that although the numbers applying last year increased by 39.6%, other figures show the number of cases being revoked are now averaging 12% annually, which with the average lifespan of a DPP being 7.2 years, suggests significant numbers will never be successfully completed (in actual fact the figures for the last quarter of 2012-13 showed 21% revocations).

There is no evidence based insights into why such levels of revocations are occurring; however, a strong likelihood must be that in these times of austerity, debtors are struggling to sustain long term repayment plans. Considering it is the Scottish Government’s intention to try and make the Debt Arrangement Scheme the default remedy for all debtors, unless they can satisfy some contrived test that personal insolvency is the better option, this must be a cause for concern. Debtor’s paying for years and getting no resolution to their problems is not a remedy.

It also comes as no comfort, in light of this, that the Scottish Government has also recently announced it intends to draw up new spending guidelines which all debtors will be required to use when calculating how much they can pay towards their debts. These figures they have previously announced will be more stringent than those currently used by advice agencies in the UK and which are accepted by the British Bankers Association and Financial Leasing Association.

It’s not as if there are no recent examples of bad policy making that the Scottish Government could learn from. Last year they made another presumption that wasn’t evidence based and which they didn’t consult on: that low income, low asset bankrupts could afford a 100% increase in the application fee from £100 to £200. Despite evidence to the contrary from Money Advice Scotland and Citizen Advice Scotland the changes were rushed through and the result was a 58% reduction in the number of poor debtors who were able to access the remedy.

It must be accepted the Scottish Government have made some concessions on their initial debt law proposals, but most of these have been to the money advice, creditor and insolvency industry. Those that have not been consulted yet have been the consumers who are financially distressed and who will be most affected by the reforms that are in the pipeline.

It can be in no-one’s best interest for tens and over the long term, hundreds of thousands of consumers to be left cash strapped and impoverished because of debt; particularly as the vast majority of those creditors they owe are in actual fact high street banks and lenders who have been bailed out by the public purse (and very often have sold on the debts for pennies to debt purchasers who speculate on profiting from diminished returns).

The truth is the proposition that is being advanced by the Scottish Government that debtors are not paying enough and can afford more, has no evidential basis. The arguments are based on the same Jeremy Kyle School of thought that underpins much of the UK Government’s benefit reforms. On the contrary, there is substantial evidence of poverty being a problem for many debtors and the only evidence of systemic failure that exists, is not in Scotland’s current debt laws or insolvency industry, but in the credit industry that left so many debtors with unaffordable levels of personal debt.

Over the next couple of months I hope to review in more detail the Scottish Government’s plans for legislative reform, highlighting the good, the bad and the ugly of what is being proposed. I also hope to show what is being developed is a personal debt strategy that in many ways risks being based on unfounded premises, antiquated prejudices and in some cases an outdated, Dickensian attitude towards debt in a modern, credit based economy.

The Rangers Effect (or is it Sevco 5088…?)

The Rangers Effect (or is it Sevco 5088…?)

As the Scottish Government considers creating a new business Debt Arrangement Scheme, Alan McIntosh explains how the current scheme works and how it can be used to help flailing businesses and consumers.

If you are like me, you will have followed the demise of Rangers football club with some interest and probably participated in many discussions about Company Voluntary Arrangements (CVAs), Administration and Corporate liquidations that seemed to spring up everywhere, including online, over the water cooler and at dinner.

Remarkably much of it has been well informed and has led me to wonder whether there could be a Ranger’s effect: a silver lining in those dark clouds where more businesses, now their awareness has been heightened, begin seeking advice and assistance when they begin to experience financial difficulties.

I have seen a number of small businesses over the last year that fit this description, whether it’s been the result of rising fixed costs, adverse weather, falling sales or HMRC pursuing a more aggressive recovery strategy.

Although CVAs, Administrations and Corporate liquidations are inappropriate for these types of business models the Scottish Debt Arrangement Scheme can be used to assist them. A formal debt management tool that was introduced in 2004 by the Scottish Government, the Scheme was created to help debtors manage their personal liabilities and was provided for initially by the Debt Arrangement and Attachment (Scotland) Act 2002 and the Debt Arrangement Scheme (Scotland) Regulations 2004.

It was updated in 2007 to include provisions which allowed the freezing of interest and charges and again in 2011 to widen access to the scheme. The Scottish Government is now seeing over 4,000 applications being made each year to the Accountant in Bankruptcy, in her role as Debt Arrangement Scheme Administrator.

If debtors wish to apply to the Scheme they must do so through an approved money adviser or insolvency practitioner, who gives holistic advice to the debtor on their finances and options and then makes an application on their behalf. Creditors of the debtor get 21 days to agree or object to a plan and if they fail to do so are deemed to have consented. If no creditor objects or responds the plan is automatically approved. Where someone does object, it is sent to the Accountant in Bankruptcy who applies a fair and reasonable test to see if the plan should be approved.

Where plans are approved, it is not possible to sequestrate the client, execute a earning or bank arrestment or carry out any other form of diligence. Where an earnings arrestment has been executed, it is formally recalled.

Although an application to the Debt Arrangement Scheme will prevent a petition for bankruptcy being raised in the sheriff court by a creditor, where it has been raised prior to an application being made or intimated, the debtor can seek a continuation from the sheriff under s12 (3C) of the Bankruptcy (Scotland) Act 1985 to allow the DAS application to be decided.

The effect of approval is the debtor gets full protection and is allowed to repay their debts each month through an appointed payment distributor to the Scheme.

What makes the scheme suitable for sole traders and individual partners is not only does it protect individual debtors, but Regulation 25 (3) of the 2011 Regulations allows the DAS Administrator when considering whether a programme should be approved to consider anything she considers relevant. The fact certain business assets may have to be kept, therefore, to produce an income is relevant and means the owners of such businesses can often enter the scheme, obtain protection and continue trading to help pay off their debts.

Discretionary conditions are also possible in making an application to the Scheme and it can be proposed that the realisations of assets will be delayed until a later date or if at all or where it is known assets will become available, that at that point these will be used to reduce the outstanding balances.

The many businesses that are using this scheme at present may not be on the scale of Rangers Football Club, but it is providing many with vital breathing space to reorganise their affairs and seek advice for the first time. It is a credit to the scheme that this has been possible and is providing many small Scottish businesses with a life line during the current economic turmoil.

It also provides fantastic returns for creditors with the longest scheme running generally no more than 10 years, meaning in reality creditors receive a 10 pence dividend for each year a plan operates. These results compare favourably with other remedies such as protected trust deeds and sequestrations.

It may be some time before the Debt Arrangement Scheme attracts the same attention that corporate insolvency has, barring a high profile application being made by someone, but its popularity is only likely to continue to grow.