Certain types of Scottish businesses that are struggling with debt have the option of now applying for a Debt Payment Programme under the Business Debt Arrangement Scheme.
Who can apply to the Business Debt Arrangement Scheme?
The types of persons that can access the Business Debt Arrangement Scheme are partnerships, limited partnerships within the meaning of the Limited Partnership Act 1907, corporate bodies (other than bodies registered under the Companies Act 2006), trusts and unincorporated bodies of persons.
Sole traders are not able to apply to the Business Debt Arrangement Scheme, but can apply to the normal Debt Arrangement Scheme as individuals.
Where applications are made by partnerships, all partners must agree to the application; where it is a limited partnership that applies, all general partners will have to consent, as will limited partners, where they have, at any time, been involved in the management of the business.
Only a majority of trustees will be required to consent to an application for a trust to apply, and in the case of corporate and unincorporated bodies, applications will be made by a nominated person authorised to act on behalf of the body.
Like the Debt Arrangement Scheme for individuals, all applications need to be made by a money adviser, but the definition of who constitutes a money adviser is limited to a licensed insolvency practitioner, who in making any proposals, has to make a declaration of viability for the business.
Benefits of the Business Debt Arrangement Scheme
The primary benefit of the Business Debt Arrangement Scheme is that it closes a gap in Scots law that allows a number of different legal persons to be subject to creditor petitions for bankruptcy and diligence, but does not provide them with the same protection that is available to individuals, limited liability partnerships and companies registered under the Companies Act 2006.
It further extends these protections to the individuals involved in the business, where they are also liable for the business’s debts, in that one of the effects of a proposal being approved is that the protections will also cover them for their business debt liability.
Business DAS is a rescue procedure and provides businesses with a lifeline where they are at the latter stages of creditors taking recovery action through the courts and demanding ransom payments; but importantly also tempers that protection by ensuring it is only available to those businesses that are viable and can remedy their distress within five years.
It even provides a lifeline to businesses that are only able to pay interest on debts, in that programmes will freeze interest and write it off on the successful completion of a programme, whilst the capital amounts are repaid.
Approval of Business Debt Payment Programmes
Proposals under the scheme operate like current proposals under the existing scheme, but applications are only possible where the business can complete the proposed repayment plan within five years.
Businesses are also able to use the Statutory Moratorium procedure that gives them six week protection from their creditors, during which period, creditors are not able to execute diligence or raise petitions for the sequestration of the business.
The benefit of Statutory Moratoriums is it provides distressed businesses with a vital breathing space, during which they can explore the viability of any programme before making an application. Where petitions for sequestration have been raised, sheriffs will also have the option of not making an award immediately, to allow an application to the Business Debt Arrangement Scheme to proceed.
It is also possible to compel creditors to participate in a programme: even where they object, if the Debt Arrangement Scheme administrator finds the proposals fair and reasonable, all interest, charges, penalties and other fees on debts are frozen from the point the application is made.
Once approved, programmes will provide for payments to be made through a payment distributor, with the cost of the payment distribution being a cost for the creditors.