Tag Archives: DAS

DAS: is it broken?

20th April 2017 0 comments

A new report (see here) produced by myself shows that the Scottish Government’s flagship personal debt remedy, the Debt Arrangement Scheme, is in trouble, with the numbers accessing it having fallen by over 50% in the last two years.

The report follows on from a recent high profile, public awareness campaign that was launched by the Scottish Government to raise awareness of the Scheme.

It reveals that the number of consumers accessing the Scheme through private sector firms have fallen by 64%; whilst those accessing it through free providers, like Citizen Advice Bureaux have fallen by 38%.

It lays the blame for the decline, not on a lack of awareness, but on changes that were introduced by the Debt Arrangement Scheme (Scotland) Amendment Regulations 2014, which introduced a new way of calculating how much people have to pay each month towards their debts. It meant debtors entering the Scheme had to pay as much as they would if they entered a personal insolvency remedy like bankruptcy or a protected trust deed.

Writing in the introduction, I state:

When the Debt Arrangement Scheme was introduced in 2004, it heralded “… a change in how Scots Law dealt with debt: no longer the land of poinding and warrant sales, but a country that took an enlightened and progressive view of how to help struggling consumers manage their debts, whilst still being able to maintain a reasonable standard of living.
“To now witness the numbers of consumers accessing it falling by 50% is disappointing. Particularly as all the evidence suggests with increasing levels of unmanageable debt, the need for it is as great as before.”
“The reasons for the reduction are complex, but speaking simply when emphasis moved away from creating sustainable repayment plans and onto plans that would recover money quicker for creditors, the benefits of the Scheme were eroded for many consumers.”
“What underpinned that policy change was a belief that consumers were getting their debt management too cheap. The truth is that despite the lip service often paid to understanding the reasons for debt and the causes of debt, there remains deeply engrained in the Scottish political psyche a deep suspicion that many debtors are not “can’t pays”, but “won’t pays”.

I call in the report for the Scottish Government to make a number of changes to the Debt Arrangement Scheme, amongst others to:

Introduce a different financial tool for the Debt Arrangement Scheme than that used in personal insolvency; and
To end the current practice of tendering out the role of payment distributor and to allow other providers to enter the market, allowing for more competition and take up of the Scheme.

This report has been written with the view the Debt Arrangement Scheme remains an excellent solution for many consumers, but is currently at risk of withering and going into irreversible decline. It is hoped that decline can be arrested and reversed, but argues some key changes will be necessary.

It was produced using data provided by the Accountant in Bankruptcy after a freedom of information request was submitted. That data can be accessed here.

DAS: The debtor’s panacea to bankruptcy?

2nd November 2012

First published in Scottish Legal News

Historically, in Scotland, if you were facing a creditor’s petition for sequestration, there was little to be done. Options under the Bankruptcy (Scotland) Act 1985 were limited. You either had to show it was not competent to award sequestration, or you had to be in a position to repay the debt in full or offer sufficient security for it.

For such reasons, over the years the threat of sequestration has been an invaluable tool in the debt recovery toolbox, especially in relation to debtors with assets that could be put at risk. The threat of an expired charge or the delivery of a statutory demand for payment was often sufficient to motivate the debtor into action.

Since 2004, however, the effectiveness of these debt recovery tools has been eroded with the Debt Arrangement Scheme. Under current regulations, introduced in July 2011, not only is it possible to defeat a creditor’s petition by applying for a Debt Payment Programme, but it’s also possible to prevent one being raised. This could provide an explanation why even in the last year the number of sequestrations awarded on the basis of creditor petitions has fallen by almost 25 per cent, despite the total number of sequestrations in the same period (2011/12) only having dropped by just 3 per cent.

The Debt Arrangement Scheme, however, is much more than a bankruptcy stopper. Launched in 2004, it suffered from a slow start, but last year saw over 3,300 programmes being approved by the Accountant in Bankruptcy in her capacity as DAS Administrator.

It is unique in that it provides individual debtors with a multiple debt remedy that is not a form of personal insolvency and does not require assets to vest in a trustee. It also prevents creditors using diligence or sequestration once a debtor is in a programme and freezes all interest, fees, penalties and charges. Other features are it provides a payment distribution service and an intimation procedure which can be used to obtain six weeks interim protection to allow an application to be made. It also is increasingly being used for not only consumer debts, but also for business debts by sole traders, partners and company directors, where personal guarantees have been provided for corporate loans.

In one recent case we acted in, a client who owned commercial property of significant value was cited to appear in front of a sheriff to show why sequestration should not be awarded. We assisted him in securing a continuation to allow an application to be made to the Debt Arrangement Scheme, which eventually was successful. The petition for his sequestration was dismissed and he was able to enter into a repayment programme with his creditors, allowing his assets to be protected.

In another case, a sole trade who employed six staff and ran a haulage firm was able to protect not only himself, his home, his business assets, but also his business and staff’s employment by applying for a programme.

In all cases, whether its business or consumer, the key is pulling together credible offers for creditors and presenting them as such. As with protected trust deeds, creditors get a right to object, but where none do, they are deemed to consent. Where creditor objections are received, the DAS Administrator applies a fair and reasonable test to see whether she believes it should be protected or not.

Increasingly, we are finding the use of discretionary conditions in applications, such as proposing assets will be realised during the scheme, is widening the availability to more clients, particularly business clients who would not be able to repay their debts within a fair and reasonable time (ten years being the maximum period accepted). Such proposals, however, do tend to take more planning and professional expertise to put realistic valuations on property; where businesses are involved it’s also necessary to ensure proposals are realistic and credible and will assist the business in not only surviving but flourishing.

For creditors, however, although the scheme may make sequestration harder to secure, it does provide more attractive returns. Even in the longest running scheme, it is likely at least 30p in the pound will be received back within the first three years: few bankruptcies will pay so much. The added benefit in this is even after three years, if the scheme has not been completed, the debtor continues paying.

The scheme is also increasingly been seen as a possible tool in the Scottish Parliament’s toolbox that could allow them to use it more effectively and deal with the growing problem of payday loans. Consumer credit law and interest rates are out with their legislative authority, but debt isn’t and Govan Law Centre’s principal solicitor, Mike Dailly has drawn up a discussion paper proposing a new payday loan, fast track, DAS programme.

The future for DAS is bright: the Scottish Government have indicated they are fully behind the Scheme and consider it a growing success and one they wish to encourage as an alternative to bankruptcy and protected trust deeds. From what I can see, they have already achieved that and, for once, I share their optimism.

What has the Scottish Parliament ever done for us?

31st August 2012 0 comments

The day after Professor Bonnington claimed the Scottish Parliament was damaging Scots Law, I provide one example in relation to debt law, where this is not the case.

Scotlands Best Kept Secret: The Debt Arrangement Scheme

In 1985 when the Scottish Law Commission produced it’s report into diligence, the area of Scots Law that deals with the legal recovery of debts, it was proposing reform of an area which had not been kept up to date with changing values .

It was possible back then when you owed money for your creditors to instruct officers of the court to seize your possessions and have your neighbours funnel through your home with a view to buying them. You not only had to contend with the embarrassment of being publicly humiliated, but also the knowledge that the predatory behaviour of those attending would mean your property would in all likelihood be sold for peanuts.

Unfortunately, the Scottish Law Commission didn’t think this was too bad and just a few adjustments were required, so it didn’t recommend abolition. However, it did make a number of other recommendations, one of which was there should be a new scheme for people with multiple debts who needed time to pay them off.

When the Debtors (Scotland) Act 1987 was introduced, Poindings and Warrant Sales as they were known, were kept, but slightly reformed (your neighbours couldn’t come into your home anymore, but they could watch from their windows as the court officer carried away your goods). And the scheme to help people repay their debts? Well that was a nice idea, but really why bother?

By 1997, nearly and 18,980 poindings were being executed in Scotland. Good times.

Then in 1999, Tommy Sheridan with the assistance of Mike Dailly, the Principle Solicitor of Govan Law Centre brought forward one of the first member bills in the newly formed Scottish Parliament: The Abolition of Poinding and Warrant Sales Bill.

Despite Scottish Executive resistance there was a back bench revolt (interestingly, primarily by woman) and this archaic practice was abolished. The Scottish Executive then brought forward their own legislation, the Debt Arrangement and Attachment (Scotland) Act 2002 which confirmed the abolition of poinding and warrant sales, albeit replacing them with a new type of attachment that distinguished between good kept in the home and outside the home. They also dusted off the old Scottish Law Commission recommendation of a new repayment scheme and called it the Debt Arrangement Scheme.

It was introduced in 2004 and allowed people to enter into formal repayment schemes with their creditors, letting them pay their debts, but with the full protection of the law. Once in a scheme, creditors could not do earning arrestment, bank arrestments, attach people’s property or make them bankrupt. And if the creditors objected? Well the new government officer, the Debt Arrangement Scheme Administrator could say tough, you’re in, providing she thought it was reasonable.

As a result of a painfully slow start, however, in 2007 the Scottish Government then introduced reforms so that once a programme was approved, all interest, charges, fees and penalties on debts were frozen and if the plan successfully completed, written off.

Then in 2011, to give it another kick it was reformed again, this time to widen the type of money advisers who could apply for a programme on behalf of their clients. They also introduced payment breaks, so if your income dropped more than 50%, you could qualify for six month’s grace to get back on your feet again. And if you had ten different creditors to pay each month, well that was okay as everyone in the scheme has to pay their debts through a payment distributor who collects the money then distributes it to the creditors. And the cost of that service? The creditors have to pay for it.

The Scheme is still the little brother of Scotland’s two other formal debt remedies: 9,194 people signed Protected Trust Deeds last year; 11,056 people were declared bankrupt; and only 3,319 had Debt Payment Programmes approved.

However, as the graph below shows, if the first 8 years of the Debt Arrangement Scheme is compared with the first 8 years of Protected Trust Deeds, its growth pattern matches that of Protected Trust Deeds and in the last year has begun to grow even more steadily. In all likelihood in a few years time it will become Scotland’s main debtor remedy.

And it’s good for creditors also. The average dividend paid to a creditor in a Protected Trust Deed is less than 16p in the £ and less for bankruptcy: in a Debt Payment Programme, as the longest they normally last is 10 years, creditors get at least 30p in the £ back over the same period, but also with the hope of more in future years as it is not a form of personal insolvency.

The Scottish Government is also now looking to extend the Scheme so it can be used more easily by sole traders and partnerships to let them repay debts and avoid bankruptcy: creating a culture of recovery rather than one of liquidation.

And as for the replacement of poindings and warrant sales: in 2011/12 there were only 2,758 attachments, which is for property outside the home, such as cars and commercial property, and only 51 exceptional attachments carried out in the home (compared with the 18,980 poindings in 1998).

Now that’s not bad and as for the rest of the UK: they are still waiting for their reforms.