A Financial Health Service For Scotland

The long awaited ‘Financial Health Service’ for Scotland recently took a further step towards becoming a reality in April 2015 when the legislation was laid before parliament on 21 and 22 August. Independence referendum aside, the Accountant in Bankruptcy (AiB) has been pushing ahead with the Scottish Government’s plans for personal insolvency reform. This area of law has always been fully devolved to Edinburgh; hence, the Scottish Government has used its’ powers to make significant changes to personal insolvency since April 2008. This new Bankruptcy and Debt Advice Scotland (BADAS) Act is the last piece of the jigsaw, meaning that come April 2015 we should have a personal insolvency regime fit for the 21st century.

The main areas of the new Act can be summarised as follows:

  • 4 year payment term for income contributions – brings sequestration in line with Protected Trust Deeds, arguably the most contentious part of the new legislation, why is Scotland introducing the longest payment term for bankruptcy in the UK?
  • Common Financial Tool – development of one single Scottish expenditure tool, making the approach to calculating income contributions consistent across Sequestration, Protected Trust Deeds and the Debt Arrangement Scheme.
  • Financial Education – the AiB have worked closely with Money Advice Scotland to develop an education program for debtors in Scotland. This will primarily be aimed at repeat offenders and other debtors with specific debt problems where education may help them properly rehabilitate. It will not be compulsory and Trustees will be allowed to use their discretion when recommending which debtors should take part in the program.
  • Minimal Asset Procedure (MAP) – a new form of bankruptcy, this will replace the LILA route into bankruptcy. The key elements of MAP will be:
    • Debt level – minimum £1,500 (normal bankruptcy is increasing to £3,000) and must be less than £17,000 – it is questionable why this upper limit is required, especially at this relatively low level, it seems very unfair to restrict access for those with debts greater than £16,999.
    • Assets – cannot apply if a property owner
    • Income – must be solely derived from benefits
    • Discharge – will be granted after 6 months, provided the debtor’s circumstances do not change.
    • Application fee – £90
  • Advice – it will be mandatory to seek advice before applying for sequestration – brings bankruptcy in line with applying for DAS or signing a PTD. The list of ‘approved’ advisers will be the same as exists currently in the DAS Regulations.
  • Moratorium – 6 week protection period for all individuals in Scotland applying for sequestration, protected trust deed or DAS. During this period creditors are stopped from taking enforcement action, can only be used once in any 12 month period.
  • Removal of automatic discharge – changes make discharge linked to debtor’s conduct and give Trustees more power to delay discharge if the debtor has failed to co-operate. As long as those who do co-operate obtain their discharge after one year this should be an acceptable change, what we don’t want is many debtors failing to receive their discharge after one year for administrative reasons.
  • New functions of AiB – another controversial part of the Act, taking powers from the court and giving them to the AiB. There are fears that the AiB is not qualified to make such decisions and that there may be a conflict of interests where one department within the AiB reviews the decisions of another.

Some of these changes will be welcomed by all stakeholders and some are more controversial than others, however, it is unlikely that we will see any major changes at this late stage.

By April 2015, if there is a Yes vote this month, the Scottish Government may also be planning for a Financial Health Service including Scottish corporate insolvency legislation and the AiB may be planning to become the Official Receiver of an independent Scotland… but we’ll leave that for a different article at a later date!

In the meantime, if you have any questions relating to the above or are in need of debt advice, please get in touch by calling, emailing or contacting us via the contact us form on the top right.