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Legal
reforms to help individuals and small businesses get back on their feet and
move on after debt problems were published today.
Proposals in the Bill will also make it easier for
business borrowers and lenders to have a flexible and effective security for
loans.
 Legal
reforms to help individuals and small businesses get back on their feet and
move on after debt problems were published today.
Measures contained in the Bankruptcy and Diligence etc. (Scotland) Bill will
provide for more effective enforcement against ‘won’t pay debtors’, help and
support for ‘could pay’ debtors, and fair treatment for ‘can’t pay’ debtors.
Proposals in the Bill will
also make it easier for business borrowers and lenders to have a flexible
and effective security for loans.
Deputy Enterprise Minister Allan Wilson said that the Bill will help make
Scotland a good place in which to do business
Bankruptcy
Personal bankruptcy affects individuals and small businesses (sole traders
and partnerships). Bankrupts have their assets transferred to a trustee to
be distributed amongst their creditors. The public are protected as they are
subject to certain disqualifications for a three year period – including
restrictions on borrowing, not being permitted to be a director of a limited
company, and not being authorised to serve on certain public bodies.
Key reforms
include:
• Reducing the bankruptcy period from three years to one year;
• Streamlining the bankruptcy process, and taking debtor applications out of
the court system;
• Limiting the right of creditors to decide to sell or dispose of the
debtor’s family home to three years after bankruptcy. This will help balance
returns for creditors with the ability of debtors to move on with their
lives;
• Bankruptcy Restriction Orders (BROs) – Current bankruptcy legislation is
applied equally to all debtors and end with the discharge, no matter what
their previous conduct has been. BROs will protect the public and business
interests by continuing to enforce restrictions on potentially fraudulent or
culpable bankrupts after they are discharged from their bankruptcy;
• Encouraging a ‘can pay, should pay’ principle so that contributions
towards debts can be continued after the period of bankruptcy has been
discharged.
Deputy Enterprise Minister Allan Wilson said:
“People who can’t pay their debts can become bankrupt through misfortune
such as job loss or misjudging a risk. For these people the stigma
associated with bankruptcy lingers for far too long and can lead to a fear
of failure.
“We want to help people to be able to clear their feet and get on with their
lives and businesses after a period of bankruptcy. Entrepreneurs willing to
take sensible risks are essential to a strong and dynamic economy. We want
to create the right climate to enable those who don’t succeed the first time
round an early chance to move on and try again.
“At the same time we don’t want bankruptcy to be viewed as an easy option.
It is vital that we have checks and balances in place to protect the
interests of creditors and ensure debt recovery. There must also be tough
sanctions in place to deal with the minority of bankrupts who are a
particular risk.”
Floating
charges
Floating charges are loans made to businesses. They “float” because they are
general loans which are not attached to particular assets of the company
unless the company becomes insolvent. At present, it can be difficult for
lenders to find out whether there are other loans over the assets, or to get
full information about the conditions which apply to any other loans. Key
reforms are:
• a new Scottish Register of Floating Charges. This will make it easier for
lending institutions to assess the financial position of a company.
• The Register will be held by the Keeper of the Registers and will be
self-financing.
Diligence
Diligence is the legal process for enforcing orders for payment of money
made by civil courts in Scotland. Once authorised by court decree or
equivalent, creditors can choose their preferred way to enforce from a range
of diligences. Their choice will depend largely on what they know about
their debtor’s circumstances.
Key reforms
include:
• Creating a new protected minimum balance on arrested funds in bank
accounts, helping vulnerable debtors to support themselves.
• Setting up a new public body called the Scottish Civil Enforcement
Commission to oversee and improve the accountability of a new single
profession of court messenger replacing the professions of
messengers-at-arms and sheriff officers
• Creating a new diligence of land attachment to strike a fair balance
between creditor interests in recovery and the risk of a debtor’s ejection
from their home;
• Introducing a final notice (charge to pay) to debtors facing recovery of
public debts under a summary warrant.
Mr Wilson said:
“This Bill’s provisions to reform diligence will strike a better balance in
our system of debt enforcement. It will introduce new and reformed
diligences giving creditors a range of effective and modern remedies. At the
same time, it will create improved debtor protections to ensure that those
people who owe money are treated with fairness and dignity.
“By reforming bankruptcy and diligence together, we are aiming for a unified
system of debt recovery to be used against those who can pay but won’t pay;
debt management for those who can pay, but need more time and extra support
to do so; and debt relief for those who can’t pay even with more time and
extra help.”
NOTES:
1. The Bankruptcy and Diligence Etc (Scotland) Bill sets out proposals for
reform of bankruptcy and civil enforcement and is available at
www.scotland.gov.uk/publications
2. There have been three major Executive consultations on the policy of the
Bill.:
• "Enforcement of Civil Obligations in Scotland" closed during July 2002.
• A Consultation: “ Personal Bankruptcy Reform in Scotland: A Modern
approach” closed on 20 February 2004
• The Bankruptcy and Diligence Draft Bill and Consultation closed on 30
September 2004
A fourth consultation on the reform of protected trust deeds is expected to
begin in November 2005 and close February 2006.
3. The changes to diligence build on 20 years worth of research and
consultation by the Scottish Law Commission and will create:
• User friendly protections for debtors.
• Effective modern enforcement methods for creditors making Scotland a
better place in which to do business.
Contact: Claire Delaney - 0131 244 2547
Internet:
www.scotland.gov.uk
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