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The
Bankruptcy and Diligence etc. (Scotland) Bill
The Bill will help make Scotland a good place in which
to do business.
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 make it easier for business borrowers and lenders
to have a flexible and effective security for loans.
Deputy Enterprise Minister Allan Wilson said:
"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:
1. Reducing the bankruptcy period from three years to one year;
2. Streamlining the bankruptcy process, and taking debtor applications out
of the court system;
3. 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;
4. 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;
5. 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:
1. a new Scottish Register of Floating Charges. This will make it easier
for lending institutions to assess the financial position of a company.
2. 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:
1. Creating a new protected minimum balance on arrested funds in bank
accounts, helping vulnerable debtors to support themselves.
2. 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
3. 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;
4. 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.”
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