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Controversy About Scottish Bankruptcy Bill Continues

12th November 2012

The Scottish Government recently outlined a new Bankruptcy Bill that they intend to push forward in 2013. While most observers have noted some positive ideas there is also significant concern about other aspects of this proposal. In particular we wrote last week about the potential to force people unwillingly into bankruptcy where previously they would have had a broader range of options available to deal with their debts.

ICAS (a body representing many insolvency practitioners in Scotland) and R3 (an association of business recovery professionals) have now joined the debate. They have highlighted a range of concerns related to the proposed Bill as it stands.

In particular ICAS and R3 claim that the Government has failed to take note of professional opinion that was provided to it via the consultation process. This appears to be the case with the proposal for a minimum dividend for protected trust deeds of between 30p and 50p. There was no significant support for this change from creditors. Debt advice professionals fear this will force people into bankruptcy rather than being able to exercise any kind of real choice (or lead them towards excessively long Scottish trust deeds or total limbo should they refuse to become bankrupt).

They note also that some aspects of the proposals may breach the human rights of bankrupts. For example, any assessed contributions to be made during bankruptcy (for the cost of bankruptcy and towards the debt) are currently paid directly by the debtor. In the future they may be taken directly from their employer. Many bankrupts would prefer that their employer wasn’t informed about their personal financial predicament.

Questions are asked about the transfer of powers from the Scottish Courts to the AIB. This might apply to granting recalls from sequestration or decisions concerning discharge from bankruptcy. The ICAS/R3 statement suggests that such important rights should remain subject to scrutiny by the judiciary rather than by the AIB.

The absence of proposals in certain areas is also questioned by ICAS and R3. For example, issues such as the booming payday loan market or dealing with the home of a bankrupt aren’t covered specifically, omissions which may turn out to be a major missed opportunity.

Cynicism pertains about the intentions behind certain aspects of the Bankruptcy Bill. Some of the proposed changes appear to offer nothing positive to either creditors or debtors, but do seem to support the aim of the AIB to become self-funding by increasing their own revenue streams.

The criticism by ICAS and R3 further articulates and broadens these concerns. It might be interpreted to highlight questions of competency amongst the relevant decision-makers and also identifies a perceived inclination to infringe (or diminish) the existing rights of debtors in Scotland.

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