Official Report 540KB pdf
Protected Trust Deeds (Scotland) Regulations 2013 [Draft]
Item 3 is to take evidence on the draft Protected Trust Deeds (Scotland) Regulations 2013.
I am conscious of your timetable, so I will literally take a few seconds.
I echo my colleague David Hill’s comments. We are broadly supportive of the policy objectives of the regulations, but we have a fear that some of the proposals will not in fact serve to meet those policy objectives. We have concerns about the timing, as David said.
Mr Hill, you expressed your concern that, because of the timing issue and mismatch with the Bankruptcy and Debt Advice (Scotland) Bill that we have just been discussing, more people will be pushed down the sequestration route rather than use protected trust deeds. Briefly, what are the advantages of protected trust deeds for debtors and creditors?
The advantage of trust deeds for creditors is that they generally produce a higher return, because of the increased costs of sequestration.
Is it your view that the draft regulations are so fundamentally flawed that they need to be taken away and redone, or are they fixable?
I think that they are fixable. We believe that it would be best if the regulations were brought in at the same time as the sequestration procedures. We do not think that there is anything substantially wrong with the current trust deed procedures, so there is no urgency to bring in the regulations, although some of the changes would be welcome. If the mismatch was three or four months, that would be fair enough, but 18 months is quite a long time. A lot of people will go through the process in that period.
Your concern is really about the timing.
That is our major concern.
If the regulations were to come into effect more in line with the provisions of the bill, that would alleviate your principal concern.
Yes.
The evidence that the committee recently received from the Association of British Credit Unions paints a picture that insolvency practitioners profit unduly from the misery of both debtors and creditors. Would you go along with that view?
I do not think that you would expect me to agree with that. We are professionals doing a job, and we have to be paid for doing the job—that is our argument. If fees are deemed to be unfair, there are procedures to deal with that but, as with anything, quality advice and provision has to be paid for.
You would have no hesitation, then, in sharing with the committee, perhaps in writing, an indication in global terms of fees charged against hours worked on protected trust deeds.
I am sure that that could be obtained. There are details of the quantum of fees in the AIB’s annual report, but I do not know whether a breakdown of the total value of the fees per hour would aid you too much. Every firm has different chargeable rates per hour, so it would be difficult to get a meaningful figure. I appreciate that the fees seem high to some people.
I find it hard to understand why accountants, of all people, would have difficulty in producing such figures, which would let us gauge whether the Association of British Credit Unions is being unfair in its assessment or whether it is reasonable. Surely you would wish to refute its view with hard numbers rather than without any evidence.
It is just that an average would be very much that—an average. That is all that we could produce in global terms. As I said, each firm has its own rates, and some firms will do work for considerably less than others.
You are really just repeating what you have said. Am I correct in saying that you are unable to refute that point of view in hard numbers?
To be honest, I think that it is more of an opinion—and I think that it is unfair.
That is why I am saying that I would expect a profession that deals with money to be able, perhaps more than any other profession, to refute the argument with hard numbers.
The average fee for most trust deeds, as per the report, is just over £6,000. Some people will view that as atrociously high and some people will think that it is reasonable. I am not sure what more can be—
I am sure you will agree that the figure is meaningless unless you also indicate the number of hours that insolvency practitioners are working. Unless you correlate the fee against the number of hours worked, it is meaningless.
That is possibly something that we could provide.
I invite you to write to the committee and give some hard numbers so that we can form an opinion on whether the Association of British Credit Unions is being fair. Will you give an undertaking to do that, with some hard numbers attached?
I can certainly look at trying to provide that. I cannot give an undertaking that we will be able to, but we will try to get the information. I suspect that it depends a wee bit on timescale, because we would probably need to get it from our members and that may take some time. I do not know whether it would be possible to provide it in the next week or two, but we could certainly do it at some point in the future.
I find it very disappointing that you have come to the committee without those numbers. I would have expected you, knowing of the range of views that attend the issue, to have come to the committee with them at your fingertips. I would be grateful—I am sure that the other committee members would, too—if you were able to supply some meaningful numbers to back up your disagreement with the Association of British Credit Unions.
The information is readily available on a case-by-case basis. In fact, it is provided at certain levels of fees in what is described as a statement in insolvency practice 9—or SIP 9—schedule, which describes the number of hours that have been spent in any given case and the different headings under which the work has been carried out.
The issue is getting the exact information that you want. Various different grades of staff are involved in each case and each case is different. If you want to get an overall average figure, I do not think that that information will come up with too much. We could easily get firms’ average charge-out rates, but I am not sure that the details of individual cases will help too much.
I am sorry, but I am now a bit confused. The Association of British Credit Unions has been pretty unequivocal in the terms in which it has written to the committee. It has been critical of insolvency practitioners and suggested that they benefit to an undue degree at the expense of creditors and debtors. I am now not sure whether the information for you to refute that view is or is not available.
It depends on the degree of detail that you are looking for. As David Hill said, figures are produced in the Accountant in Bankruptcy’s annual report, which is readily available.
Indeed. I merely say that you should supply such information to the committee as you think will convince us.
We will certainly do that.
For clarity, I think that where Mr MacKenzie is coming from relates to the aspect of the regulations that concerns restrictions on fees chargeable. What is your general view on that part of the regulations?
The regulations do not have a restriction on fees. All that they say is that there is a set fee. They do not restrict what that fee is, which would still be for the creditor to determine.
I would like to touch on the extension of the payment period. The extension from 36 to 48 months mirrors the period proposed in the Bankruptcy and Debt Advice (Scotland) Bill, but there seem to be differing views on whether that is a good thing for both creditors and debtors. That is the case in relation to the bill in particular, but it is a comparison worth making. Money Advice Scotland believes that the new period is too long and has raised concerns that, given that wages are at the same level that they were at two years ago, the extension is perhaps a bit punitive. The Association of British Credit Unions welcomes the extension and thinks that it discourages any perception that it is about a quick escape from debt, but ICAS has concerns that it might not deliver in the way that is expected. Do you have any information on the rationale behind extending the payment period, and do you have any concerns about the extension?
We do not have any background to the rationale behind the proposal other than that it will make all the processes the same, as four years is proposed for sequestration and trust deeds. There are varying views on that. ICAS’s written submission suggests that there is more likelihood of breakage, although a number of people in ICAS do not necessarily agree with that—you will never get 10 people to agree on the same thing. I believe that the longer a payment period is, the more likely it is that breakage will come. That is not to say that a payment period of four years will not work, but the longer the period is, the more people’s circumstances change and the more likely it becomes that a breakage will happen. I think that you will also see that in the debt arrangement scheme, which has had big numbers going into it only in the past two or three years. I suggest that, in three of four years’ time, you will see a large number of those arrangements failing because people cannot keep up the payments.
Does Eileen Blackburn have a view on that?
I have nothing to add to that. It seems to be human nature that people are able to stick to the payment over three years but, the longer it goes on, the more difficult they find it to adhere to the agreement.
It may be that we would not know until the proposal went ahead.
You would not know for a long time, as the payment period would start in the next year or so and it would be another four years before you would be able to get figures. It would be quite a long while before you had any hard facts to show whether the change had benefited people.
I will ask about the AIB’s role as both the Scottish Government’s policy adviser and the supervisor of debt management and debt relief services. Is there is a conflict of interests, given the oversight that it has of not just standard debt management, but protected trust deeds?
Yes. ICAS’s view is very much that there is the potential for a conflict of interests and I suspect that, as someone mentioned in the previous evidence session, that would be the public’s perception of it. As has been said, even if an organisation that reviews its own decisions has Chinese walls, those walls might not apply in the canteen or wherever. In most cases, it might not be a major problem, but there is definitely a perception out there that reviewing your own decisions is never the best way to go.
So the proposal to bring what has been called a protected trust deed review board is, frankly, a nonsense because it still comes under the same umbrella.
I would say so.
The previous witnesses initially suggested that the process that will be in place, which is work in progress at the moment, will be independent, although they subsequently reverted to the term “impartial”. Do you not believe that the AIB could be impartial?
In general terms, conflict of interest always comes down to perception. In my experience, if the question of conflict is raised at all, there probably is a conflict. I hesitate to say unequivocally that it would not be possible to separate completely the responsibilities within the Accountant in Bankruptcy, but I believe that a problem with perception will remain.
I do not doubt that separate individuals in the AIB will deal with appeal decisions, but there will always be that perception that we have been talking about. I suspect that, if a person’s organisation rather than someone else has made a certain decision, something ingrained in that person will make them more likely to go along with it. It is simply human nature. Even if you are trying to avoid it, it is still the road that you are liable to go down.
What is your preferred recommendation?
We do not think that most of the things that are being added to the AIB’s tasks, particularly the trust deed scenario, are totally necessary. As has been said, the trust deed is a voluntary contract between creditors but, under these proposals, the AIB has the right to refuse trust deed protection status even if the creditors have agreed to it. We cannot understand why the AIB should have that right and, indeed, the right to refuse a debtor’s discharge when it has already been agreed by creditors. It is not a question of whether we need a separate body to look at the issues; the fact is that some of these decisions are not required to be decisions.
I apologise for not asking this question earlier, but it seems to me that the AIB’s role is becoming a matter of some concern. As I understand it, it has the power to audit insolvency practitioners’ accounts in relation to their work on a particular trust deed and fix their fees. As you mentioned, we have also been advised that the AIB will, under the draft regulations, be able to prevent the trust deed from becoming protected, but it is unclear how such objections will be handled. Has the AIB too much power in its control over IPs? I am not seeking to discredit AIB personnel but, in general, IPs are required to undertake extensive training and have major qualifications that might not necessarily be available in the AIB. There will, of course, be people in the AIB of equivalent status, but I think that we are talking here not just about conflicts of interest but a conflict between IPs and the AIB in which the poor debtor is somewhat forgotten about.
I am not sure that I could have put it any better.
Where do the debtors and creditors, who, after all, are the people we are trying to help, come in all of this? We are being saturated with process and controls. I asked the earlier panel about consultation with the people that the legislation has been designed to help, but we do not seem to be helping anyone other than those involved in the process.
We need to bear it in mind that we are talking about a voluntary trust deed, which is for the benefit of creditors and is, as its name suggests, contractual and voluntary in nature. The option has been available to Scotland’s citizens for a number of years now and, as you will see from the statistics, has been widely used. We feel that another layer of oversight in which the AIB can step in and give directions, object to or not agree to register a trust deed as being protected, and then have intervention at the back end with regard to the discharge process, is inappropriate and unnecessary.
You are right that all this regulation is to a certain extent taking the focus away from the two main people in the process: the debtor and creditor. By signing the trust deed, the debtor has made their decision at the start of the process and should have been properly advised in that respect; the creditors then have the complete right to accept it or not. For some reason, however, the AIB seems to feel that they are not performing their role properly, which, I have to say, I do not understand.
I wish and hope that at the end of the day the people who matter in this process are the debtors and creditors, not those exercising the control that you have just referred to.
Unless members wish to raise anything else, I will ask two final questions.
I know that ABCUL holds that view but, as I have already pointed out, the trust deed can be protected only if the creditors agree to it, which is what happens in the vast majority of cases. I am aware of credit unions’ objection to PTDs, but normally the credit unions are very small creditors and other creditors accept PTDs. To some extent, you cannot have the tail wagging the dog. The credit unions are entitled to their views, which I respect, but the same view is not held by a majority of creditors, who, I repeat, ultimately have to agree to the trust deed.
Do you not agree that credit unions have over many years built up a great deal of experience of dealing with these situations, while individual creditors who are unlucky enough to lose money often approach such situations from a fairly naive perspective and are therefore not always in a position to apply the kind of scrutiny that credit unions, with their experience, can bring to bear?
I cannot accept that. The vast majority of creditors are not individuals but high street banks and other such organisations. In fact, things are even more concentrated in that the majority of creditors in the trust deed process use agents—two agents in particular—who deal with 90 per cent of the debt in trust deeds and have their own detailed rules about what they will and will not accept.
Are you asking the committee to place a higher value on the integrity of the high street banks than on that of credit unions?
Not at all. As I said, the credit unions are entitled to their view, but it is only one view. I am sure that if you spoke to other creditor organisations they would give you their views. My point is that there is a range of creditors to listen to, not just the credit unions.
We are getting towards the end of our time, but I have one final question. As you might be aware, the committee has no power to amend the regulations. We will take evidence from the minister next week and must report to the Parliament by 11 October. Our choice is to recommend that the Parliament either accept or reject the regulations. Given that we have no power to amend, what approach would you advise us to take? Should the regulations go forward or should they be rejected?
Because of the time issue, I would suggest deferring them rather than rejecting them.
We have no option but to recommend acceptance or rejection.
In that case, I would advise that you reject them but put “Come back next year” in brackets beside your decision.
I agree. We are extremely concerned about one other aspect with regard to the provision of best advice to the debtor. That will prove very difficult where the person in question owns their own property either outright or jointly. They would be required to get a valuation of the property to identify the amount of equity in it and the regulations contain specific provision to disallow payment for the outlay incurred in obtaining a valuation. In other words, the expense cannot be met from the trust estate and we would like that to be amended because it is causing us grave concern. I agree that thought needs to be given to the timing of the introduction of these regulations and, if possible, deferral would be preferable.
Thank you very much; we must call it a day. Although this has been a short evidence session, it has been very helpful to the committee to hear your views and I am grateful to you for coming in.