Official Report 495KB pdf
Good morning, ladies and gentlemen, and welcome to the 28th meeting in 2013 of the Economy, Energy and Tourism Committee. I remind everyone present to turn off, or at least to turn to silent, all mobile phones and other electronic devices, so that they do not interfere with the sound system. We have apologies from Marco Biagi, so we are joined by Joan McAlpine as a substitute.
Basically, the concern is that there will be a conflict of interest. No matter how much effort is put into the separation of functions, inevitably, one decision-making body will be reviewing its own decisions. Currently, these matters are reserved for the court, which brings independent scrutiny to the decision-making process. We feel that that independence would be lost if the proposals went ahead.
Mr Hill or Ms Blackburn, do you agree with that general position?
Yes, I certainly do. As I said last week, the issue is that the public perception, if not the reality, would be that there are too many legs to the Accountant in Bankruptcy when it is reviewing its own decisions.
Yes. We also have concerns that, in any event, the civil servants are not qualified to act in what is essentially a quasi-judicial role, which to an extent would usurp the role of the court.
Mr McKillop, the Association of British Credit Unions seems to take a different view from that taken by your fellow panellists.
We certainly value the opportunity to challenge decisions, such as proposals about trust deeds that we feel are unfair. In the original consultation process, we suggested that an independent review panel should be established. We understand that the argument against that was mainly about the cost, but the cost of going to court for a creditor is also significant, especially for credit unions, which do not have the budget to pursue court actions. We certainly value having a review function. Our idea was for that to be completely independent, but we are satisfied to see how that works out as part of the AIB’s compliance unit.
Maureen Leslie, would an independent review body satisfy you, or do you think that the issue needs to be left to the courts?
The issue has to be left to the courts. Mr McKillop and I perhaps come at the issue from a slightly different approach. Mr McKillop mentioned the review of the grant of a trust deed or of a trust deed becoming protected. The particular case that we are discussing is about removal of functions in a bankruptcy from the courts and leaving it to the Accountant in Bankruptcy to review those decisions. Some of the matters that are referred to in the bill are in fact extremely complex. It has been set out that the matters that should be removed from the courts are administrative in nature. However, for example, one is an application for directions that a trustee can make on quite complex points.
I am very familiar with that.
I thought that you might be. It was an application for directions on how to deal with the claim by Ticketus. Although that was a corporate insolvency process, it is typical of the kind of question on which a trustee in bankruptcy would seek directions. Ultimately those questions have to be decided by the courts. We question significantly whether the AIB would ever have the level of expertise that would satisfy either the trustee or the creditors concerned.
Does anybody else want to come in on this point?
I am trying to remember who said that civil servants do not have the necessary level of experience of dealing with legal matters. Surely in the civil service and the AIB there are people who are well qualified in legal matters. They may not operate through the courts, but would you not accept that they have that level of knowledge and experience? Maybe Maureen Leslie will answer first.
There are people there who have great experience, but they are not necessarily legally qualified. In fact, I am not aware of anyone in the office of the AIB who is a qualified solicitor. In any event, the application for directions is heard by the sheriff or a judge. I question whether that level of expertise is available in a civil service department.
I was interested in the example that Maureen Leslie used of Rangers Football Club. The bill does not deal with commercial bankruptcies, does it? Am I wrong?
It deals with all bankruptcies. Consumer bankruptcies would fall within that, but the same legislation applies to business bankruptcies.
Not all cases will necessarily be as high profile, as technical or difficult as the Rangers example that you gave.
That is right. The vast majority will not be that difficult. The issue is that, in the vast majority of cases, there is no need to apply for directions. The application for directions, for example, would come only in complex cases. It is rare and it relates to complex matters.
I agree completely. The bill deals with all personal bankruptcies, as Maureen Leslie said. The vast majority are consumer bankruptcies and, in 99 per cent of those, directions would never need to be sought. Directions are sought only in complex matters. There is also the question of speed. A quick decision usually needs to be made, as in the Ticketus example. Therefore, straight to the core is seen to be better.
Mr Hill, you said that it is important that the process is speedy. Do the courts not sometimes slow up the process?
They are usually good at dealing with urgent matters that they can deal with quickly. It is known that courts can be very slow for general matters, but when we need a quick decision on such an issue, we can usually get into court quickly and get a quick answer.
You believe that it is a conflict of interest for the AIB to do its own reviews. Is there anything that gives you reassurance that the AIB would have a panel that is perhaps not independent—I am not sure that we can use that word—but is removed from the original decisions?
I accept that different individuals would no doubt review decisions that had been made, but I remember saying last week that there is obviously an inherent temptation that, if people in a person’s organisation made the decision, that person would start from the point of view that the decision is probably right and would look only for something that is wildly wrong, rather than take a totally independent view. The public perception is that, on the face of it, someone who reviews a decision of their own organisation does not seem to be independent at all.
Has that public perception been fuelled to an extent by people like you who do not agree with that?
I suppose that that is possible.
On the same issue, it seems that only the Association of British Credit Unions looks at the proposal as a possibility that it would favour, although it suggests that an independent review panel would be a good idea, so there is obviously a lot of concern. Is your view that the driver and rationale for the change is simply to save money, or are there other good reasons for the proposal?
I think that there are good reasons for doing it. The courts are extremely busy, and removing administrative processes from them where possible is to be welcomed. We have said that the removal of the application for recall of sequestration and allowing that to go to the Accountant in Bankruptcy where the recall is on the ground that the person has sufficient security to pay the debts in full is fine, but other matters are neither simple nor straightforward, and they should be heard by an independent justiciary, not by a civil servant or public body, no matter what the cost.
I would like the committee to take from the discussion the fact that we do not seek directions lightly. We go to court for directions only on the most complex occasions, because ordinarily we have recourse to legal advice and we have our own expertise. We would seek the directions of the court only in exceptional and complex cases in any event.
I want to go back to a point that I made last week. We seem to be losing sight of what we are trying to achieve in looking after the interests of debtors and creditors. I get the feeling, partly from experience, that if people go through some of the processes, even the complex ones, that have been mentioned, the beneficiaries will tend to be the insolvency practitioners, lawyers and courts. Where does that kind of activity stop and where do we start to consider the debtors and creditors? There seems to be an opportunity for some people to make a lot of money by giving advice and in some cases unnecessarily extending that advice on the basis of the income that will accrue to them. Is that not the case?
I disagree. I do not disagree that lawyers can make a lot of money in some instances, but I would certainly never take an application for directions or take issue with some of the other matters, such as the valuation of a contingent claim. I charge for my time, but I would never take those applications simply for the purpose of running up time costs. As a trustee and liquidator, my concern at all times would be to look after the interests of creditors.
But is that dividend not affected by the fact that one of the first fees to come out of whatever pot is available is that of the practitioners? Such fees are not inconsiderable.
You are right that the first thing to come out is the practitioners’ fees. The average fees in a sequestration are not considerable in every case.
I would suggest that, in most cases, they probably are considerable in relation to the amount of debt.
I simply do not agree.
Okay—thank you.
I will pick up on that point. Credit unions have taken such an interest in the bankruptcy issue and bankruptcy reform because they find—exactly as Mr Brodie expressed it—that creditors are at the back of the queue when there is an insolvency. We welcome the bill’s rebalancing of that, so that creditors, we hope, will receive a higher dividend from trust deeds, bankruptcies and other solutions wherever possible.
I will make a point about bankruptcy fees, in case the committee is not aware of it. In all bankruptcies—unlike trust deeds, which are a separate issue—the fees are audited by the Accountant in Bankruptcy. There should not be any excessive fees going through at all, and the AIB should be cutting any fees that it views as excessive. That is a big difference compared with trust deeds—bankruptcies are all audited.
On that point and on the point that Mr Brodie raised, at the height of the United Kingdom recession in 2008 and 2009, the UK’s top 10 accountancy firms made £20 billion, £8 billion of which was pure profit, largely from their insolvency divisions. I struggle to see how we cannot say that there might be something wrong with the system and that people are making too much money out of insolvency.
I will try to answer that. I am not sure that it is true to say that that was largely from insolvency—that is probably not the case. If you drill down, you will find that firms do not usually release the breakdown of their profits between their various divisions. The major accountancy firms are substantial businesses. I am not here to defend the amount of money that they make, but they employ a huge number of people. They mostly come in as the top graduate employers, so they have to pay people the rates that are appropriate for the jobs that they do.
Do you think that that is why Deloitte made £40 million from the insolvency of Woolworths alone, for example?
I am not here to defend a particular case, but Woolworths was obviously a complex case, and the accountants would have to get their fees fixed for that. They will have been able to justify those fees, if they got them. It seems a high figure to the man on the street, as it were, but it was a complex case. That is an extreme example, whereas the fees are nowhere like that for the vast majority of cases. There will never have been a fee of that size in Scotland.
From a credit union perspective, we recognise that there are costs involved in any insolvency. We have no objection to anyone getting a fair day’s pay for a fair day’s work. Our problem is who decides what fair pay is. From our perspective, it looks in some cases as though accountancy firms are getting a fair week’s pay for a fair day’s work. The problem is how the fees are set.
This is an interesting discussion, but it is slightly tangential to the purposes of the bill. Unless members are desperate to make additional points, we need to move on and discuss wider matters.
What obligation are insolvency practitioners under to keep time sheets of the work that they do?
We are obliged to do that. It is quite simple.
Who checks and validates the time sheets?
We and our staff record electronically how much time we have spent. When we make an application in a bankruptcy for approval of our fees, we are obliged to give those time records to the Accountant in Bankruptcy. Every three years, the Insolvency Practitioners Association comes in and regulates its own practitioners. It spot checks files and reviews the primary time records. It insists on printouts from time-recording systems.
We need to move off the remuneration of insolvency practitioners.
I will ask about financial education. It would be fair to say that the views of the panel range from outright opposition to qualified support with a little bit of scepticism thrown into the mix.
We are not against financial education per se. We are saying that it should not necessarily be linked to discharge of the debtor because there will be cases in which debtors have found themselves in financial distress through no fault of their own and not through deficiencies in their ability to budget. In some cases, people simply do not earn much money. They have living expenses that they need to cover and, often, we find that those expenses are subsidised by resorting to credit, sometimes at extremely high interest rates, as we all know.
I might widen the question to consider money advice, but I will take some views on financial education first. I will go to the other end of the spectrum and ask for the view of the credit unions. They have welcomed the inclusion of financial education, but have expressed concerns about who should provide it. I ask Frank McKillop to expand on that and to suggest what protection could be introduced to cover their concerns.
Our concern relates to the initial financial advice that would be given before an individual would enter an insolvency product. We would be keen that there be a separation between the person who gives that advice and the trustee in a protected trust deed or bankruptcy. We realise that many insolvency practitioners are also qualified money advisers, but we would be keen to avoid any danger of a conflict of interests if they were nudging people towards a particular solution. We need to be satisfied that the two are completely separate.
I do not want to turn this into Frank McKillop versus Eileen Blackburn, but the views that the credit unions express on a separation between those who provide money advice and those who handle the insolvency appear to be diametrically opposed to the solution from Eileen Blackburn, which is that it is imperative that insolvency practitioners be among those who can provide money advice. Ms Blackburn, will you address the conflict-of-interests point that has been raised?
In a great many cases, debtors seek advice from the voluntary sector in the first instance—perhaps those who do not watch television and look at the adverts that are on all the time. When people come first through the money advice sector or through voluntary sector organisations such as StepChange Debt Charity Scotland, they are taken through their budget and the money adviser will reach a conclusion on whether they are suitable for a trust deed, the debt arrangement scheme or an informal arrangement, or whether sequestration might be the only option. At that stage, they might be referred to an insolvency practitioner. We feel that an insolvency practitioner would perhaps be better qualified to provide money advice in more complex cases. My personal approach in advising debtors, which I do fairly often, is to explain to them the full range of options. That allows them to make an informed decision—they can do that at the moment—about the most appropriate course of action for them, using the information that has been given to them.
The ICAS submission is also sceptical about the benefits of financial education, and you share the view that insolvency practitioners should be among those who can provide money advice. Will you give your rationale for those views?
Obviously, we are not against financial education per se, but we think that it should come earlier than after someone has gone bankrupt—
I am sorry to interrupt, but how would you deliver that? Are you talking about having financial education across the board?
It should happen much earlier, in school.
Okay, but obviously a large cohort of people who are no longer at school might find themselves in need of insolvency or bankruptcy. Often, they are the kind of people who would not seek such education. How do we reach the people who might not be able to source that education until they enter bankruptcy?
That is difficult and there is no easy answer to it. I do not think that a vast percentage of the population will voluntarily turn up to do financial education after they have left school. I accept that it really has to be done earlier and that it is a long-term aim. We are not saying that there should not be financial education after bankruptcy; it just seems to be a bit late. There are also questions about who will fund the education and, as was mentioned at last week’s meeting, what the sanctions will be if people do not do it. There are a few issues with how the bill is drafted but, based on its merits, we are not against the measure, as such.
What about insolvency practitioners providing money advice?
I talked about an AIB conflict of interests, so I can accept that it might, on the face of it, look like there might be a conflict of interests. All I can say is that we are under a professional duty to give the best advice to the debtor. We have to document our advice, which is examined, as Maureen Leslie said. We are all regulated at least once every three years, and if it is shown that we have not given the best advice or gone down the right route, or indeed that we have given inappropriate advice, we suffer penalties.
The IPA expressed concern about the cost effectiveness of financial education. Will Maureen Leslie say more about that?
We are aware that in other jurisdictions there are provisions for financial education as a condition of exit from a bankruptcy. I think that the system in the United States operates along those lines. As far as we are aware—I stress that this is only as far as we are aware—there is no evidence that such an approach has a significant impact. We have no idea whether the approach has been costed; I do not think that there is any suggestion that it has in the papers that we have read. We have no strong views on the matter; we simply say that if the approach is to be taken it will need a bit more development.
You take the view that there should be reference to insolvency practitioners in relation to provision of money advice. We could argue that we are hearing today from three representatives of insolvency practitioners, who all want a piece of the money advice pie. What would including insolvency practitioners add to the mix, given that there are local authority and citizens advice bureau money advisers, for example?
Insolvency practitioners have to sit an examination on personal insolvency as part of their qualification. The examination is at an extremely high level—it is degree standard. Insolvency practitioners must study bankruptcy and protected trust deed processes, and they must be aware of non-formal solutions, including the debt arrangement scheme, debt management plans and the range of solutions that are available to people who are in financial difficulty.
I see that Mr McKillop wants to say something, but first may I ask Maureen Leslie whether you recognise that the same concerns about conflicts of interests that were raised about AIB could arise in this respect? If the committee recommended that insolvency practitioners should be among the people who give money advice, would you recommend the inclusion of safeguards, to prevent conflicts of interests?
I understand the committee’s point about conflicts of interests, or the perception of conflicts of interests. However, when a director of a limited company is in difficulty, from whom should he seek advice? Is it not the insolvency practitioner who is able to advise him on the range of options that are available to him? Where else would a company director obtain advice at such a level? Only a small part of an accountant’s training—no more than a couple of weeks—covers insolvency, so an accountant would generally refer their client to an insolvency specialist for advice on the options that are available.
We recognise that insolvency practitioners are qualified to give advice, but it is important that there is the separation that I talked about. An IP might give advice, but we would prefer that the person was not also a potential trustee.
In terms of a safeguard—forgive me; I am not by any means an expert and am thinking aloud—would that be, for example, that an insolvency practitioner who had issued advice could not then be the practitioner in any case of bankruptcy that arose from that case? Would there be a disqualification to prevent the conflict of interests that you have described?
From the credit unions’ perspective, the answer is yes. The advice comes from either the public sector or the voluntary sector and then the person is passed on to an insolvency practitioner if that is the correct route to take. If someone has approached an IP or a debt management company in the first instance, there should be a separation such that, if a protected trust deed or bankruptcy is the right option, it is passed on to someone else to conduct that.
Hanzala Malik and Mike MacKenzie want to come in. Before I let them in, who will pay for provision of money advice?
Money advice is provided by insolvency practitioners. Most of them offer at least a one-hour free consultation. In my experience, it is considerably more than one hour. I absorb that as part of my cost.
If the bill provides for compulsory provision of money advice, will that be given free?
Yes. It is given free at the moment and I see no reason for that ever to change.
Can I have clarification? The advice would given free for one hour, but would there be a charge thereafter?
Most practitioners say when we advertise that we will provide one hour’s free advice. The reality is that it takes considerably longer and there is no charge.
People have the choice to go down other routes including going to StepChange or citizens advice bureaux, where the advice is free, regardless of how long it takes.
That is correct, and we would advise them that if they use a debt arrangement scheme, for example, they can receive the same service free.
In terms of the suggestion in the bill that money advice will be mandatory, I want to touch on this in respect particularly of first-time applicants who have perhaps been unaware of the system. I can understand, appreciate and accept the value of money advice, particularly for those who know or have gone through the system. For the first-time applicant I feel that mandatory advice is perhaps a little harsh and would cause difficulties for some members of our community.
I have a lot of sympathy with that view. It is a difficult issue, and in the situation that you have outlined the person probably would need advice as they would be under stress. Personally, however, I am against a completely mandatory requirement; I think that “preferable” is a good word.
My other concern is that the people who give money advice are sometimes strapped for time. They are overstretched, and the amount of people out there who can provide that advice just now is insufficient. If the demand is higher than the ability to serve it, people will have to wait to get the advice before they can go down that route. It is also unhelpful because someone’s debt could be accumulating while they are waiting for money advice, which would mean that they might face hardship once again. I am concerned that people should not be put through such hardship.
We can all give examples of people coming to us who have tried to go to the citizens’ advice bureaux and not been able to get an appointment for five or six weeks. As Maureen Leslie said, people can be put into a debt arrangement scheme completely free of charge through a money adviser, but a lot of people choose to pay insolvency firms because they can do it immediately and there is no wait. There is very much a time issue, in that respect.
Maureen Leslie mentioned that the evidence on the American experience with money advice and education is somewhat inconclusive. Are you familiar with the work of Professor Warren in America, Ms Leslie? Would you agree that you are not comparing apples with apples when you try to draw a comparison with the situation in the US?
Mr MacKenzie, you have got one over me—I am not familiar with that work at all. I said that, as far as I was aware, there had been no evaluation of the success of financial education as opposed to pre-appointment money advice. I was referring to post-bankruptcy financial education, but it would seem that you are better qualified than me to answer that.
The point that I am making is that the situation with regard to bankruptcy in America is really quite different from the situation in this country. I commend Professor Warren’s work to you; she is now a US senator, so you will find her on the internet quite easily. It makes for a very interesting comparison, and you might find it interesting, particularly in the context of this bill.
I will happily go away and do some more reading.
Go and do your homework. [Laughter.]
I will make one final point on pre-appointment money advice. Although Mr Malik makes a number of very good points, particularly on delay and the increase in demand, I have been party to many discussions about the bill, and it is clear that that particular provision in the bill is designed to address the mischief of people being railroaded into one particular solution.
My question is for Mr McKillop. In the written evidence from the Association of British Credit Unions, you talk about a situation in which a person is unable to pay their debt. Often, when someone enters the process of either bankruptcy or trust deed, they do not change their lifestyle to any great extent. You state:
Many credit unions have sent us examples of financial statements that they have received in relation to a bankruptcy or trust deed in which the allowances that the adviser or IP has allowed the individual seem extraordinary. A legendary example in the credit union movement is a case in which someone was allowed more than £300 a month to drive to work every day despite the fact that they lived in Rutherglen and worked in the centre of Glasgow. On top of that, they worked for First ScotRail and had free rail travel.
Would other members of the panel care to comment on any of the examples of excess that have been outlined?
We have been aware of such examples of excess, but I would like to think that those are exceptions rather than the rule. Many firms are already using a standard income and expenditure model similar to those that are used by StepChange and the one that has been developed by the Money Advice Trust. We certainly welcome the use of a single financial statement across the board, for most of the reasons that my colleague has mentioned. As a representative body of insolvency practitioners, we do not condone the behaviour that he is talking about.
I endorse what Eileen Blackburn has said. However, those are extreme examples, although I do not deny that they have happened. The vast majority of people who are in difficult financial situations before they go into bankruptcy are still in fairly difficult financial circumstances when they are in it—they do not suddenly get extra money from somewhere. I do not think that we should be looking for people who have become bankrupt to reduce significantly their standard of living—that would be very detrimental. Some of Frank McKillop’s wording could perhaps have been better.
You say that people should not have to reduce their standard of living, but if they are already enjoying a luxurious lifestyle should they not be expected to reduce their standard of living significantly?
Yes, although that would be an extreme example. The vast majority of people who go bankrupt are not enjoying a luxurious life in any shape or form. A look at 99.9 per cent of my files would assure you of that. Someone living in luxury is the one-in-1,000 case, and they obviously should reduce their standard of living, but the vast majority are generally struggling to get by.
As some of the questions are directed at your submission, Mr McKillop, it is fair to give you the chance to respond. Your written submission mentions the common financial tool allowing for luxury items such as satellite television and the preservation of a heavy smoking habit. Do you have evidence that people are being allowed to have money to spend on such things?
Examples of that have been provided to us by credit unions. We certainly do not want anyone to be pushed into hardship; that is not the point that we are making. There is another example, from a credit union in South Lanarkshire, of what can happen if people do not protect their social media profiles well enough. The credit union googled someone who had entered a protected trust deed and found that they were posting photos from the holiday that they had gone on with the loan that they had just written off to the credit union. There are situations like that—and I agree with Mr Hill that those cases are in a minority, but they do happen—and the whole point of legislation and regulation is to stop such abuses occurring. That is certainly our perspective on it.
The credit unions are strongly putting across the message that we must not accept debt as something to be taken lightly and that we should take our responsibilities seriously. There does not seem to be a great deal of concern about extending the repayment period, although Mr Hill has suggested that most people who are in debt are suffering badly and that times are really difficult for them. Are there any concerns about the period? Mr McKillop, you obviously feel that extending the period sends out the strong message, “You owe this money and we expect you to pay it for as long as possible.” However, there are also concerns that it might be more expensive to continue to pursue the debt for longer.
One thing to remember is that when you go into a bankruptcy you no longer have to make the payments that you were making to your creditors, so you can afford to make a contribution without having to reduce day-to-day expenditure. You might have been paying £200 or £300 on your loans up till then, and you no longer have to make those payments once you go bankrupt, so in theory you have £200 extra a month. Obviously, you do not have £200, because you could not afford what you were paying before, but you can afford to pay something and we certainly support the proposal that someone who can afford to pay, should pay. As Frank McKillop says, creditors are due to get something back, where possible. If a debtor cannot afford a contribution, the financial tool will ensure that they will not make one, but if they can afford to pay, they should do so.
One of the main changes in the bill is the change from the low-income, low-assets route to the minimal asset procedure. The MAP involves a six-month discharge period, which we have been told in evidence is inconsistent with the other options that are available. Eileen Blackburn felt quite strongly about that in her submission, so I ask her to comment.
We just feel that a six-month discharge period is simply too short. We do not see why, in a MAP situation, the discharge period should be any different from the period for a normal bankruptcy. Six months seems an unfeasibly short space of time.
I think that there is a bit of confusion about the purpose of the MAP and LILA. When LILA was brought in, it offered people a new route into bankruptcy. It was designed to alleviate the situation in which it was difficult to become bankrupt because there was an insufficient number of routes into bankruptcy. When the certificate for sequestration came in, which meant that any money adviser could sign a certificate that allowed someone to go bankrupt, there was no need for LILA. There is no need for people who go bankrupt to be treated differently. If they cannot afford a contribution, they do not pay one. My view is that there is no need for the MAP at all. Someone who enters bankruptcy and who cannot afford to pay does not pay. We do not need a special process for that; it just complicates the issue. That has led to some confusion about why the MAP has been proposed.
I wonder what Frank McKillop’s view is on that.
Generally, we do not take a position in such situations. When, realistically, nothing can be recovered for the creditors, we have always been reasonably relaxed about how that is approached under the law.
So, is it the case that you believe that the change from LILA to the MAP is not required? Do you think that it is an option that should just not be there?
As David Hill said, LILA was introduced to allow people who were suffering extreme distress and who had no route into bankruptcy—people with very low incomes and no or virtually no assets—to have access to bankruptcy but, as he pointed out, there is now the certificate for sequestration route, which opens the door for anyone who needs that type of debt relief. We have not commented on whether we feel that the MAP is necessary, but when we appeared before the committee last week there seemed to be a bit of confusion about what the purpose of it was, even among committee members.
Thank you.
To go back to what Mr Hill said about the MAP, is not the point of it that the administration costs will be lower?
Yes, that is the point, but they will be lower only because less work will be done. Creditors will receive virtually no information at all. They will get one letter that says that they will get nothing, that they should close their file and that they will not be written to again. That is how costs will be saved. That might be deemed to be the right way to proceed, but part of the point that I am making is that a bigger issue is that debtors in those circumstances will not be able to afford the fee—even if it is £100 rather than £200—that might be proposed for the MAP. It might be better to use any savings to make it possible for those people not to have to pay a fee.
You said that the alternative would be a certificate for sequestration.
That is simply the route into bankruptcy. It used to be quite difficult for debtors to petition for their own sequestration. They had to have a charge for payment or something similar to establish that they were apparently insolvent. That was recognised as a big issue. We were still hearing stories last week about money advisers who have drawers full of cases in which people are unable to apply for bankruptcy because they do not have the requisite £200. In the old days, it did not matter how much they had available, they had no route into bankruptcy. LILA was introduced for the very poor members of the community who were really struggling and could see no way out.
But you—or it might have been David Hill—said that you debated not having the MAP at all, because someone would just get a certificate for sequestration. How much does that cost?
The certificate itself does not cost anything, but there is still the application fee. As I understand it, the certificate is just one of the routes that qualifies someone to become bankrupt. The LILA route was brought in because people could not become bankrupt. The certificate was brought in later so that a person did not need to qualify for the LILA rules to become bankrupt. It sounds confusing and it is confusing. That is part of my point.
What I am trying to get at is how much it would cost someone to get the certificate.
It does not cost anything to get the certificate. It still costs £200 to apply for bankruptcy.
The certificate is an instrument that is provided by a qualified money adviser. Someone signs a form to say, “This person is insolvent.” Once they have the certificate, it allows them to apply for bankruptcy.
This may be a question for Ms Blackburn. The bill proposes a moratorium period. Do you support that?
We supported the idea that if we are looking for commonality across the various processes, a six-week moratorium period might be appropriate. However, we felt that it might be a bit confusing and we wondered how it would interact with the provisions of section 37 of the 1985 act, which deals with diligence. It is perhaps a somewhat technical point.
Just a bit. Does anyone else have a particular view? The moratorium period gives a bit of breathing space, does it not?
I think that it does. We would not be against it at all. It might not be used in a lot of cases but if it helps some people, we would not be against it.
The IPA supports that.
I want to recap briefly. Mr McKillop said that he was quite strongly in favour of the common financial tool. Do other witnesses agree with that being brought in to use?
Thank you. That is useful.
If there are no further questions, we will call it a day. Thank you for coming in to provide the committee with evidence.
I welcome our second panel of witnesses: Martin Prigent, head of insolvency management at TDX Group; Mike Norris, executive director of MAX Recovery; Donald McKinnon, partner at Wylie & Bisset; and Alison Anderson, insolvency director at Armstrong Watson. Thank you for joining us.
Our concern is about the conflicting responsibilities of the Accountant in Bankruptcy. As policy advisers, they put new policy in place but, as a result of being appointed as trustee in cases and making decisions regarding those cases, they deal with management and debt relief services as well.
Does anyone else on the panel agree?
I am happy to agree with Alison Anderson.
I would first like to give some of my background. Prior to working for MAX Recovery, I worked for 23 years in the AIB’s equivalent in England and Wales, so I am slightly biased. However, I agree with what Mr Robertson said in the previous evidence session. There are people in the civil service who can make such decisions—that is not an issue.
I would tend to agree. I certainly acknowledge the concerns about a conflict. As Mike Norris said, there are ways to mitigate those concerns. A creditor normally looks to the regulator to provide an unbiased and balanced position. If the AIB was trustee in some cases, I would question whether that would be provided.
We heard a suggestion from the previous panel that an independent review body might be established. Would you favour that? Is it necessary?
I would certainly be in favour of that.
I am agnostic about it. I cannot see it doing any harm, but I am not convinced that it is absolutely necessary, provided that there is a route into the court for appeals. There should be something—I do not quite know what that something would be, but maybe a panel would be fine.
I have a question for Alison Anderson. Does the AIB have a history of making bad decisions? Is that what gave rise to your concern?
The bill does not identify how we can mitigate the effect of the conflict that we consider arises. The bill moves further into the depths of a potential conflict issue but, as Mike Norris indicated, it does not deal with how we will resolve those issues.
Mr Norris said that there can be conflicts of interest, and we are having a general discussion about that. The whole area seems to have a number of potential conflicts of interest. Is it purely a theoretical concern that conflicts of interest—even the merest hint of a conflict—should never be condoned in any circumstances, or is there substance behind the concern to suggest that the AIB is not very good at taking such decisions? A yes or no answer would be fine.
I suspect that the concern arises from the culture that we have grown up with in our profession and the ethical guidelines and rules that we have worked with for the past 20-odd years.
Do courts sometimes get it wrong? Do they occasionally make mistakes?
Different sheriffs make different decisions. That is an issue; it happens and it gives us, under the Accountant in Bankruptcy, some issues to deal with. One sheriff can make a decision on something and another sheriff can make a different decision.
Courts sometimes make mistakes, but there is a perception of a conflict of interest for the AIB. Perhaps there is not really a clear and easy answer.
I do not think that there is a clear and easy answer.
Good morning, panel. Thank you for joining us. Mike Norris made a comment about conflicts of interest. He comes from the industry and he suggests that the AIB can deal with such issues. I, too, am sure that it can, but when there is a conflict of interest and money is involved, it is prudent not to go down such a route for all parties concerned—not just the industry but the applicant and the client.
Hanzala, are you coming to a question?
My question is: how can absolute transparency be guaranteed when a body is making a judgment on something that it has already delivered?
I honestly do not think that that can be guaranteed. I have no issue with anything that you said about fairness and transparency. That was absolutely correct.
Martin Prigent has heard Mike Norris’s answer about his position. Do you agree with it?
If we drew on a blank piece of paper what the system needs to look like, we would probably draw a regulator that is completely separate from the people who provide the services, which would produce something that is completely unbiased and balanced. We are not quite there, because this thing is already in process—we live in quite a complex process. However, I would like us to move to that blank-piece-of-paper approach and have a regulator that is separate from the service provider.
That was very helpful.
I will direct my first question to Donald McKinnon. I said that I suspect that the AIB has people with the appropriate knowledge and professional skills to take things forward in the way that has been suggested. We are looking at the bill’s general principles; we are not delving into the absolute detail at the moment.
Independence is largely based on perception. If the perception suggests otherwise, there could be a conflict of interest.
Whose perception?
The creditor’s perspective. There may or may not be a public perception that there is a conflict of interest but, if there is, there is no way to alleviate that.
In evidence last week, the AIB assured us that it would resource the measure, was moving towards it and would ensure that the checks and balances were there. Do you not accept that?
That might be the case, but I can only act on statistical information from when I have practically dealt with the AIB over the past six years.
So you do not agree with the general principle. That is what I am getting at.
If the AIB is able to deliver, that is fine, but—
So you agree with the general principle.
If the AIB can deliver it.
That is fine—thank you.
A witness last week suggested that, if we were discussing whether there was a conflict of interest, there was already a conflict of interest. Do you share that view? It seems that the public are always unhappy when they see an organisation tasked with investigating itself, because it does not have the required separation. Do you agree that, regardless of how many firewalls there are, whether the system is set up with the best of intentions and even whether it works entirely independently, smoothly and as we would wish, it will never have the trust that it needs?
If there is a conflict, there is always an opportunity for the insolvency practitioner to resign and be replaced by another, although I am not sure how that would work in practice.
Does Mike Norris agree?
Yes. There is always a problem with public perception. The view that I gave is the perception of someone whose company works in the insolvency industry and who works closely with the AIB, so we have some knowledge. For me, that perception is not there, but I absolutely agree that the wider public perception will be such that people say, “That can’t be right.”
I bring in Mark McDonald to ask about a different subject.
You might have heard our discussion with the previous panel about money advice and financial education. I will return to those topics because there is a range of views on them in your written evidence.
On comparing apples with apples, I was in the policy side of Government for about eight years in a previous life and I believe that using other regimes’ experiences is commonplace and sensible. We have to be careful about dropping what is done in the US or anywhere else on top of any other nation state, because there will be local reasons why a measure might not work there, but I do not necessarily agree that we cannot make a valid comparison. We just need to recognise the differences.
I hear what you are saying and take your point. Do you consider that the principle is flawed? Alternatively, do you believe that the requirement for financial education is a good principle and that it is how it is executed in practice that is key? The latter point would have to be followed through in post-legislative guidance.
My point is that I agree with the principle of financial education but not with the principle of mandatory financial education, because it is a waste of resources. We have to be realistic. If it is going to be done, it will need to be paid for, so to have people going through such education and incurring costs when they do not need to is, to be blunt, a waste of money and probably a waste of their time.
I will echo some of Mike Norris’s words. I have no knowledge of the American system, but the computer in the corner of the room sounds quite interesting.
Obviously, there is the prior money advice and there is also the financial education. We heard evidence about the ability of insolvency practitioners to dispense money advice and we heard ABCUL apply some caution to that notion. First, should insolvency practitioners be included in the list of organisations that can provide money advice? Secondly, what distinguishes them from the other organisations that currently deliver money advice? Thirdly, if our committee recommends that insolvency practitioners should be included in the list of those who can dispense money advice, should we include a safeguard similar to ABCUL’s suggestion that any insolvency practitioner giving money advice should be prevented from handling the insolvency or bankruptcy of the individual being advised?
Clearly, I agree that insolvency practitioners should be included in the list of money advisers. We are highly regulated, experienced and highly qualified to give that money advice. The first point is that we should be on that list.
Almost mirroring what Alison Anderson has said, I agree that we should be on that list. We are probably the most heavily regulated money advisers out there. We are subject to self-conformity to whatever organisation we choose to be licensed through.
I think that insolvency practitioners should be on the list of organisations that can provide money advice. What distinguishes insolvency practitioners? To be flippant, not a lot really. There are some money advisers out there who are very good at identifying the right option for individuals and signposting them in the right way. Equally, there are some very good IPs out there who can do that as well as the money advisers.
Essentially, there should be the potential to seek a second opinion.
Yes.
My organisation sits between advisers or debt solution providers and creditors, so cases come to us from a wide variety of providers of debt management advice, including the charity sector and the free advice sector as well as insolvency practitioners. In all those different sectors, we see examples of great compliance and great advice to the consumer, but we also see exactly the same failures as well. It is not necessarily the case that one group is any better than the other—I am fairly agnostic on that. As Alison Anderson and Donald McKinnon said, the fact that IPs are heavily regulated should transfer into making people confident and comfortable about the proposals that have been put forward. I do not think that IPs would be any worse or any better than anybody else out there.
I would like to follow on from Mark McDonald’s points and seek clarification, if I may. In the previous session, we were told that IPs give money advice for an hour and there will be no charge. I think that I heard Mr Norris say that such advice would take a fair amount of time. Is it charged for? Do you charge for money advice?
I am not an IP.
Does that happen to your knowledge?
I am probably the wrong person to ask. I do not think that I mentioned anything about IPs giving advice for an hour. That was certainly mentioned in the previous session.
To be honest, it takes as long as it takes.
And is it free?
Yes.
Does Mike MacKenzie have a question on the same point?
It is on a similar point. Earlier, we heard from the Association of British Credit Unions. In its written evidence, it said that there are IPs that are known on the street to give good deals that afford people with debt problems the ability to continue with a high-flying lifestyle after having gone through an insolvency or debt advice process. I have some constituency or regional experience of that. Are you aware of that happening? From what you have suggested about the regulation of the industry, surely that would not be possible.
I have been involved in a couple of high-profile cases. There is always a certain public perception that arises because creditors are quite happy to suggest that somebody is driving a particular vehicle, but in reality that individual may not own that vehicle. It could be owned by a third party or whatever. There is an automatic assumption that the person owns a vehicle if they are seen to be driving it, but nine times out of 10, that is simply not the case.
Are you suggesting that the credit unions are entirely wrong?
I am not suggesting that they are entirely wrong. Again, it comes back to perception. Every case is judged and treated on its own merits. Insolvency practitioners are heavily regulated, and most firms are internally and externally regulated. I have worked in the profession for over 20 years, and I have never seen so much regulation in all my life.
Okay. Is it perhaps because IPs, companies, partnerships or whatever are overregulated that it seems that they are constantly breaking up and being bought and taken over by others to the extent that it is sometimes almost impossible to follow a particular case, as the company has been bought several times and the people who are dealing with the case have changed? Is it because the companies are so heavily regulated that they do not seem to be able to survive as businesses for very long?
To be honest, I am unaware of lots of firms breaking up and moving on.
That happens because of the world we live in, but I do not really see the relevance.
Most often, the cases would be transferred with the practitioner.
Yes. It just seems that there is a lot of that happening, and perhaps that makes it difficult to regulate.
The cases and regulation would be transferred. Whoever a person chooses to practise under the banner of is almost irrelevant.
The IP is regulated.
Yes, but IPs leave and no longer deal with cases. Somebody else will take them over, and they will then leave. That seems to be rife in the sector.
I am not sure how relevant this discussion is to the bill, Mr MacKenzie.
We talk about perceptions, including public perceptions, quite a lot. As has quite rightly been said, it is sometimes difficult to separate anecdotal evidence from widespread practice, and that is the area that I am trying to explore. I am suggesting that all areas that relate to the difficult business that we are discussing are subject to the same perceptions and that nobody is seen as being absolutely reliable.
Answering that question from a creditor’s perspective, I point out that, as a bulk creditor, we have thousands of trust deed cases and that, given that it is important for money to come back to us, we want this to happen. The idea that a large number of debtors out there are playing the system is a fallacy. We just do not see it. I will be interested to hear Martin Prigent’s view on this; there are certainly some debtors who play the system, but I would have to say that they are not the majority or even a significant minority. I honestly believe that the vast majority of debtors are in their position through no fault of their own and, in the vast majority of cases, IPs generally do an okay job in coming up with a reasonable level of repayment of debtors. It could be higher but, as a creditor, I would always say that.
That was very helpful.
On the resources that are available for money advice, we have heard evidence that money advisers, particularly in the voluntary sector and local authorities, are being stretched at the moment. Given that that situation is not likely to improve, should IPs be available to give money advice? The voluntary sector is certainly under a lot of pressure. There are long waiting lists, and people who phone up Citizens Advice Scotland find themselves having to wait for appointments. The same is true for money advisers in councils; sometimes you cannot even get through on the phone. Because of that demand, should IPs give money advice?
On a practical level and from a commercial point of view, the insolvency practitioner is generally available seven days a week and can visit individuals almost everywhere. Having worked in and been a chairperson of citizens advice bureaux, I can see the situation from both sides of the table. Bureaux have different protocols and will, for example, book two people in the morning and two people in the afternoon, whereas a similar commercial practice is able to see more people. It is not that the commercial practices are churning people; they simply have more staff and a different, more commercial attitude to seeing individuals.
Yes, but there are no resources for money advice in the bill, which implies that it would be free. Is that the case for independent money advisers?
Yes. Insolvency practitioners should be on the list of money advisers for all the reasons that have been highlighted. As Donald McKinnon has said, commercial businesses such as Armstrong Watson and Wylie & Bisset see a lot of people who are looking for advice, and the advice that they give is free. People make an appointment and come in and the process takes as long as it takes.
So the appointment does not last only an hour. People can go back and see you again.
It takes as long as it takes. You have to bear in mind the circumstances of individuals who come into our office and the huge amount of effort that it has taken for them to realise that they have a problem. As you have said, they have not been able to get through to various bodies on the phone; they have taken the plunge, have made the call and have been let down. We pick up their call and run with their case. We give them advice and, in fact, simply let them tell their story; after all, letting someone else hear their story very often makes it easier for them to see the wood for the trees.
What do you think of the previous suggestion that financial education be part of school education?
Starting this sort of thing very early on at school is an excellent idea. However, I agree with Donald McKinnon about the low number of cases where financial education might have helped. I have administered approximately 2,000 cases since 2004 and believe that such education would have helped only in a very small percentage of cases. It is a minor issue.
Mike Norris mentioned a computer system in the US. How would that sort of thing be provided in Scotland if we went ahead with it?
The evidence that we have just heard has been very useful. I was not, for example, aware of the proportions of people who might need financial education but, if money was going to be spent on this sort of thing in Scotland, I would rather see those 50 people get really in-depth financial education that might involve face-to-face, computer or remote learning. Scotland might have its own peculiar issues with delivering that type of education, given the number of people who live on remote islands and so on. If you are going to do this, it needs to be targeted. If these are the proportions that we are talking about, you could probably construct a very effective financial education course.
Of course it all comes back to resources. Given the pressure that the voluntary sector is under, who would provide this financial education? That is certainly not made clear in the bill.
It should not be linked to discharge. As the numbers show, we do not have an issue with repeat offenders because of a lack of financial education.
I absolutely agree with Donald McKinnon about getting financial education before discharge—I simply cannot see the rationale behind such a measure. I suspect that the people who need financial education are those who are least deserving of punishment. They might just be financially inept and it seems unfair to punish them by delaying their discharge.
I call Joan McAlpine.
My question is not about financial education, convener.
That is fine. I think that we have dealt with that issue.
You might heard the previous panel’s concerns about the profits made by the insolvency business and I know that you touched on the matter when you talked about regulation. My question, which is for Alison Anderson, concerns an example from my constituency of what could be viewed as that kind of profiteering. Two years ago, dgArts in Dumfries went into liquidation and it has taken two years for the liquidator, Armstrong Watson, to come up with any deal for creditors, many of whom are artists living on the margins. You recently told them that they would get 12p in the pound, but your hourly rate is £177. One of my constituents, Rab Wilson, was owed £1,200 but his payout will be only £144, which is less than what Armstrong Watson charges in an hour. Do you consider that to be fair or an example of why the industry needs to be regulated?
The member is entitled to ask whatever question she wants and the question itself is relevant to the subject in hand. I appreciate, Ms Anderson, that you might not have come prepared to answer that question, but if you want to do so, it is entirely up to you. Please do not feel that you have to.
I would prefer not to, but I could have a discussion with Joan McAlpine after the meeting. I have to say, though, that there was a very good reason why the process took two years. It was all to do with an insurance claim.
The details of the case are not of particular interest to the rest of the committee so perhaps the issue should be discussed separately.
I just think that when a creditor gets less than the insolvency company’s hourly fee, there is something badly wrong with the industry.
I think that you have made your point.
I am happy to address this issue, and I am sure that Martin Prigent will be happy to do so as well.
I echo that. There has been constant criticism about the fees for quite a long time. That will have come across strongly in all the creditor evidence that the committee has received. Creditors have now engaged with the industry on this—with the trust deed working group, for example, on the regulation—and there is a lot more engagement by creditors. To be fair, at any point creditors can try to control fees on cases; they just need to understand their rights and what they can and cannot do.
Perhaps fees should not always be mixed up with profit. There are an awful lot of running costs in an organisation. Software licences are required in order to be compliant with the regulator, and the average cost of those is £850 per user. Although fees may be high, profits could equally be low.
My question is directed to Mr Norris, who brought up the issue of a moratorium. Many people get into debt through no fault of their own—it is down to circumstance. As has been mentioned, it could result from the loss of a job or unforeseen bills that they find themselves not in a position to meet. Often, the adverts on television get them to try a quick fix that does not work. Do you support the general principle of a moratorium? If so, why?
I can answer your first question very quickly: yes, I do. In answer to your second question, I go back to the point about breathing space that was made earlier. A moratorium allows the debtor to get their head around what they are going into, which is a fairly complex and traumatic experience for them. I am struggling to come up with a definite reason, but it just feels right to have a moratorium up front to allow things to progress and to allow everyone to get their head around the process. I appreciate that that is not a very satisfactory answer.
Does it, to some extent, enable the process of money advice education?
Absolutely. All those things can be done in that period.
Are there any other views on the moratorium?
Creditors work to their own moratoriums, to an extent. A lot of creditors will now give debtors a certain amount of breathing space before they enter a debt solution if the debtor mentions that they are struggling. It is an issue that is recognised by creditors, which is good news for debtors who need breathing space. There is a quite complex process of bringing a lot of things together in a short period of time, and the moratorium allows that to happen.
I have a question on something that has not yet come up with this panel, but which came up with the earlier panel. It is for Martin Prigent and Alison Anderson, who both mention the issue in their written submissions. Why do you think that the six-month discharge period for MAP debtors is inappropriate?
I agree that, in cases in which the debtors meet the criteria for the MAP, there is very little return available to creditors, so we need to try to wipe the slate clean in a reasonable amount of time. I possibly came at the subject from an anti-creditor viewpoint in that I believe that the period should be 12 months because I believe that the debtor should have a slightly longer breathing space. I do not think that six months is long enough to rehabilitate the debtor, take them out of the marketplace and protect them from whatever advertising and loan selling is going on. I think that 12 months is a better period of time in which to do that.
You think that the debtor would benefit from a longer period of protection.
It would give better protection for the debtor if the period were extended slightly.
Is “rehabilitation” the correct term? Are we not talking about informing, advising and educating? Are we not talking about “habilitation”, which is a much more positive outcome?
I agree that it is about all those things. Ultimately, it takes us to the same place.
Okay.
My comments are similar to Martin Prigent’s. Six months is not long enough to deal with the situation and give the debtor the protection that they need from creditors. Debtors will always continue to get documentation from creditors, and we need to deal with that. It is a practical thing to do.
There are no further questions. Thank you all for coming. It has been very helpful for the committee to get your evidence.
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