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Under agenda item 3, the committee will consider the drafter’s response to the committee’s questions on consolidation in parts 15 to 18 of the Bankruptcy (Scotland) Bill and on the schedules to the bill.
Members have no comments to make. Does the committee agree that I should write to the drafter to follow up on his response in relation to the committee’s questions on section 206 and paragraph 5(4) of schedule 1?
Members indicated agreement.
Members have no other concerns to raise.
We come now to agenda item 4, which is to take oral evidence on the Bankruptcy (Scotland) Bill. I welcome David Menzies, the director of insolvency at the Institute of Chartered Accountants of Scotland—ICAS—and Rachel Grant, a member and former chair of the Scottish technical committee of R3, the Association of Business Recovery Professionals.
It occurs to me that Mr Menzies might pronounce his name as “Mingis”. Could I clarify that, please?
Either is fine, but I would prefer the “Mingis” pronunciation.
That is absolutely fine. As I said “Menzies”, I wondered, and I thought that we should at least make sure that we refer to you correctly. John Mason will start the questioning.
Thank you, convener. I should declare that I am a member of ICAS, so I will be particularly harsh in my questioning of Mr Menzies. [Laughter.]
In your submissions, both your organisations said that they support the consolidation of bankruptcy legislation. Could you make a few comments as to why you support it?
We very much welcome the bill. Indeed, it is probably overdue. There have been so many changes to bankruptcy legislation since the big change that was introduced in 1985.
As a lawyer who works with the legislation on a daily basis, I believe that it is unwieldy. It is not particularly accessible to anybody who has to use it. We think that the consolidation bill is very welcome. We are impressed with the work that has been done on it to produce what we view as a properly flowing bill. As always, there are different views on some of the stylistic and structural points, but there is nothing really substantive about the bill that causes us any concern.
11:15
As Rachel Grant says, the bill is long overdue. Thirty years of various bills and enactments have made the legislation unwieldy. It has lost a lot of coherence. From the point of view of a practitioner using it on a daily basis, I would say that it is difficult to work with. Without the commercial consolidations that have been done in various textbooks, it would be virtually impossible for practitioners to work with the legislation as it is. The opportunity to re-base it, to bring it all back into a coherent structure and to make it much more accessible and user friendly for practitioners is much welcomed.
You both used the word “unwieldy”. From my perspective, lawyers and accountants are used to dealing with complex law a lot of the time and looking at law in a lot of different places. Has this area of law been exceptionally difficult to deal with?
You have only to look at the Bankruptcy (Scotland) Act 1985 to see that it is very unwieldy. Having to find provisions named something like 5(A)(c)(ii)(d) makes it very difficult to follow. That is the first reason for consolidation—it sets things out in a proper, flowing way, with no duplication of capital letters and section numbers and so on.
The second reason is that the legislation has changed over the years. For example, recently, the Bankruptcy and Debt Advice (Scotland) Act 2014 introduced a specific requirement for a debtor to co-operate. There had always been a requirement to co-operate, but it was not spelled out. The current legislation has the duty to co-operate set out all over the place. If we pulled that together into one specific part of a new act, it would be easier for stakeholders to follow.
It is not just lawyers and insolvency practitioners—IPs—who deal with the legislation; it is also the general public, and it has to be accessible to them. I am not suggesting that everybody wants to sit down and read the acts, but they should not be exclusively for lawyers and accountants.
Fair enough.
My next question is whether this is the right time to be doing a consolidation. If it should have been done earlier, we cannot do much about that. There is a suggestion in the ICAS submission that we have also had from other people, which is that there will need to be further amendments to bankruptcy law, so one obvious suggestion would be to wait a bit longer before we do a consolidation. Is this the right time to be doing it?
This probably is the right time to be doing it. Our last major piece of bankruptcy legislation was passed last year, and I understand that there are no intentions on the part of the Scottish Government to make further major amendments to bankruptcy legislation in the short term, so it probably is the right time. The legislation will never stand still, but it is now so unwieldy that it needs to be re-based, so that subsequent amendments can be made in a coherent manner.
Has the 2014 act—being so recent—settled down enough for us to go ahead with the consolidation? Should we have given it a wee bit longer to settle down?
While there may be some smaller tweaks that might come through in due course, I do not think that that should prohibit the consolidation happening at this time. Some issues have certainly been identified with the legislation as now amended, around the common financial tool, and it is thought that it is perhaps too rigid. There are some issues around the ability of insolvency practitioners to deal with the debtor contribution order, and that would require a change to primary legislation. However, the overall benefit of amending the legislation now will outweigh any time delay that might be required to make those amendments.
Is that your feeling too, Ms Grant?
Yes, I agree with that. The fact that new legislation dating from 2014 has just come into force this year makes it better to introduce the consolidation act now, simply because people have only started becoming familiar with the new legislation or perhaps are not even familiar with it yet. That means that there will be a one-stop shop, if you like, and people will just learn the new provisions and new section numbers. I think that that is a good idea and that the 2014 act should not delay the new bill coming into force.
You talk about people learning new section numbers and so on. Paragraph 18 of the ICAS submission talks about some of the practical difficulties that will arise because section numbers will change. You say how that would affect
“publications, websites, work programme, template letters, software, compliance checklists and other documents”.
That sounds a wee bit scary. Are we talking about serious costs as a result of consolidating the legislation?
It is difficult to estimate the costs, because each firm will have different degrees of publication. Some will not make specific legislative references but will instead deal with the generics. It is difficult to make a firm estimate of what the cost is likely to be, but I do not think that the cost will be prohibitive. Changes are always required, and that is just a fact of professional life that needs to be taken into account. At the same time, the overall benefit of having a coherent, accessible and usable piece of legislation far outweighs those one-off small costs that will be incurred.
You have answered my next question. You are clear that the benefits outweigh the costs.
Absolutely. The very fact that the legislation will be much more accessible and coherent will undoubtedly outweigh any one-off costs.
My final questions are about promoting the consolidation and telling people about it. Our two witnesses are obviously right at the centre of things and know exactly what is happening. However, Ms Grant said that some people are perhaps not familiar with the 2014 legislation. Should the Government or somebody else be doing more to promote the changes, explain them to people and say what is happening?
The principal users of the legislation, who will be insolvency practitioners, other advisers and lawyers, will be able to promote the changes. They are not changes in substance at all; they are just changes in the structure of the legislation. The general public are more interested in the concepts and the substance of the law, rather than whether apparent insolvency is under section 7, as at present, or under whatever the new section is—I am afraid that I do not know off the top of my head.
My experience from advising people is that nobody is interested in section numbers; they just want to know what the law is. I suspect that the same is true for insolvency practitioners who have to deal with people in financial difficulty. It is not the numbers that are important; it is what the law actually says.
I do not have much to add to that. The profession will undoubtedly promote the consolidation bill. The Accountant in Bankruptcy, as the agency working on behalf of the Government, has very good channels of communication not only with the profession but with money advisers through the citizens advice bureaux and Money Advice Scotland. The word will get out to those who need to know it on a daily basis.
R3’s technical committees are really what drives R3. Recently, when there were changes in corporate legislation, we issued technical bulletins highlighting the changes in what we hope was an easily understood manner for our members. We will certainly do something similar if the bill becomes law. That is part of R3’s remit.
Before I bring in John Scott, who wants to discuss the structure of the bill, I want to ask about its scope. Will you expand on whether the debt arrangement scheme should or should not be within the scope of the consolidation? I think that our witnesses might have slightly different views on that.
In summary, R3’s view is that we do not believe that DAS should be included at this stage, but it could be included in future if that was thought to be appropriate. We believe that, if DAS were included, work would be required to go through the existing act and regulations to determine what should properly be in primary legislation and what should remain in the regulations. That is an exercise that I understand has not yet been done. Our concern is that that might delay the bringing into force of the consolidation act.
We see DAS as a separate procedure, if you like, and quite distinct from sequestration and protected trust deeds. There is clearly an overlap in that all three of those are designed to assist people who are in financial difficulty. DAS is primarily a debt restructuring tool, although it has a small amount of debt relief in it, whereas sequestration and protected trust deeds are primarily debt-relief tools.
Another point that we would make is that DAS was introduced in 2002 and it has its own distinct act and regulations—in effect it stands alone—whereas sequestration and trust deeds have been around for hundreds of years, although not in their present form. Their legislation is unwieldy and is based not just on the legislation but on quite a body of case law.
For those reasons, we think that the act as it stands is correct. We do not have any objections to DAS being included, but we would be concerned that introducing DAS now might delay the bill coming into force.
I think it is fair to say that our view differs slightly, but only in terms of the timing. As Rachel Grant said, R3 is potentially supportive of including DAS in the future. Our view in ICAS is that, as we are going through the procedure of consolidating legislation in relation to bankruptcy now, this would be an opportune time to bring the debt arrangement scheme into that.
Some people say that DAS is a different scheme—it is not meant for bankrupts. The Bankruptcy (Scotland) Act 1985 is quite clear that it is about people who are unable to pay their debts, but in some ways that is also what the debt arrangement scheme is about. It is for people who cannot pay their debts at the time that they fall due. While the mechanics of the debt arrangement scheme are somewhat different in relation to the estate—the assets are not transferred across and controlled by a trustee—the end product is substantially the same. It is about debt relief and relieving people of those pressures when they have them.
A lot of harmonisation has been carried out between the debt arrangement scheme, bankruptcy and trust deeds as a matter of Government policy over the past few years, which is very evident in the Bankruptcy and Debt Advice (Scotland) Act 2014. That has brought together mandatory debt advice, all debts have to be included in all three procedures, the moratorium covers all three procedures, and the use of money advisers, the common financial tool and the Accountant in Bankruptcy’s role are common across all procedures. It therefore seems to us that it would be better, for money advisers and for users of the legislation, for all that to be within the one piece of legislation.
That is not to say that having it in two separate pieces of legislation is detrimental. At the end of the day, professional advisers would be able to work with that, but we think that it would make more sense to have all three procedures within the one piece of legislation. Practitioners are now advised, as part of mandatory debt advice, that they have to consider all three options for the debtor.
In the written evidence that I submitted to the committee, I provided an example of a debtor who did not have much in the way of assets, but who was able to make a contribution. In that case, all three procedures were equally applicable. Therefore, it seems appropriate for all of that to be within the one piece of legislation.
I am grateful for that. It suggests that maybe, if we were sitting here in 10 or 15 years’ time, doing it again, we might be asking the same question and expecting the legislation all to be in one place. Perhaps by then it will all have been amended a bit more and it will all need consolidating.
I suspect so.
If I may, I will make the point that the bankruptcy legislation as it stands, and as it is set out in the bill, covers a lot more than the options open to a debtor. The bankruptcy legislation is also available for creditors; that does not apply to DAS. The whole structure is quite fundamentally different in that, as David Menzies said, with sequestration and, to an extent, with protected trust deeds, assets are transferred to a trustee. In effect, the trustee takes control of the debtor’s assets—it is quite a draconian measure—whereas with debt arrangement, the debtor remains in control of his assets.
The provisions in the 1985 act and in the bill deal with the impact of that transfer of assets from a debtor to a trustee. A lot of the bankruptcy law would be irrelevant to DAS, so I question whether it would make life easier for those who advise on DAS to have to look at a bankruptcy bill that includes everything. If DAS were to be included, we suggest that it should perhaps be in a separate schedule or something like that.
11:30
That is helpful. Let us leave that there.
John, I believe that you want to consider the structure of the bill.
As we seem to be talking about rearranging the cards in the pack, so to speak, I think that both of your submissions suggest a number of ways in which the bill could be restructured. Will you expand, in general terms, on why the bill needs to be restructured in those ways and what challenges those using the legislation would face if the bill retained its current structure?
As stated by the drafters and the Government, the bill’s aim is to have a properly flowing, logical and user-friendly piece of legislation. The bill follows the traditional 1985 act structure, which, although familiar to people like us who have been using it for a long time, is no longer necessarily the logical way to approach things. Over the past 30 years, there have been quite substantial developments in the law, and we suggest that it makes sense to change the structure to take account of those developments and follow a chronological sequence of events, starting off with the decision whether to enter bankruptcy or, for a creditor, to take bankruptcy proceedings, through to the appointment of a trustee, the role of the trustee and, finally, payment of creditors.
ICAS has set out quite a lot of useful examples. By way of example, I would mention section 209 in the bill, which relates to extortionate credit transactions. We think that it would be better to include that in part 7, on safeguarding the interests of creditors. There are various sections in the bill in which trustees can challenge a debtor’s actions, and extortionate credit transactions would sit very well in part 7.
Another example would be the duty to co-operate which, as I mentioned earlier, was introduced in 2014 and is now quite fundamental to the legislation. That duty could be put in a specific section on the debtor’s responsibilities and, in that respect, we suggest part 9, which deals with examination of a debtor. Logically, you put the duty on the debtor to co-operate; if he does so, that is fine, but if not, the trustee can take various steps, such as having the debtor examined under oath in court.
A final example is apparent insolvency, which is a concept in sequestration—in fact, it is the gateway to sequestration. As a creditor who petitions for sequestration cannot get it unless they can establish apparent insolvency, it makes sense to put that at the beginning, given that it is fundamental to sequestration.
A moratorium on diligence is fundamental, as it has an impact on all sequestrations right at the beginning of the process when the applications are being made. Again, therefore, it would seem sensible to put that at the beginning. It would be an exercise for the drafters, but I do not think that it would be a particularly difficult one for them.
Are you both content that such a reshuffling of the pack, as it were, would provide a more reasonable approach to the problems?
Absolutely. The drafters have done a good job in, for instance, moving the Accountant in Bankruptcy’s remit slightly further into the bill instead of having it as the first thing in the legislation. That is helpful as it gets us right to the nub of the issue and ensures that the things that people who use the legislation day to day want to know are right at the beginning of the bill.
As Rachel Grant has said, other things could be shuffled slightly differently. That is not to say that where they are just now is not valid, but from a practitioner’s point of view, moving some stuff from the part entitled “Miscellaneous” into the main body of the bill would provide coherency and be extremely beneficial.
I think that John Scott’s other questions might well have been answered.
Yes. The witnesses must be psychic—they have answered my questions before I asked them. Thank you.
I omitted to mention a quite important change to the structure that we have suggested, although it is not fundamental and it would not be disastrous if the change were not made. Interpretation sections traditionally come at the end of legislation. When I look at a piece of legislation with which I am not familiar, I always read the interpretation section first. It seemed to us logical to break with tradition and put the interpretation section at the start, as it would set the whole bill in context.
Doing that might avoid the need for some of the extra definitions that are scattered throughout the bill. Sometimes we need specific definitions for specific sections, but in general we think that, if the interpretation section were at the start, separate definitions could be avoided and the length of the act could be cut down, making it a bit more user friendly.
Thank you.
I have a question for Rachel Grant. The R3 submission expresses concern about inconsistency in the language used, in particular the terms “forthwith” and “without delay”. The committee, too, identified that as an issue. Will you expand on your concerns in that regard? Are there other inconsistencies in language that you would want to highlight?
“Forthwith” has been used in bankruptcy legislation for a long time, and people who operate in the area understand what it means. There is a huge body of case law in that regard, and there have been many disputes over the years about what “forthwith” means. For that reason, we are in favour of keeping the term, although we accept that it is slightly archaic. As far as I am aware, it does not cause huge problems for anyone other than lawyers. People get what it means.
You think that people understand how it is interpreted, so, in that sense, it is a robust term.
That is right. In general, we think that, for clarity, the same terms should be used throughout the legislation. I have read some of the comments that have been made about that. For example, in one subsection the word “obligant” is used and in the next the word “co-obligant” is used. The language needs to be tidied up.
We also have concerns about the use of abbreviations that are not helpful and do not aid understanding at all. We suggest, therefore, that abbreviations be removed, with the exception of AIB, which is well known to mean the Accountant in Bankruptcy, and perhaps PTD, which stands for protected trust deed. Other shorthands such as “OC” for other creditor—and sometimes any other creditor—just add to the complexities.
The third point that I was asked to comment on was the question of actions falling asleep. Perhaps that just indicates what the law does to people.
No, we are very alert.
Section 27(12), which is a carry-over from the 1985 act, says:
“Where sequestration has been awarded the process of sequestration is not to fall asleep.”
Falling asleep means that if something has not happened with a piece of litigation for a year and any party to that litigation wants to take action, they have to give more than the normal period of notice. For example, if a person wants to enrol a motion in court, the usual notice period is 24 or 36 hours or possibly seven days; with actions that have fallen asleep, there will have to be a longer period of notice to give people the opportunity to think about things.
The concept of falling asleep was repealed in the sheriff courts in 1907, but it continued in the Court of Session for a longer period. More recently, however, the concept of falling asleep has been updated to refer to a case in which no order has been made for a period of a year. I realise that I am giving you a bit of a history lesson here, but I should point out that, when the 1985 act was drafted, the Court of Session and the sheriff court could deal with sequestrations. Now that only the sheriff court can do so, the concept is not relevant.
I do not know whether, in a consolidation bill, that provision could be deleted. It certainly has no role in legislation at the moment.
Highlighting those points has been very helpful, and I hope that ministers take note of them as the bill progresses.
I see that Mr Menzies has also raised the same concerns about the use of the phrase “fall asleep” that Rachel Grant has outlined.
Yes. I am grateful to Rachel Grant for her knowledge of history, which is more extensive than I am able to provide. Suffice it to say that none of our insolvency practitioners was familiar with the concept of something falling asleep.
The point is well made.
I note that you, too, are concerned about abbreviations, Mr Menzies.
Yes. Although abbreviations can be valid in certain circumstances, we do not feel that they add to the legislation’s understandability or usability. Perhaps it is to do with familiarity with the current legislation. In particular, we feel that the definition of “associate” with reference to persons A through to K to highlight different people or complexities in relationships is simply too unwieldy to use on a practical basis.
Given that the intention is to make the legislation more user friendly, that would seem to defeat the purpose.
Absolutely.
Those very helpful comments will help our deliberations, and we hope that they will be noted by the Government, too.
That brings us to the end of our questions. On the issue of abbreviations, am I right to distil what I think you have said as meaning that you are very happy for an abbreviation to be used if it is standard outside the legislation, as AIB would be, but that you are not very happy with abbreviations being put into the legislation otherwise?
That is correct. As Rachel Grant has said, the terms AIB and PTD are well understood and are fine. Beyond that, though, abbreviations are unhelpful.
Is there anything else that you would like to put on the record? What you have said so far has been very helpful, but I would not want you to feel that you have not had the opportunity to add anything that we might have missed.
Nothing in particular, other than to say that we support the bill’s principles and are grateful for the opportunity to provide evidence.
Thank you for providing that evidence, which is much appreciated.
I briefly suspend the meeting.
11:44 Meeting suspended.
Agenda item 5 is consideration of the draft section 104 order that has been provided to the committee and provisions that relate to or touch on the law on reserved matters that are restated in the Bankruptcy (Scotland) Bill. As the bill restates certain provisions of the Bankruptcy (Scotland) Act 1985 that have remained substantially unchanged since they were enacted by the Westminster Parliament, some provisions will not have been subject to scrutiny by the Scottish Parliament, including an assessment of compatibility with the European convention on human rights. The Presiding Officer and the Scottish Government have issued statements of their views on the legislative competence of the bill’s provisions, as required by section 31 of the Scotland Act 1998.
Does the committee wish to ask the Scottish Government about its approach to assessing the compliance of the bill’s provisions with the convention?
Members indicated agreement.
Agenda item 6 relates, yet again, to the Bankruptcy (Scotland) Bill, but in this item, the committee is invited to consider the written evidence that has been received in response to the committee’s call for evidence on the bill. We have just heard from two of the organisations that responded to our call. If members have no comments on the responses that we have received, can we agree that we are comfortable with the evidence?
Members indicated agreement.