Bankruptcy and Diligence etc (Scotland) Bill: Stage 2
The second item on the agenda is what should be the final session of our stage 2 consideration of the Bankruptcy and Diligence etc (Scotland) Bill. I welcome to the meeting the Deputy Minister for Enterprise and Lifelong Learning, Allan Wilson, and his team. We will go through the amendments as set out in the marshalled list.
Section 193 agreed to.
Section 194—Abolition of sequestration for rent and restriction of landlord's hypothec
Amendment 487, in the name of the minister, is grouped with amendments 488 to 491.
The bill abolishes the common law diligence of sequestration for rent. Such a diligence has nothing to do with bankruptcy. Indeed, it works in much the same way as the old diligence of poinding, except that, in practice, it is much worse than poinding ever was. It is used by landlords to recover unpaid rent by selling certain types of goods kept in leased property.
Sequestration for rent allows landlords to get into property without giving notice to tenants; to sell the goods that they find there, even if they belong to someone other than the tenant; and to have tenants ordered to refurnish the property so that the whole process can start again. Such a mechanism has no part to play in a modern enforcement system, not least because a landlord is able to use other diligences to recover unpaid rent, such as attachment, which we have discussed at length.
Sequestration for rent can be used to sell only goods that are secured by a right known as the landlord's hypothec, which arises automatically whenever there is a qualifying lease. The bill makes some changes to the hypothec, even though it is not a diligence. For example, it completes the process of abolishing the hypothec over goods in dwelling-houses that was initiated by the Debt Arrangement and Attachment (Scotland) Act 2002. It also abolishes the hypothec over goods owned by a third party.
The amendments in the group are intended to clarify the effect of abolishing sequestration for rent and restricting the application of the hypothec. Amendment 487 clarifies that the bill does not create any new preference for the landlord when competing claims are ranked, and has the effect of giving landlords preference only in a bankruptcy or a similar process that follows from the fact that the hypothec continues as a security.
Amendments 488 and 489 clarify the effect of the transitional arrangements in sections 194(10) and 194(11) that are needed as a result of the changes made by the bill. Amendment 490 makes a small change that is needed to reflect the fact that the hypothec is not created by the parties to a lease but arises by operation of law. Finally, amendment 491 clarifies that the hypothec does not arise over any part of a dwelling-house, including a garage or any outbuildings.
I move amendment 487.
Amendment 487 agreed to.
Amendments 488 to 491 moved—[Allan Wilson]—and agreed to.
Section 194, as amended, agreed to.
Section 195 agreed to.
Before section 196
Amendment 492, in the name of the minister, is grouped with amendment 493.
The debt arrangement scheme is a groundbreaking new debt tool that was created by the Debt Arrangement and Attachment (Scotland) Act 2002. At the moment, the Executive supports 80 DAS-approved money advisers, who cover most of Scotland and help 190 people to manage debts amounting to £2,867,000.
As we know that the DAS can work, I want to go further and make it even better. One way to do that—and one way to address one of the money advisers' main concerns about the scheme—is to stipulate that the debts in a debt payment programme do not need to be paid in full. At present, during a programme, creditors can apply interest and charges to the debt. However, the debtor's payments may not be enough to cover accrued interest and charges, which means that they can complete a programme and still be in debt. As that makes no sense, there is a strong argument for freezing interest when a programme is approved.
We could go further and cancel part of the debt. For example, someone with a debt of £10,000 who pays £150 a month over five years will repay a total of £9,000. I am sure that members will agree that five years is a long time, and that perhaps a person in that situation should not have to pay the last £1,000.
The best way forward is to introduce a new enabling power under the 2002 act. Regulations could then sort out the many technical details that will need to be resolved if the principle of having debt relief in the DAS is agreed. Amendment 492 seeks to give the Scottish ministers a new power to provide for debt relief, which will supplement the existing regulation-making power in section 7 of the 2002 act.
Debt relief raises important issues, not least of which is the impact on creditors' rights, and the committee rightly has an interest in the detail of what the Executive would do with this power. As a result, amendment 492 provides for the use of the power to be subject to affirmative procedure. If the amendment is agreed to, I plan to use the new power and to come back to the committee next year to ask it to approve regulations that will enable interest and charges to be frozen.
If the freezing of interest is successful—as I believe it will be—I will consider using the power to cancel debt. Any such move will need careful consideration, as one of the major advantages of the DAS for debtors is that they can keep their homes and other assets. Indeed, we have discussed that matter at length. I will therefore continue to work with stakeholders to ensure that the DAS is an effective debt tool.
Amendment 493 makes a minor change to section 196 that will be needed if amendment 492 is agreed to and a new section is inserted before section 196. As that new section will make the first amendment to the 2002 act, section 196 should be read as making further amendments to that act.
I move amendment 492.
I am sure that the committee welcomes these amendments. After all, we recommended the same measures in our stage 1 report and were particularly anxious that the Executive should implement them. However, subsection (3) of the proposed new section states:
"The Scottish Ministers may, by regulations, make such further provision as they think fit".
The word "may" expresses doubt—something may happen only if somebody has the will to do it. Will you reassure us that regulations will, rather than may, be made?
We will need to refer the bill as amended to the Subordinate Legislation Committee, because a new power to make subordinate legislation is involved. The fact that we must do that almost goes without saying.
I have made clear this minister's intent to crystallise the debt and provide for debt relief in the future. The word "may" is a technical drafting term that is common to most, if not all, such legislation. We intend to come back to the committee next year with regulations to freeze debt interest. On the basis of the outcome of that process, we will consider introducing debt relief.
Amendment 492 agreed to.
Section 196—Amendments of the Debt Arrangement and Attachment (Scotland) Act 2002
Amendment 493 moved—[Allan Wilson]—and agreed to.
Amendment 494, in the name of the minister, is grouped with amendment 495.
An application to a debt payment programme must be made through a DAS-approved money adviser. The DAS is being delivered in partnership with the money advice sector and the sector, rather than the Executive, trains and accredits money advisers for the DAS.
The Executive agreed with our partners in the sector that 150 approved money advisers would be accredited to provide the DAS when the scheme went live in November 2004. That was a sensible target then and is still sensible now, as it will provide full coverage throughout Scotland. The DAS has been working for two years and there are 80 approved advisers. That is disappointing, although progress is being made. More worrying is the fact that of those 80 advisers, only a third have put a client forward for the DAS.
Money advisers need to learn new skills to provide the DAS. Leaders in the money advice sector have welcomed the DAS for the very reason that it is helping to improve skills throughout the sector. Change is a challenge, and some people always resist new ways of working. The Executive acknowledges that and is looking for ways to improve the DAS for front-line advisers and their clients. Enabling debt relief, which we have discussed, is a key improvement.
The Executive is strongly committed to working with the sector to spread the benefits of money advice through the DAS and through other means, such as the debt advice and information package. I expect those efforts to improve the take-up of the DAS by money advisers and their clients. However, it may become clear that too few money advisers are willing to offer or use the DAS. The DAS does not have to be run through a money advice gateway, and other measures may be needed to ensure full national coverage for the scheme. The 2002 act needs to change if that is to prove possible. The amendments in the group will make the changes that are needed and will enable further improvements to the DAS.
Amendment 494 provides that the requirement in section 3 of the 2002 act for a debtor to obtain money advice is subject to any contrary provision in regulations. Amendment 495 extends the regulation-making power in the 2002 act so that other approved intermediaries can offer money advice, debtors can apply without an adviser or intermediary and applying under the DAS can stop a creditor taking action against a debtor.
If the amendments are agreed to, I plan to amend the Debt Arrangement Scheme (Scotland) Regulations 2004 next year to provide that applying for a programme stops enforcement. Money advisers and the committee have asked for that, and I agree that it will make the DAS a better debt tool.
I move amendment 494.
Amendment 495 refers to approved intermediaries. In order to get some clarity, I ask the minister to explain what sort of people would be approved intermediaries rather than money advisers. Given that money advisers have to go through a period of training and gain a qualification before they can give advice to debtors, who will be approved intermediaries?
The term is drawn particularly widely. It could include insolvency practitioners or a new agency or commission that is charged with taking the reform forward. We are stating a policy intent. We want the DAS to work, as I suspect you do, and we want the benefits to be extended more widely to debtors and consequently to creditors. The term is drawn widely, but I have given some examples. We envisage that the change will broaden the scope if the existing money advice provision does not pick up as a consequence of the changes in the way that we hope.
Amendment 494 agreed to.
Amendment 495 moved—[Allan Wilson]—and agreed to.
Section 196, as amended, agreed to.
Section 197 agreed to.
Section 198—Information disclosure
Amendment 496, in the name of the minister, is grouped with amendments 497 to 502 and 504.
A key objective of the bill is to improve the quality of information in the enforcement system. Section 198 will help to deliver that by making it possible for the Scottish ministers to make regulations that provide that the courts may obtain information about debtors and disclose that information to creditors. The aim is to enable creditors to target enforcement to good effect. For example, a creditor could arrest a debtor's earnings if they have their employer's details.
Much useful information is held by United Kingdom Government departments. With that in mind, the Executive is working with the UK Government to extend a national information disclosure scheme to Scotland. The committee welcomed that approach after hearing evidence from organisations that have an interest in the matter, such as Citizens Advice Scotland. The bill deals with the information order element of the scheme for Scotland and regulations will provide for applications to our courts, the processing of information by the courts and similar matters.
A tribunals, courts and enforcement act will create a framework for obtaining information from UK Government departments such as the Department for Work and Pensions. That element of the framework will be replicated for, or extended to, Scotland. The UK Government published the draft Tribunals, Courts and Enforcement Bill in July and it will be introduced to Westminster as soon as is practicable. The amendments in the group make the changes that are needed to ensure that the Scottish order-making part of the scheme remains in step with what our UK partners are doing.
Amendment 496 is a minor amendment for consistency. Amendments 498 and 499 slightly extend the scope of the powers in section 198. Amendment 497 extends the power to make regulations in section 198 so that it covers the functions of a sheriff under the scheme, to the effect that regulations will be able to make provisions on the powers and duties of the sheriff.
Amendments 500 to 502 have the effect that regulations made under section 198 may provide for an offence of unauthorised disclosure or use of information. That will keep the bill aligned with the draft Tribunals, Courts and Enforcement Bill. Information will be disclosed only for the purpose of enforcing payment that is due under a decree or document of debt.
Amendment 504 makes section 198 consistent with other parts of the bill by providing that the Scottish ministers may modify the meaning of "decree" and "document of debt" for the purposes of that section so that future types of decree and documents of debt can be included within the scope of the information disclosure regime.
I move amendment 496.
I welcome the Executive's amendments, but I wonder what discussion, if any, has been held with the DWP, the speed of whose response is not always what we would want. In the sort of case that we have been talking about, a fairly speedy disclosure of information would be sought. Perhaps the minister could deal with that point when he responds.
I can write to the committee about that. I obviously do not know what is in the Queen's speech, but all will be revealed in due course, and I will be able to respond more directly to Christine May's point in that context.
Amendment 496 agreed to.
Amendments 497 to 502 moved—[Allan Wilson]—and agreed to.
Amendment 503, in the name of the minister, is grouped with amendments 505 and 506.
The amendments in this group make changes—principally sought by the committee—to the regulation-making powers in the bill. There is some duplication between sections 198 and 201, both of which refer to information disclosure regulations under section 198. Amendments 503 and 505 therefore amend section 198 to take out that duplication, and amendment 506 moves the reference to the first regulations that are made under section 198(1) being subject to affirmative parliamentary procedure to the appropriate part of section 201. It also sets out the other regulations that I propose should be subject to affirmative parliamentary procedure.
Four other regulation-making powers will be affected if amendment 506 is agreed. The first is the power to confer, remove or modify the functions of the Scottish civil enforcement commission, as recommended by the committee in its stage 1 report.
The second is the power to change the £3,000 minimum sum that must be due to a creditor before the creditor can attach land. As I said when the committee agreed that there was a need for an amendment to introduce that minimum sum, I recognise that the Parliament should have a high level of scrutiny over any changes to that provision, and I agreed to lodge an amendment to make the power subject to the affirmative procedure.
The third is the power to change the £3,000 minimum sum that must be due to a creditor before they can ask the court for a warrant to sell attached land. Again, when the committee agreed that that amendment was necessary, I made a commitment to lodge an amendment to make the power subject to the affirmative procedure.
The fourth is the power to change the £1,000 minimum sum or the 10 per cent figure that the court must take into account when deciding whether it must refuse to grant a warrant for sale of attached land on the ground that the likely net sale proceeds are too low to justify such a sale. That is the so-called not-worth-it test, which we discussed previously.
I move amendment 503.
Amendment 503 agreed to.
Amendment 504 moved—[Allan Wilson]—and agreed to.
Section 198, as amended, agreed to.
Section 199—Interpretation
Amendment 220 moved—[Allan Wilson]—and agreed to.
Convener, I am not sure that we have agreed sections 196 and 197.
We agreed those sections earlier.
I beg your pardon.
Section 199, as amended, agreed to.
After section 199
Amendment 485, in the name of the minister, is in a group on its own.
Amendment 485 relates to the implementation by Registers of Scotland of the automated registration of title to land project, which is a major new e-government service that will make it possible for deeds and securities to be created electronically and to be registered in the land register of Scotland electronically. The ARTL system will enable solicitors, mortgage lenders and the keeper of the registers of Scotland to work more efficiently, and so make it possible for clients and customers to benefit in terms of time and money saved.
Any mortgage lender using the new system will, however, want to have the same rights to enforce payment under their securities as they have under the current paper-only system. One right of enforcement that lenders have is the right to use summary diligence, although that is possible only if the security is registered for enforcement in the books of council and session or in the sheriff court books. Currently, only original paper documents can be registered in those books. In order to enable enforcement by summary diligence of an electronic standard security, provision is needed to enable a paper copy of that document to be registered.
The amendment makes that change by introducing a new section 6A of the Requirements of Writing (Scotland) Act 1995. It will allow a paper copy of the electronic deed, known as an office copy and issued by the keeper of the registers of Scotland, to be registered for enforcement by summary diligence. That will give the lender a quick route into enforcement should the debtor fail to pay as set out in the standard security.
I move amendment 485.
I used to earn my living from standard securities.
I thought you were going to stop at saying that you used to earn your living.
It was an honest living. I have forgotten my question.
Although I can see the logic of amendment 485, which seems eminently sensible, it seems rather daft to say that, in electronically registering a standard security, someone has to print off a paper copy and present it for registration. Has the Executive given any thought to how the process of removing paperwork might be extended? Currently, electronic copies can be placed in the land register, but one cannot go beyond that in terms of diligence. Is there any thinking about a logical extension of that process?
I have a man here to advise me on that very issue.
While the minister is being briefed, does any other member wish to ask a question?
Members indicated disagreement.
Back to you, minister.
I am reliably informed that that has to be made electronically as well, but that is a longer-term project than this change.
Amendment 485 agreed to.
Section 200 agreed to.
Section 201—Orders and regulations
Amendments 505 and 506 moved—[Allan Wilson]—and agreed to.
Section 201, as amended, agreed to.
Sections 202 and 203 agreed to.
Schedule 5
Minor and consequential amendments
Amendments 29 and 221 to 227 moved—[Allan Wilson]—and agreed to.
Amendment 444 not moved.
Amendment 228 moved—[Allan Wilson]—and agreed to.
Amendment 507, in the name of the minister, is grouped with amendments 508 to 523 and 526 to 528.
The bill makes many changes to the laws of diligence. For example, it introduces the new diligences of money attachment, land attachment and residual attachment. It also creates a new right of automatic release of attached funds for arresting creditors. The reforms that will be brought in by the bill will affect other legislation. The amendments in this group make changes that are needed to bring the time-to-pay arrangements in the Debtors (Scotland) Act 1987 up to date. The two time-to-pay arrangements are a time-to-pay direction on granting decree and a time-to-pay order after decree is granted.
Amendments 507 and 515 have the effect that either of the time-to-pay arrangements will stop the new diligences of money attachment, land attachment and residual attachment.
Amendments 508, 509, 513, 514, 518, 520 and 522 have the effect that either of the time-to-pay arrangements will suspend the automatic release of arrested funds and that the 14-week period for automatic release will not run when an arrangement is in effect.
Amendments 511 and 512 have the effect that it will not be competent to apply for a time-to-pay order when a money attachment has been executed, when the court has granted a warrant to sell attached land or when the court has granted a satisfaction order in respect of property that is subject to a residual attachment.
Amendment 514 provides for the effect of an interim order sisting diligence. The sheriff may make such an order when a time-to-pay order is applied for.
Amendments 516 and 517 have the effect that the making of a time-to-pay order shall stop the creditor completing a land attachment or residual attachment where such an attachment had been started when the order was made. A creditor will, however, be entitled to retain the security over land or property that is obtained as a result of those diligences.
Amendment 523 is a minor amendment to replace outdated references to "poinding" with references to "attachment".
Amendments 519, 521, 526, 527 and 528 make minor consequential changes.
I move amendment 507.
Amendment 507 agreed to.
Amendments 508 to 523, 484, 229 and 230 moved—[Allan Wilson]—and agreed to.
Amendment 440, in the name of the minister, is in a group on its own.
Section 221 of the Criminal Procedure (Scotland) Act 1995 lists the types of diligence that can be used to recover fines that are imposed by the criminal courts. The bill introduces the new diligence of money attachment. It is therefore sensible to enable money attachment to be used to recover fines if the court decides that diligence should be used. Amendment 440 amends the 1995 act to add money attachment to the diligences that can be used to recover those fines.
I move amendment 440.
Amendment 440 agreed to.
Amendments 272, 441 and 442 moved—[Allan Wilson]—and agreed to.
Amendment 524, in the name of the minister, is grouped with amendments 525 and 486.
These are minor and technical amendments. Amendment 524 is a minor amendment that will improve the wording of section 34(1)(b)(ii) of the Debt Arrangement and Attachment (Scotland) Act 2002, which deals with third-party claims on attached property. It will clarify the effect of the section by making the wording consistent with new section 9J(1) of the 2002 act as inserted by section 160 of the bill, which sets out an equivalent for third-party claims in interim attachment.
A new power to regulate the fees and charges of judicial officers is conferred on the Scottish ministers by section 55(2)(d) of the bill. Amendment 525 is a consequential amendment that repeals an existing provision to set fees for sheriff officers and messengers-at-arms in the Sheriff Courts (Scotland) Act 1907. The existing provision will not be needed once the new power in the bill to set fees comes into force.
Section 201 makes general provision in relation to the Scottish ministers' making orders and regulations under the bill. It also provides for the appropriate parliamentary procedure to be adopted for each particular instrument. Section 202 gives the Scottish ministers a power to make ancillary provision by order. Amendment 486 will bring those two sections into force on royal assent, as is usual for bills.
I move amendment 524.
Amendment 524 agreed to.
Amendments 231 and 232 moved—[Allan Wilson]—and agreed to.
Schedule 5, as amended, agreed to.
Schedule 6
Repeals and revocation
Amendments 31, 525, 88, 89 and 526 to 528 moved—[Allan Wilson]—and agreed to.
Schedule 6, as amended, agreed to.
Section 204—Short title and commencement
Amendment 486 moved—[Allan Wilson]—and agreed to.
Section 204, as amended, agreed to.
Long title
Amendment 233 moved—[Allan Wilson]—and agreed to.
Long title, as amended, agreed to.
That ends stage 2 consideration of the bill. I extend the committee's thanks to the minister and his team, especially for accepting the vast bulk of the recommendations that we made in our stage 1 report. I thank Nicholas Grier, who was the professional adviser to the committee on the bill, as well as our clerking team. I hope that no member of the committee ever needs to use the provisions of the bill.
The next item on our agenda is consideration of the St Andrew's Day Bank Holiday (Scotland) Bill. We are still waiting for the minister, so I suspend the meeting for five minutes.
Meeting suspended.
On resuming—