Bankruptcy and Diligence etc (Scotland) Bill: Stage 1
I apologise to those who have been kept waiting. However, as they will have gathered, the previous item was extremely important and controversial—in some circles, anyway.
We have apologies from Michael Matheson, who has had to leave to attend a constituency engagement.
Item 3 concerns the Bankruptcy and Diligence etc (Scotland) Bill at Stage 1, which is the talk of the steamie. I ask Nicholas Grier to give us some advice prior to our hearing the evidence that is being presented today.
Nicholas Grier (Adviser):
I hope that members have before them the note that I prepared.
The Executive is minded to introduce a new type of diligence, known as land attachment. It would replace the current diligence, which is known as adjudication, which has been little used in the past few years, mainly because it takes a long time—about 10 years—to be carried through and is not seen as being particularly fair.
The idea is that land attachment should replace adjudication and should be a useful weapon in the hands of creditors. Scotland is unusual, in that it has not had an effective diligence against land for a long time, while most jurisdictions do. It is surprising that we do not have one that works—we have yet to see whether land attachment will work.
Land attachment should be particularly useful with regard to the "won't pay" debtors, who are those debtors who are in a position to have their property sold in order to pay their creditors. The alternatives to land attachment that have hitherto been used by creditors are sequestration and inhibitions.
A creditor can use an inhibition to prevent the sale of some property until the debt has been repaid. Once an inhibition has been put in place, it lasts for five years, which can mean that it can take quite a long time until creditors get their money. Inhibition is extremely effective, however, which is one of the reasons why adjudication has not been much used.
The alternative that has sometimes been used involves putting the debtor into sequestration or the company into liquidation. As part of the process of sequestration or liquidation, the trustee in sequestration or the liquidator can sell any heritage that there might be and divide the proceeds among the creditors.
Some might ask whether, if inhibition has been working well, it is necessary to have a further diligence of land attachment. Obviously, that is a matter for people to consider.
There is also an argument that it might be a little excessive to sequestrate a debtor or wind up a company just to enable the creditor to get his hands on land and buildings. On the other hand, one has to remember that a company with a lot of property might be refusing to pay its bills for some reason and that, in such a situation, it would not be unreasonable to expect that that company might be forced to sell property to pay a bill that is justifiably due. Part of the difficulty with this legislation is that one has to remember that land attachment is not only for private individuals but can be for companies, partnerships and limited liability partnerships as well.
Another point is that it might be a bit much to put a debtor into sequestration if they are running a business. All the other creditors may be perfectly happy with the business and to put it into sequestration destroys it for everybody. Perhaps selling one house that is owned by the debtor might solve the problem for the creditor without destroying the business.
The proposed land attachment might be welcomed by some creditors. It is unlikely that banks will be interested in the new form of diligence because in many cases banks and building societies will have standard securities over debtors' properties. However, other creditors, such as local authorities and unsecured creditors generally—small tradesmen or anyone who has been carrying out work for debtors or providing services—will probably be glad that they can use a further diligence, particularly against debtors who are in a position to pay but will not do so.
Not every debtor will be happy about the introduction of the new diligence of land attachment. As some of the organisations present have pointed out, it is possible that the exercise of the new diligence of land attachment could lead to homelessness. That could be harsh.
A major question is the level of debt at which a property could be sold. The bill suggests that the figure should be £1,500. That figure was chosen because that is the amount that is required to put debtors into sequestration under the current bankruptcy legislation and the Executive wanted to marry the two figures.
The Executive is aware of the danger that the land attachment could be used oppressively, so it has drafted the legislation in such a way that there are checks and balances to limit the opportunities for its oppressive use. The Executive suggests that, at least for non-corporate debtors, there should be special advice and information packages. The registration of the land attachment order would place the creditor at a relative advantage compared to other creditors, but it would also allow the debtor six months in which to pay. Before the property could be sold it would have to be decided that the circumstances justified a sale. The matter would have to go before a sheriff and there would be a good deal of scrutiny.
The Executive's view is that the sheriff's overseeing of the process will ensure fairness for the debtor and for the creditor.
The Executive is aware that the registration of the land attachment order may cause conveyancing problems and it is considering the mechanics of the matter. I have no doubt that it will liaise with the Law Society of Scotland and other bodies to ensure that there are no difficulties.
The committee may be interested to know that in England the equivalent of land attachment can be introduced for the lesser sum of £750. Until recently the mechanism was not much used, but in the past couple of years creditors have started to use it slightly more. We do not know whether they will continue to use it more, but I imagine that that is a possibility.
I have mentioned some of the potential difficulties with the legislation. The major one is that land attachment is a one-size-fits-all type of diligence for all sorts of different types of debtors. It could apply to the poorest debtors and to the wealthiest companies. Any such diligence—in common with all diligence—can have harsh effects at the bottom end of the scale. On the other hand, one must remember that some debtors are in a position to pay their debts but refuse to do so and have plenty of heritage. It can be argued that there is no reason why they should not have to sell their property, provided the right procedures are followed.
Various concerns need to be highlighted and I have no doubt that they will be discussed today. If members want to ask any questions, I invite them do so.
As there are no questions, I thank Nicholas Grier. As usual, his comments have been extremely helpful.
Item 4 is also on the Bankruptcy and Diligence etc (Scotland) Bill.
I welcome Susan McPhee and Margaret Burgess from Citizens Advice Scotland; Alistair Hamilton, who is on the diligence committee of the Law Society of Scotland; John Glover from Registers of Scotland; Adrian Stalker, who is principal solicitor at Shelter Scotland; and Yvonne Gallacher from Money Advice Scotland. I will give each of you the opportunity to make a few introductory comments. Land attachment is the only element of the bill that has made the front page of The Herald—there is even an editorial in today's edition—and we can understand why that is.
Susan McPhee (Citizens Advice Scotland):
Our written submission sets out our view on land attachment, but I take the opportunity to set the context by talking about the people who will be affected by the proposed new form of diligence.
Most members know that consumer debt is the largest issue that is brought to the citizens advice bureau service in Scotland. Last year we dealt with just fewer than 75,000 new debt inquiries, which represented debts of £163 million; that figure does not include on-going debt cases and it is £32 million more than the figure for the previous year's new debt cases.
We carried out research that showed that the average debt of our debt clients is £13,500, if mortgages are excluded from the figure. Nine out of ten of those clients have a consumer debt, the most common of which is credit card debt, followed by bank loans and catalogue debts. According to our research our clients incurred debts as a result of a change in circumstances such as a drop in income, a job loss, an illness or a disability, or as a result of low incomes and chronic poverty. The research therefore demonstrated that we have two streams of clients: people who borrow money at a time when they think that they can afford to do so but who then suffer a change in circumstances such as a job loss or illness; and people who cannot live on their low incomes and juggle credit cards and cash loans to get by.
The average monthly income of our debt clients is £801. A third of our debt clients are home owners, whose average monthly income is slightly higher at £1,870 and who have an average of five debts each. The research indicated that more than half of all our debt clients had taken on further borrowing to try to resolve their debt situation. One in four had been threatened or pressured by creditors to pay up and, more worrying, one in six had been threatened with formal debt recovery procedures, even though the creditors had not gone to court and had no authority to instigate such procedures.
Land attachments would operate in the same way as do poindings and warrant sales in that people would respond to the threat of a land attachment before that stage was reached. People will do anything to save their house, including borrowing further. We therefore want the bill to exclude the main dwelling house from the sale aspect of the proposals on diligence.
Margaret Burgess will talk about the type of person that the proposals would affect.
Margaret Burgess (Citizens Advice Scotland):
The committee's adviser said that the proposals would have a harsher effect on people at the lower end of the spectrum and I will talk about such people. Home owners on a low income might be struggling for a variety of reasons. They are often people with children who have been struggling to make ends meet, robbing Peter to pay Paul and trying to get by, when something happens that means that they cannot pay a creditor. People do not immediately seek advice; they try to resolve the problem by themselves. People want to pay their debts, but they often make the situation worse while they try to resolve it, by borrowing a sum that they cannot afford to repay and by taking out consolidated loans, sometimes from creditors who will behave more harshly than their previous creditors would have done.
If the proposals to allow the sale of the family home are agreed to, people would be encouraged to borrow more to try to eliminate the threat of losing their home, even though their borrowing would intensify the threat, because if they could not manage the additional repayments the new creditor would also have the right to threaten them with the sale of their home. The threat of a sale would be the major problem. People who are in debt struggle; they can hardly cope with life and they just get by from day to day. The worry about the debt is always in the background and the fear of losing the family home is too much for some people. Such worry leads to the break-up of relationships and medical problems such as depression.
Whether people own their home or live in rented accommodation, they say time and again that they will do anything to stay in their house—they do not want to lose it. Because the bill will allow every creditor to be, in effect, a secure creditor or give them the rights of a secure creditor, the fear is that if a creditor threatens to use the power, people will have to borrow more from other places. They might even not pay their mortgage to get rid of the threat. However, that will not alleviate the problem. The situation could go on for years, with each creditor having the rights of a secure lender. The Executive says that it does not expect the power to be used very often, but there will be a fear of it, as there was of warrant sales. The measure will have a disproportionate effect on the people who use the CAB service. We say simply that the family home should be exempt. I do not want to talk about dwelling-houses, because we are talking about the roof over people's heads and their family home, which should not be under threat.
Alistair Hamilton (Law Society of Scotland):
When the Law Society was at the committee previously, we discussed striking a balance between creditors and debtors. However, this time, our principal point is nothing to do with either creditors or debtors; it is about the rights of innocent third parties in relation to the powers in sections 88 and 89, about which we are exceedingly worried. I do not take anything away from the points that were made about the harshness of the measure on people's dwelling-houses.
Alistair Hamilton (Law Society of Scotland):
Section 88 is headed:
"Protection of purchaser under contract where creditor applies for warrant for sale".
Most members will be aware from their constituencies that nearly all major developments start with an agreement to buy land that is subject to a suspensive condition on planning permission. We are all familiar with that process. The reason for it is that people are not prepared to pay big prices for a piece of land when they do not know whether they will get planning permission to develop it. They therefore enter into a contract to buy that is subject to a suspensive condition, which means that they do not have to pay and settle the transaction until planning permission has been obtained.
The same applies to domestic purchasers. The biggest legal transaction that individuals make is buying a house. If somebody buys a house subject to a suspensive condition—for example, one that relates to the availability of other land or the possible use of the house as an office—they want to be protected. If they pay in advance of getting the title, by instalments or while the house is being built, which is a frequent occurrence, they want to know that they will ultimately get the title.
Unfortunately, under the present wording of sections 88 and 89, people in that situation will not be sure that the transaction will not be defeated by a land attachment. This may sound an oversimplification, but the reason is that section 88(2) states that, if the sheriff is satisfied about all the conditions, he "may" suspend the application for sale. As members will know, that means that he may not do so. If he chooses not to, he will destroy any transactions of the type to which I referred. We request a simple one-line amendment so that section 88(2) reads "must" instead of "may". We would be relieved if that were done.
The matter is worrying, because we cannot think of any other method of securing the position of purchasers of land for big developments or purchasers of houses. Planning appeals are expensive. A person could pay a lot of money but then find that, if a land attachment intervenes and takes priority, the property is sold to satisfy a creditor. As the diligence is new—creditors do not have it at present—it would be unfair if it interfered with existing rights that people of all kinds have as purchasers under missives. The issue may seem technical but, as I said on another matter during our previous visit to the committee, although it is technical, it is right that we seek an amendment from the committee or the Executive.
There are other provisions in sections 88 and 89 under which the sheriff will have the option to do things to facilitate the resolution of a difficulty that has arisen over a land attachment. We have no objection to that, but in cases in which the purchaser agrees to buy before a land attachment is imposed and lodges what is called a caveat to warn people that he is a purchaser under missives, his right should be protected.
I have a few smaller points, but I will not trouble the committee with them at the moment. I have identified the main issue for us.
John Glover (Registers of Scotland):
I am grateful that the committee has given Registers of Scotland the opportunity to give evidence. Our interest is rather different from that of other witnesses in that our concern is about our ability to make the process work if the bill is passed and the provisions come into force.
Nicholas Grier explained in his advice that the diligence of adjudication is rarely used. I checked yesterday and found that in the financial year that is about to end only one notice of adjudication has been registered in the register of inhibitions and adjudications and that in the previous year none was registered. It is clear that we do not have an effective diligence against heritage. It is not appropriate for Registers of Scotland to express a view on whether we should have such a procedure, but we have been fully involved with the Executive and the Scottish Law Commission in working up the bill's provisions on land attachment. At a process level, we think that, unlike adjudication, the proposed diligence is workable.
Adrian Stalker (Shelter):
I do not think that anyone disagrees that it would be appropriate to replace inhibition and adjudication with land attachment because land attachment is a more effective form of diligence. No one disagrees that what we have at the moment is unsatisfactory because it cannot be used effectively and therefore tends to favour debtors over creditors.
Shelter's concern is that the proposals in the bill represent a lurch from one extreme to the other. We will end up with a system that favours creditors over debtors and gives creditors an additional weapon that will be powerful and draconian. It seems to me that what crops up in the bill is often the result of the Executive's desire to have a system that is internally consistent and logical and that little regard has been paid to how other social policy issues might be affected by the bill once it is enacted.
Nicholas Grier referred to the fact that charging orders, which are the equivalent diligence in England, have become more popular in recent years. In fact, their use has gone up by 178 per cent in the past five years, according to the figures that are reproduced in annex 2 of Citizens Advice Scotland's submission. Those figures show that 149,000 charging orders have been issued in England over that period. Many of those charging orders will have been imposed at the instance of commercial lenders in England who also operate in Scotland, so if land attachment orders were adopted here, it is not the case that there would be a long bedding-in period or that people would not use the new form of diligence or would not come to rely on it for some time. People will cotton on to, and will start to use, land attachment very quickly. Nicholas Grier implied that the bill will be used by local authorities and tradesmen, but the people who will use it most and who will be the prime beneficiaries of the policy of land attachment will be commercial lenders.
We are concerned about the level at which land attachment can be sought. The Executive seems to think that if the level of debt at which land attachment could be triggered were higher than £1,500, that would not be consistent with the rest of the system and people would seek what are described in the policy memorandum as "inappropriate sequestrations". The Executive does not seem to have had an eye to the fact that the setting of the threshold at that level could lead to inappropriate land attachments or inappropriate evictions, which have significant hidden costs.
When people get evicted, they apply as homeless to their local authority. That has hidden costs—in terms of the local authority housing and social work budgets and housing benefit—which can run to many thousands of pounds. Those costs vastly outweigh the amount of money that the creditor recovers. In effect, taxpayers are being asked to underwrite this super-efficient form of diligence under which creditors will get back only small sums of money.
The convener alluded to the press attention that the issue has received today. My understanding of what the Executive has said is that it does not need to be concerned because the measures that are in place for the courts to examine the process are robust. However, they are not at all robust. A comparison can be made between the measures in the bill and those that are used for court proceedings in equivalent situations involving repossession of the family home in cases of bankruptcy or of mortgage or rent arrears. As we outlined in our submission, the measures that are proposed in the bill are much more favourable to creditors.
Yvonne Gallacher (Money Advice Scotland):
Thank you for hearing our evidence. We share many of the concerns that Citizens Advice Scotland expressed. Way back in 2000, we undertook research that showed that council tax is one of the main contributors to overindebtedness. As we mention in our submission, representatives of the local authority council tax departments were included in our seminar on the bill. They told us that, although land attachment is a useful tool, it would be used as a last resort. As yet, we do not know the degree of confidence that we can place in that.
As other panel members have said, the creditors with whom we deal are UK creditors. We will have to wait and see how they behave. If the experience of our colleagues in England is anything to go by, their behaviour will become much more robust. Following the introduction of the Enterprise Act 2002 and the one-year bankruptcy period, creditors moved to using much more assertive forms of diligence. We will need to keep our eye on that; such behaviour should be kept in check.
The measure has been described as warrant sales by the back door—a point that was also made at our seminar. In fact, the situation that is proposed is much worse than that. The Debtors (Scotland) Act 1987 gave debtors and their families rights in terms of the goods that could be taken. Those rights do not apply to the land attachment proposals; innocent people will be affected. For example, we are concerned that families who are living in rented accommodation could suffer as a result of their landlord's financial problems.
Obviously, we are pleased that money advice is at the heart of the process and that the provision of information booklets and so on is emphasised. In common with Citizens Advice Scotland, we were involved in the debate on the new debt arrangement scheme regulations. One result of that discussion is that mobile homes are exempt under the Debt Arrangement and Attachment (Scotland) Act 2002. Notwithstanding the fact that there are people who will not pay as distinct from those who cannot pay, in common with Citizens Advice Scotland, we want people's main residence to be exempt under these provisions. We have to find legislation that gives people some form of consumer protection. Our experience is that many people wait too long before they seek advice. For someone to lose their goods is one thing; for them to lose their home is a completely different matter. That is our concern.
I have a couple of questions. Adrian Stalker talked about the need for a change in the law and said that we could end up with a system that favours creditors over debtors. I question whether that is correct. In my days in legal practice, I acted in such cases, usually for the creditor. Everyone thought that inhibition was a useful tool and accepted that adjudication was a complex and involved process; they knew that it took a long time to get back money using the latter route. I think that I instructed only one process of adjudication in my time. The great advantage of inhibition was that people knew that they would eventually get their money and that, under the scheme, interest was still running. I wonder therefore whether there is a need for a new diligence against heritage.
When they lend money, creditors have the choice whether to seek security. If they have chosen not to seek security for the money that they lend, then a system of land attachment gives them a second bite of the cherry. I wonder whether that is correct in terms of equity. I appreciate that no one on the panel is here to represent the creditors, but Mr Hamilton might like to express his professional opinion on that.
As you know, an inhibition is negative. It stops the debtor selling, but it does not get the creditor the property itself. It takes 10 years to do an adjudication, so it is no wonder that it is not popular. When we were first consulted by the Scottish Law Commission, we congratulated it on discovering the most popular diligence ever, which was land attachment. We are sure that commercial creditors will think that threatening to sell debtors' houses will concentrate their minds. That is exactly what Margaret Burgess and Susan McPhee are talking about.
There are a lot of provisions about what the sheriff has to consider, but none of them asks him to decide whether it is reasonable to grant the power of sale. There is power to refuse to sell a dwelling-house if the diligence would be "harsh". We are waiting for the first cases to decide what the sheriff thinks "harsh" means. He might decide that the diligence is inconvenient or difficult, but not harsh. There is no provision that it must be reasonable to grant the warrant to sell, nor that the creditor must prove to the sheriff that they have attempted other forms of diligence. The Executive says that that will be the last resort, but nothing in the bill says that it has to be. They can go to the sheriff and, if they meet the conditions, they will get the power of sale.
We said to the committee that we did not want to come in on an issue that is mainly social; that is exactly what the Law Commission said when it produced its report. The commission said that it would not draft a section on this because it is for Parliament to decide what is in the interests of the public and to maintain a balance between creditor and debtor. As happened in England, there will be a great rush to lodge land attachments, or to threaten to do that, which will have the same effect. From the commission's point of view, it is logical to say that we should not have an asset that cannot be realised to pay debt. The logical conclusion is that if adjudication is not satisfactory, something should be introduced to take its place. The Executive has introduced that something, but it does not safeguard the rights of the public.
Thank you for that. I invite anyone who wants to come in to do so in a second. My response to what you have said is that I have not detected a queue of creditors complaining about the lack of opportunities to do diligence in other ways; perhaps you have, Mr Hamilton?
That is correct; there is no such queue. I appreciate that the Law Commission has introduced the idea because it thinks that there is a gap in our law. The commission says that adjudication is no good, but it was only ever used to make up title in difficult cases. A title could be made up by doing adjudication if someone had 10 years to wait for it to be fulfilled. Once people hear how land attachment is going to work, there will be a queue.
We have some evidence that English creditors often do not know what rights they have to enforce debts in Scotland. We have had evidence of English creditors threatening clients with a charging order, even though they cannot do that here. So we know that they will try to do it. Debtors should have the right to consider whether they want to take out a secured loan. However, we are concerned that clients will take on credit card debt on which interest rates may be 35 per cent plus. If they had a secured loan, the interest rates would be much lower than that. Creditors are getting the benefits of high interest rates plus access to the debtor's house.
From a consumer protection point of view, when someone takes out credit card debt, they know that it is unsecured. There is no wealth or health warning with it and that will never come, until the creditor gets to the point of land attachment. Is there any balance? We talk about transparency, particularly in the light of debates in the Westminster Parliament about the Consumer Credit Bill, which have emphasised the need for transparency, but the system that is proposed in the bill would be quite opaque. People who might have a relatively small debt to begin with would not be aware of the consequences of their borrowing.
People are increasingly consolidating their debts, so the proposed £1,500 debt level would not be an issue and debts would be ripe for a land attachment if creditors did not enforce the debt in other ways. As Susan McPhee said, we know what English creditors are doing to enforce diligences and we know that English creditors are not aware of the debt arrangement scheme, whereby they could accept proposals for repayment. We have a long way to go to make people much more aware of the peculiar system that we have.
Adrian Stalker said that the measure would be draconian—I share that view. If the main dwelling-house were exempt from land attachment, would the proposed new diligence be acceptable to the witnesses?
Yes.
Yes.
Yes.
There is a question about who would make the judgment that a property was the main dwelling-house. The sheriff could make that judgment at the sale stage, but the judgment could not be made through an administrative function such as that of the keeper of the registers of Scotland at the registration stage.
Forgive me for arriving slightly late and missing part of the discussion.
The proposal is bizarre. If I bought a car with a loan that I paid back at a rate of £300 a month, but then wrote off the car in a crash and injured myself so that I could not work and subsequently ran up a debt of £1,800 because the payment protection insurance did not kick in for the first six months, could my house be subject to a land attachment under the proposed arrangements?
Yes.
That is ridiculous.
If the car had been bought through a hire purchase agreement, the creditor would have had the right to repossess the car, after following due process. However, if the car had been bought through a consumer credit agreement and not hire purchase, the situation that you describe could arise.
Under the proposed arrangements, any creditor would have the right to apply—or threaten to apply—for a land attachment if the debtor defaulted on the debt, whatever had been borrowed. That would be a major issue for people who have more than one debt, as our clients do, because all their creditors could apply for a land attachment. A creditor would understand that if they applied first, they would be in a priority position. Any debt could in effect become a secured debt if the creditor applied for a land attachment.
In the scenario that Karen Gillon set out, the debt would not need to be as high as £1,800; an attachment could be sought if the debt was £750 or even less. When payments were missed, charges would start to accumulate and interest would be applied and when the debt reached £1,500 the creditor could sell the house, as long as six months had passed.
I was just thinking about the missed payments.
People who take on credit should be in a position to repay their debts, but circumstances such as I described can be completely outwith someone's control. A person who could not work and pay off their debt could lose their house.
I assume that the Executive has discussed the proposals with the witnesses. I have received a huge number of e-mails—you can stop sending them, because I have got the point.
We all echo that sentiment.
Seriously, guys—we have got the point.
In a world in which the lowest price for a house runs at about £80,000, £1,500 seems an inordinately low amount. Even if it is accepted that the main dwelling-house could be attached, in the grand scheme of things, £1,500 is inordinately low. To go through the selling process would probably cost more than that.
There is also stamp duty.
I understand and probably agree with your principled position that the main dwelling-house should be exempt, but even so, if the Executive's position is that it would like to have the provision, the amount at which the process can begin seems inordinately low, especially in the current climate of house prices. That was more of a statement than a question.
I call Jamie Stone.
Murdo Fraser asked my question for me.
By design?
I am glad to be of service.
It is worrying when he is clairvoyant, but there we are.
I do not know whether the panel can answer my question, which takes more of a business angle. If we keep the land attachment provision but exclude the main dwelling-house, we are still left with the scenario that a business debt could be called in, which would result in land attachment to buildings or residual property that belonged to the business. We still need to consider raising the threshold of £1,500 for such cases, because it is even more inappropriate to business debts. What would be a reasonable minimum level?
Ten years ago or more, when the Law Society was asked about the matter, we suggested a threshold of £5,000, which would equate to £10,000 now. As you say, if I were a creditor, I would threaten to sell a shop or workshop if the debtor did not pay for the goods that had been supplied. I could proceed with that even if the principal dwelling-house were exempted. People would not be homeless, but the business would go bust, as the committee's adviser said.
I see the logic to having a diligence against land, because a man could have three holiday houses but not pay his debts. A creditor could obtain a land attachment and sell one of those houses to make him pay. However, having a decently high threshold is essential.
I talked about development plans, under which land could be sold for £3 million. If somebody who was owed a debt of £1,500 could come along and ask the sheriff for permission to sell that land at agricultural value, can we imagine what that would do to development, never mind anything else? Such issues are a matter for the Parliament to decide. We have done our bit by drawing them to Parliament's attention.
I would like to mention a couple of small points to which I referred earlier—I will not take long.
Before you do that, I will clarify whether Shiona Baird has asked all her questions.
I have.
I repeat that our principal issue with sections 88 and 89 is that they strike a balance not between debtors and creditors but between the creditor who is trying to get his money and the chap who agreed to purchase the land before the creditor came along with his land attachment. We think that the prospective purchaser should have absolute preference. In all other circumstances—for example, if land attachment happens before the purchase—we agree that the sheriff should have discretion to decide what to do. In many cases, it is in the creditors' interests to allow a transaction to proceed, planning permission to be obtained and a huge price to be paid, which would go to them all.
I make a second point that has not been made today. A second and third land attachment can be lodged and, if there is enough money, they will be paid. However, the chap who puts his on first has an absolute advantage over the others and can be defeated only if the debtor is sequestrated. Once again, the bill will produce more sequestrations. Within six months of sequestration, all land attachments are cut down by the sequestration. If someone objects to another chap getting ahead of them—getting in first and getting everything—sequestration is the answer. Once again, a business will be closed down when there is no need for it to be closed down as it has entered into a very effective sale of its assets.
The other thing—I just mention this and leave it to your legal adviser—is that there is a section about pro indiviso owners. I do not want to go into that unless I have to. We are not sure whether a wife who is a pro indiviso proprietor is covered by the protections against sale of a dwelling-house. It is enough that I raise that point. It is in the drafting. The bill does not say whether the wife who is a pro indiviso owner—which is the way many lawyers take titles to houses nowadays—is sufficiently protected.
There is a provision that, if the person who has been appointed to supervise the sale does not report what he has done at the end of it, he should be denied his fees. We actually think that he should be shot, because he destroys the whole transaction. Our answer is to suggest that that should be contempt of court. That is the way that is provided elsewhere for those who do not do what they are supposed to do. Saying that he will not get his fees might not be cheap at the price if he has made off with the price.
We will record that the Law Society wants to bring back hanging.
No—shooting, convener.
I say again that there is nothing in the protection that is offered in the bill that talks about whether what the creditor is asking is reasonable. There are many things that the sheriff can say or insist on, but if the creditor has done all the right things and intimated to all the right people, he will get the power to sell unless it is "harsh", and we do not know what "harsh" means because it does not appear anywhere else.
I make it clear that we cannot think of any other way of protecting the purchaser under missives. The seller will not be prepared to convey the property to him so that he can make up title because he is not going to be paid. He will not agree to convey his property and we cannot think of a system that would enable us to contract our way out of the problem in some way. We think that our suggested amendment is the way out of the problem.
Thanks very much. That was very helpful and will add to our report. Does Adrian Stalker want to add anything?
Just to take up the point that was made about the court having to find that it is reasonable to grant a warrant for sale. In the policy memorandum, the Executive refers specifically to there being an apt comparison between this procedure and the procedure under the Mortgage Rights (Scotland) Act 2001. A debtor can ask the court to consider whether they ought to be put out of their house or whether they should get more time to pay. Those situations are analogous. The court has to decide whether a debtor should be put out of his house because he cannot meet his debts to the creditor, and the considerations that are listed in the 2001 act are similar to the considerations that have to be taken into account in the bill. However, there is a big omission in the bill in that, when the sheriff has to decide whether it is reasonable to grant the order, he is limited in what he can take into consideration and is therefore restricted.
We give an example of that in our written submission. If a person was suffering from severe mental health problems and they had medical evidence that losing their home would cause their condition to deteriorate, the court could not take that into account in deciding whether an order should be granted because it is not one of the listed considerations. As we say in our submission, we cannot understand what policy reasons dictate that it should be easier for creditors to force a sale of a family home through a land attachment than through a mortgage repossession or a bankruptcy. Surely common sense dictates that it should be the other way round. It should be more difficult to get someone out of their home if they do not pay their car loan than it is if they do not pay their mortgage. The bill seems to have got things the wrong way round.
I think that that concludes our evidence session—
I realise that I missed one point. Lawyers always want one more chance to speak.
Until they have sent out their invoices.
I thought you might say that.
There goes another £50 on the bill.
I make two further points. First, I do not know how much members of the committee know about planning applications, but most conditional missives stipulate that if planning permission is not granted by the planning authority, an applicant can appeal to the Scottish ministers. I am sure that everyone knows that that can take a couple of years. The proposed six-month period that would have to elapse before a creditor could apply to sell a house would therefore not be nearly enough in the circumstances that I described.
Finally, according to section 88(3)(b), in relation to the protection of prospective purchasers, the sheriff can prevent a sale by the creditor only if
"the debtor undertakes to proceed with the purchase under the contract without undue delay."
The Law Society's view is that the debtor should have no part to play in that context. If the debtor decided not to give that undertaking, the sale by the creditor would have to proceed immediately. As we said in our submission, the provision should be replaced with a statutory obligation on the debtor to proceed without undue delay. None of us fancies asking a debtor whether he wants to give an undertaking to proceed if the debtor has realised that by refusing to do so he would suddenly be in command of the whole operation.
Have you made all your points?
I had better say that I have done so.
Thank you. The written and oral evidence was extremely helpful. I see that Susan McPhee wants to say something.
I want to make a final point. We talked about raising the proposed £1,500 limit. However, that would not be acceptable to us. Even if the figure were increased to £10,000 or £25,000, the threat of land attachment would remain the most important problem for our clients.
We heard that message loud and clear—not least from the e-mails that we received.
The session has been extremely helpful and we appreciate the witnesses' help. We have finished taking evidence on land attachment and at next week's meeting we will consider money attachment. Item 5 is a summary of the evidence that we heard, which should be fairly straightforward.
I will try to draw together the threads of the discussion. We can boil the discussion down to simple matters that the committee must decide. Do we need the form of diligence that we have been discussing? Would it provide anything significant that we do not already have? If that form of diligence is to be introduced, should the dwelling-house be excluded? Members will recall that the Debt Arrangement and Attachment (Scotland) Act 2002 provides for different types of attachment order according to the degree of pressure that the creditor can apply.
Notwithstanding Susan McPhee's final comment, if land attachment is to be introduced, a level of debt—not necessarily £1,500—would have to be fixed.
A matter that should be considered, although it did not emerge in the discussion, is whether land attachment should be used only as a last resort when all other diligences have been exercised, given that many members of the committee regard the measure as draconian.
Much would depend on the sheriff, who would be in the invidious position of defining those difficult words, "harsh" and "reasonable", which are slippery at the best of times. Such matters must be considered much more deeply as we proceed. I am sure that members have similar views on the matter—at least I hope that you do.
Do members want to add anything?
No.
We should move into private session to take item 6, but we cannot do justice to the draft report in the time that is available. Do members agree to postpone the item until next week's meeting? If we do so, we will all have more time to read the paper.
Members indicated agreement.
Meeting closed at 16:44.