Official Report 168KB pdf
Item 6 is to consider issues that have emerged from the evidence that we have taken from the Accountant in Bankruptcy on the Bankruptcy and Diligence etc (Scotland) Bill. I thought that the most interesting statistic was that there has been a 66 per cent increase in sequestrations, which is about double the rate of increase for the same period south of the border. We need to analyse that and find out what is behind it.
I agree entirely. The figure raises the question why we need the bill. If hundreds of people are desperate to be sequestrated, it will on the face of it make no difference whether the bankruptcy period is three years or one year.
It is interesting that the AIB's equivalent in England has stated that the increase in sequestrations there is not a result of the recent legislation on the matter.
That is what the Insolvency Service says, but it would be unrealistic to say that the legislation had no bearing on the increase. There are a number of possible reasons, but I am sure that the introduction of the Enterprise Act 2002 is likely to have had some effect, just because more people know about the provisions. We may not know the true reasons, but there will be several factors.
We will explore that issue next week.
The figure puts into context the evidence from the advice agencies that most debtors want an arrangement to regulate their debt and allow them to begin to pay it off to free themselves from the burden. As well as the greater levels of debt with which people cannot cope, it may be the case that the legislation in England has made that process slightly easier. I suppose that we want the bill to make it slightly easier for people to get debt relief and to get on with their lives.
Another interesting point was about the perception that the debt arrangement scheme is not working—the AIB thinks that that is because of teething problems rather than anything inherently wrong with the scheme. We need to pursue that issue, because all the evidence that we have had so far has been that the scheme needs to be reformed to make it do what it is supposed to do.
Some of the evidence that I have had in private discussions with my local advice service is that if charges and interest are not frozen during a lengthy debt arrangement scheme—the maximum possible time is 10 years—some debtors can end up with a debt that is as large as or larger than the debt that they had at the beginning of the process. There is no incentive for people to enter into such a scheme if they see no light at the end of the tunnel. We should consider whether the scheme could be tweaked through a stage 2 amendment to give relief.
And sometimes that debt is more expensive to service.
Yes. I would like the opportunity to put that to the clearing banks at stage 2.
We do not take evidence at stage 2.
No, but we can ask for comments.
My concern is that when people apply for bankruptcy, they do not understand—as we heard—the major negative impact that being declared bankrupt can have. I get the feeling from all the evidence that we are taking that there might not be sufficient room for us to debate how we can enable people to make arrangements before they reach the bankruptcy stage. A big part seems to be missing from the bill and I do not know how we can address that problem.
That is part of a wider issue to do with hierarchy. The local authority goes straight for sequestration, but we want more of a hierarchy, in which the minute that somebody gets into debt, particularly to a public authority, the first line of approach is early intervention to prevent a lot of problems later on.
Is there a mechanism in the bill that would allow us to do that?
Yes, in parts 4 to 16 of the bill.
Various arguments have materialised from insolvency practitioners about the debt arrangement scheme. They seem to dismiss the scheme and say that people would be better off using a protected trust deed instead. The money advisers think that it is a positive scheme that should be encouraged. The AIB says that there appear to be problems in getting accredited money advisers. If the debt arrangement scheme is to continue, we have to identify clearly where the problem lies and look at what remedies can be applied to overcome that problem. We have to address that in our stage 1 report because, if the scheme is fatally flawed, we should flag up where. If the problem is the practicality of getting more accredited money advisers, we need to flag up what the Executive should do to ensure that we get more of them, given that the Executive introduced the debt arrangement scheme in the first place.
I am told that part 13 of the bill deals with debt arrangement and part 15 is concerned with information provision. I inform Shiona Baird that when we come to parts 13 and 15, there will an opportunity to comment. I am sure that members knew that anyway.
Thanks for reminding us.
It is okay. I think that we had good feedback and useful evidence from the Accountant in Bankruptcy.
Gillian Thompson talked about some examples of protected trust deeds.
She talked about complaints that had been received.
Yes. Would it be possible to see those? If we have a practical example of something, it can provide clarity and focus.
We can write and ask her whether that is possible.
Might it not also be a good idea to have examples of people who are happy with their protected trust deeds? It would be good to see the other side of the table.
Certainly.
I have come across examples of people who are entirely satisfied with their protected trust deeds and who thought that it all worked very smoothly. We should hear both sides of the argument.
Absolutely. If everybody is happy with that, we will move to item 7, which is our draft report on business growth, which we will consider in private.
Meeting continued in private until 16:07.
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