Chamber and committees

I appreciate the point that you make. That explains why we took the extraordinary step of having an uprating of the thresholds a year ahead of schedule. We have the power to achieve that through regulations.

The point that I am making before the committee in this specific instance, in considering an amendment regarding matters that could be addressed through regulations, stems from the representations that I have had from various key stakeholders, including local government. I certainly appreciate the intent behind amendment 12, and I sympathise with its objectives. However, I cannot ignore the significant representations that have been made, so I want further time to engage with stakeholders to see whether we can identify a position of consensus and fully understand what some of the unintended consequences may be. I feel that that is a responsible approach to take, given the representations that have been made to me and to the committee.

I understand that amendment 25 seeks to put a recent decision by the sheriff court on to a statutory footing. The aim is to prevent attachment of funds in a bank account when those funds are solely derived from social security benefits. I am sympathetic to that aim, but I believe that it needs further consideration and consultation with stakeholders. In particular, there are practical considerations about how banks would apply the rule and identify funds that come wholly from benefits. I want to ensure that any amendments along those lines are on the right side of the social security reservation.

There are already provisions in the 1987 act for an application to the sheriff for the release of funds where an arrestment is considered unduly harsh. That existing protection requires the sheriff officer to consider the source of the funds, and it already provides some of the protection sought through amendment 25, although I acknowledge that a court application is required and the measures do not operate automatically.

I am happy to consider further what needs to be done in addition to the existing protection, so I am grateful to the member for lodging amendment 25, as it highlights some of the issues that we need to consider and consult on. The amendment lists eight social security benefits as included, but we need to consider whether others should be included, too, and how any list would be future proofed. The amendment requires the funds to be wholly from benefits and leaves the facts of that to the judgment of the creditor before funds are released. That might be difficult in practice. How would any change interact with the protected minimum balance?

The letter from Dr MacPherson and Professor McKenzie Skene sets out a number of issues that we need to consider. There will no doubt be other practical and technical matters to consider with all interested parties, and that means I cannot support the provisions in amendment 25 at this time and in this form.

Amendment 26 proposes to create a requirement on ministers to review, on an annual basis, the protected minimum balance when bank account arrestments are executed, and to uprate that figure if it is materially lower than the inflation-adjusted figure and amend it through affirmative regulations.

The protected minimum balance is an important protection for individuals, so that only funds above the minimum in a bank account can be attached by a creditor. The figure for the protected balance was increased to £1,000 as recently as November 2022, following changes made under the Coronavirus (Recovery and Reform) (Scotland) Act 2022. That was a significant increase of roughly 52 per cent from the figure that applied before then. That increase was made very much from the viewpoint of wanting to protect universal credit payments, and we need to consider the interaction of all the various protections.

The 2022 act also gives ministers powers to further vary the figures by regulations under the negative procedure. I believe that that power, which was approved just two years ago, is the appropriate method for dealing with this issue, rather than the automatic changes through affirmative procedure that are required under amendment 26.

As was mentioned by the Society of Messengers-at-Arms and Sheriff Officers at an evidence-taking session, no statistical evidence is available that confirms whether the current figure is correct and what impacts it has had. That highlights the need for more detailed and longer-term investigations and consultation with stakeholders to establish what, if any, changes would be required under existing powers. That said, I agree entirely that the protected minimum balance will need regular updating. As I have outlined, we already have the means to do that and, indeed, have been able to do it previously.

For all those reasons, I ask the members not to press amendment 12 and not to move amendments 25 and 26. If the amendments are pressed or moved, I ask the committee not to support them.

My point on Colin Smyth’s amendment 17 is that there is a risk of unintended consequences around the drafting of the amendment and the specific language that is used. There is concern that the amendment might unintentionally—I know that this would not be your intention, Mr Smyth—preclude the possibility of a register that is comparable to what is used in the equivalent scheme in England. It is not that I lack sympathy with the policy intent; the point is that we can address those issues in the regulations. However, I am happy to give further consideration to the points that you raise. Later in my remarks, I will come to what I think is a way forward for this and the other issues that are raised in your amendments.

With respect to amendment 20, the Scottish Government has consulted fully with the appropriate stakeholders, such as debt advice agencies, throughout the process of developing the bill and the regulations, and we will continue to do so. I have committed to providing the committee with a draft copy of the mental health moratorium regulations prior to stage 3, so members will have an opportunity to propose amendments if they believe that that remains necessary. Those regulations will be subject to wider public consultation.

That brings me to amendment 21. I am open to considering what enhanced processes we can put in place beyond our commitment to share draft regulations ahead of stage 3. However, I am concerned that the process that is outlined in amendment 21 could be overly onerous and lead to unnecessary delays in the introduction of the mental health moratorium. I ask Daniel Johnson not to move his amendment, but I would be happy to discuss the issue further with him, and any other members who might be interested, in advance of stage 3.

I ask Paul O’Kane not to press amendment 18 and not to move amendment 19, and I ask Colin Smyth and Daniel Johnson not to move amendments 16, 17, 20 and 21. Were they to do so, I ask the committee not to support the amendments.

The central concern that has been expressed is about the level of engagement that the Parliament will have with regard to the regulations, and I accept that that is a fair and legitimate concern. I suggest that the way that we could address it is to discuss, ahead of stage 3, what would be a satisfactory process for parliamentary engagement on the regulations, with regard to both the immediate priority of being able to introduce the regulations and have the scheme operational, and the need for clarity around what the process will be for the Parliament’s involvement in reviewing the regulations at an appropriate point.

Mr Johnson makes some fair and reasonable points. I am not opposed to the principle of exploring how we can develop a form of super-affirmative procedure that would address the committee’s concerns, while at the same time retaining the flexibility that comes through regulations.

I fully sympathise with and appreciate the points that have been raised about wanting detail in the bill, but the simple concern that I have in the circumstances is that, where we identify improvements, we would not be able to implement them, because that would require primary legislation.

Amendments 22 and 23 are drafted in similar terms, as Paul O’Kane acknowledged, and both seek to introduce an enabling power to require Scottish ministers to set out in regulations what local authorities need to do before they commence debt recovery action.

The essence of amendments 22 and 23 is that they ensure that debtors are better informed about the debt itself, the help that is available and the potential consequences if they do nothing and a local authority should be doing more to help and support them. I agree with that, in principle. The Scottish Government has recognised that and is working with the Convention of Scottish Local Authorities on a migration to best practice on debt assistance and collection, noting the principles that were set out in the report “Collaborative Council Tax Collection”, which was published by the Improvement Service and StepChange Debt Charity. It aims to use the existing flexibilities that are available to local authorities to take a compassionate and proportionate response to recovery of arrears.

As the committee might be aware, the Scottish Government recently allocated £200,000 to Citizens Advice Scotland and the citizens advice bureau network to provide pilot projects in three local authority areas. The projects will provide additional debt advice to individuals, with a focus on council tax arrears, and will support best practice approaches to council tax debt collection in those local authority areas. The pilot should provide us with invaluable information and help us to establish what is likely to work in the future.

Although I understand why amendments 22 and 23 have been lodged, they have not been consulted on. We therefore do not know whether taking a regulation-making power and making statutory provision about the matter is the right approach. It would be better to wait, allow the pilot projects to be completed and learn lessons from them before we decide how to move forward, rather than doing this through a statutory provision.

Amendment 29 would remove the ability of local authorities to add a 10 per cent surcharge to a debt when someone is in receipt of a council tax reduction or the Scottish child payment. Again, there has been no consultation on the matter. We do not know what the impact would be or how it would work operationally. For example, what would happen if the debt was incurred prior to the person being in receipt of those benefits?

On the impact of amendment 29, we do not know how many ratepayers with a non-domestic rates debt are in receipt of either council tax reduction or the Scottish child payment, but we anticipate that the number will be very low. On the basis of the available data, we know that, for the majority of non-domestic properties, the ratepayers are organisations and that, when the ratepayers are individuals, the properties that they occupy are generally in receipt of 100 per cent relief, mostly through the small business bonus scheme.

We must be cautious with amendment 29. We need to understand what issues we are trying to fix and then work together to determine how to address them. In that spirit, I am happy to consider each of the issues further and to discuss them with members to see whether we can agree on the most appropriate way forward. I would also like the opportunity to learn more from the pilot project that I mentioned earlier. On that basis, I ask Mr O’Kane not to press amendment 22 and not to move amendments 23 or 29. If he chooses to do so, I ask the committee not to support them.

They commenced in November. We are expecting some initial data in the coming months on the back of that, but I will need to confirm that. I am happy to come back to the committee on that specific point. I will provide more details in writing to Paul O’Kane ahead of stage 3, should he wish to reserve his position.

I am happy to oblige, convener.

Amendment 15 will allow arrestments of ships to found jurisdiction to take place on a Sunday and will bring the procedure into line with other forms of ship arrestment. Arrestment to found jurisdiction is an action that is brought specifically to establish jurisdiction in Scotland. Changes to other forms of ship arrestment in Scotland were made in 1993 and 1994 following a recommendation from the Scottish Law Commission, which allowed those forms of ship arrestment to be made on any day. However, no such change was made to arrestment to found jurisdiction. Consequently, that form of ship arrestment could not be executed on a Sunday.

It is clear that that has created a gap that could be exploited by someone owing a debt, if a ship docks in Scotland on a Sunday with the intention of leaving later that day. If the creditor was unable to establish jurisdiction on the ship when it docks in Scotland, they would not be able to rely on the other forms of ship arrestment to secure their claim and prevent the ship from sailing again that day.

Although ship arrestments are not carried out frequently, they can cover claims of significant value. The amendment, which allows all forms of ship arrestment to take place on a Sunday, will support creditors in attempting to recover debts that they are owed.

I move amendment 15.

Thank you for the offer, but I have nothing to add.

Amendment 15 agreed to.

Amendment 30 not moved.

Sections 11 to 13 agreed to.

Long title agreed to.

I offer a clarification for Colin Smyth, which I sought to make clear in my introductory remarks. I am very grateful to Mr McIntosh for raising that point. The potential unintended consequence that has been identified is not the policy intent, which was to provide an additional option, not to create a situation that was materially different to the existing process.

With regard to Mr Smyth’s request, we will, as I said, look to introduce an amendment at stage 3 to remedy that, to ensure that the policy intent is met and that the unintended consequence that Mr McIntosh has identified does not materialise. I would be happy to engage with the member directly ahead of stage 3 to provide that reassurance.

We will address the issue at stage 3, and I reiterate my gratitude for it being brought to the Government’s attention.

On Mr Fraser’s points, I appreciate his approach in trying to identify a halfway house. The Government has engaged and consulted on a range of proposals. I recognise the implications for arrestees that he mentioned. That is why, as I said earlier, the Accountant in Bankruptcy is committed to a process of engagement and to minimise the administrative implications.

I note that the arrestee will already have to undertake and be subject to a process. If there is no requirement to report, there is always the risk that, should someone follow up to identify whether an arrestment has failed, a duplication of work will occur. However, I reassure the member and the committee that we are committed to engaging constructively to ensure that the measure can be implemented as effectively as possible and to minimise any additional administrative requirements. It is an important provision that will strengthen the existing processes and support the rights of creditors.

On that basis, I ask the committee not to support amendments 4, 5 and 6.

Amendment 13 agreed to.

Amendment 26 moved—[Paul O’Kane].

Both Government amendment 10 and Murdo Fraser’s amendment 3 seek to introduce a process to allow sequestrations to be transferred to the AIB when a debtor fails to co-operate with their trustee. They both address a recommendation that the committee made, as we have heard. However, there are some important differences between how the two amendments would achieve that aim, and those differences mean that, although I support the principle of amendment 3, I invite Murdo Fraser not to move it and the committee to support amendment 10.

My amendment 9 is ancillary to the changes in amendment 10 and is intended to avoid introducing any doubt about the current position under the Bankruptcy (Scotland) Act 2016. Although Murdo Fraser’s amendment 2 is also complementary to his other amendment, it seeks to change the current position on a trustee’s resignation and entitlement to fees when dealing with an untraceable debtor, so I cannot support it.

It is not unreasonable to expect a bankrupt debtor to co-operate with their trustee in return for relief from debts. However, we accept that, in some cases of serious or long-term non-co-operation, there is an issue with trustees being left unable to be discharged and having to carry out nugatory administrative tasks.

Under the provisions applying to bankruptcies made on or after 1 April 2015, the discharge of a debtor from bankruptcy is within the Accountant in Bankruptcy’s discretion. If a debtor co-operates with their trustee, they can ordinarily expect to be discharged from bankruptcy and have their debts written off after one year.

Although the Accountant in Bankruptcy’s general policy position has been to refuse discharge in instances of non-co-operation, the AIB recognises that it is not appropriate to defer discharge indefinitely when the failure to co-operate is not significant to the administration or likely final outcome of the case—for example, when contributions have been paid but some of the paperwork is missing. In August 2023, an advice letter that addressed that point was issued to trustees. Therefore, the Accountant in Bankruptcy does not refuse discharge in all cases of non-co-operation.

However, that leaves cases in which non-co-operation is more substantial. That can leave the trustee in limbo, despite having done everything that they could have reasonably been expected to have done to get the debtor to engage with the process. Private trustees accept these appointments. They have chosen to act as a trustee, sometimes in exchange for a fee from the creditor, so there is a reasonable expectation that they will make all reasonable efforts to engage with the debtor over a reasonable period of time and that they should be able to demonstrate that they have done so. However, ultimately, if a debtor steadfastly refuses to co-operate, a case will reach a point at which there is no benefit to anyone from the trustee remaining in post, unable to carry out the statutory functions of their office.

I turn to the differences between the amendments. My amendment 10 provides that, when a debtor has not co-operated with their trustee and, as a result of that non-co-operation, the trustee has been unable to carry out their statutory functions, and a period of five years has elapsed, the trustee may apply to the Accountant in Bankruptcy for authority to resign from office. If that is granted, the Accountant in Bankruptcy will be deemed to be the trustee and will take over the case.

A period of five years is considered to be appropriate. It may be apparent much earlier that an individual is unwilling to engage with the process of their sequestration, but we expect that trustees will have made some effort to persuade a debtor to co-operate—and, in most cases, a period of five years is sufficient for dealing with assets, contributions and acquirenda. Some cases take longer to complete, but that is not necessarily due to non-co-operation and is not inconsistent with the debtor’s discharge at an earlier date.

It is important that this function be one of last resort, designed to deal with the most serious cases of persistent and continuing non-co-operation. It should not be used lightly.

It is also worth noting that amendment 10 will allow for the counting of any part of the five-year period that predates the changes in the bill. That means that cases in which non-co-operation is already an issue will be included—provided, of course, that the other tests are met.

By contrast, amendment 3, in the name of Murdo Fraser, does not specify any minimum period of time over which non-co-operation would require to be established. Under amendment 3, a trustee could apply to resign at any time—even very soon after the sequestration had been awarded. As I said, my view is that a minimum period of time should elapse before the trustee may seek to resign, to ensure that the power is available only for cases of true and long-term non-co-operation.

Similarly, under amendment 10, trustees will have to provide evidence of non-co-operation and show that they have made reasonable efforts to secure the debtor’s co-operation before the Accountant in Bankruptcy will be able to grant authority for the trustee to resign office. The amendment includes a process for review by the Accountant in Bankruptcy and, if necessary, for onward appeal to a sheriff. Review and appeal are available for the trustee, the debtor, and any creditor who objects to the trustee’s application being granted by the Accountant in Bankruptcy.

By contrast, amendment 3 does not require the trustee to provide evidence about the debtor or demonstrate that they have made reasonable efforts to secure co-operation; it does not provide any rights of review or appeal; and it does not give the AIB any discretion in the process—it seems that, if a trustee applied for change, the Accountant in Bankruptcy would be compelled to grant that application without hearing from any other affected parties. That is not a fair way of approaching the process. It is important that the AIB, as decision maker, is able to hear from all interested parties on any given application, and that those decisions are subject to review or onward appeal. The Accountant in Bankruptcy must also have some discretion to refuse applications for discharge if the AIB takes a different view of the case.

When it comes to how a trustee should be released from a sequestration, I consider that the trustee should resign, as provided for in my amendment 10, rather than be discharged, as is proposed in amendment 3 and in amendment 2 as regards untraceable debtors. Resignation is more appropriate if the case is incomplete and the office of trustee remains necessary. When trustees resign, they are entitled to outlays and remuneration for work done as trustee up to the date of their resignation, and to be paid out of any funds that have been ingathered from the sequestrated estate or contributions. However, if any amount is not paid because those funds are insufficient, the trustee must make a claim on the estate as an ordinary creditor should anything be ingathered after their resignation.

My amendment 10 also makes some administrative processes discretionary for cases that have been transferred to the Accountant in Bankruptcy under its provisions. The intention is that the ball be put into the debtor’s court. As long as the debtor refuses to co-operate, nothing else will happen and they will remain bankrupt. As soon as the debtor co-operates, it will be in the power of the Accountant in Bankruptcy to complete whatever actions remain outstanding and to grant the debtor’s discharge. It is important that there should be a route out of bankruptcy, and that people should not remain bankrupt for longer than is necessary, but I remain of the view that discharge should not happen until a debtor has made reasonable efforts to engage with the process.

Amendment 10 provides the same administrative discretion in cases that meet the same conditions but in which the Accountant in Bankruptcy is already the trustee. That is not the case with amendment 3, which would leave an undesirable disconnect between cases that are managed by the AIB as a trustee and cases that are managed by a private trustee.

Amendment 9, in my name, makes a small change to section 142 of the Bankruptcy (Scotland) Act 2016, consequent on amendment 10, to maintain the current position and to avoid any implication that the process is different where a trustee resigns in the case of a debtor who cannot be traced.

I ask the committee to support amendments 10 and 9, and I ask Mr Fraser not to press amendments 2 and 3. If he chooses to do so, I ask the committee to reject them.

Good morning. I put on record my thanks to members for the proposed amendments 18, 19, 16, 17, 20 and 21, which are in relation to section 1 of the bill.

As has been outlined, the bill currently provides an enabling power for Scottish ministers to implement a mental health moratorium by regulations. There is sound reasoning for having the detail of the moratorium process in regulations. As has been acknowledged by the committee and others, the mental health landscape is multifaceted and the treatment for those who have mental health issues is ever evolving. As a result, achieving a balance between protecting vulnerable individuals who have mental health issues and the rights of their creditors is a complex task.

Understandably, stakeholders expect a review of the moratorium to be undertaken after a reasonable period of time has lapsed since its introduction. Such a review might identify improvements to the moratorium process, such as further widening the eligibility criteria. Amendments 16 to 19 would alter that approach by requiring specific provisions to be included in the bill, as well as requiring specific provisions to be included or specifically prohibited from inclusion in the regulations.

Having specific provisions in the bill, as with amendments 18 and 19, would mean that any improvements that are identified from a review would require to be made through future primary legislation. That would take longer to implement than if changes are made through secondary legislation, and I wish to avoid any unnecessary delays in making improvements to the system. For that reason, the expert working group and stakeholders agree that having the details in secondary legislation is the most reasonable approach to take. It is also the reason that the details of the mental health crisis breathing space scheme in England and Wales are contained in secondary legislation.

Although I understand the desire to have aspects of the mental health moratorium prescribed in the bill, the provisions in amendment 18 have not been consulted on and their unintended consequences would need to be considered. That is where I would agree with the principle of amendment 20, which is that we get the process correct through consultation.

Section 1(2)(e) of the bill provides that the regulations that establish a moratorium may include provisions about

“the actions creditors must, may or may not take during the moratorium”

and

“the consequences (if any) for creditors of taking or failing to take such actions”.

I believe that that is the correct approach, rather than requiring sanctions to be stipulated in the regulations, as stated in amendment 16.

I am mindful that many creditors that will be impacted by a mental health moratorium have regulatory bodies that can impose sanctions, such as fines. It might be best to use the consequences that have already been established rather than convoluting those with consequences that we propose. That was the approach that was proposed in the consultation, which received 77 per cent support from respondents. It is also the approach that has been taken in England and Wales, and the expert working group recommended mirroring that approach.

As I have said before, a review of the mental health moratorium might conclude that such an approach is not sufficient and, if so, regulations can be amended accordingly. Therefore, it is better to have a flexible approach to the bill when requiring sanctions to be stipulated in regulations. Section 1(2)(g) of the bill includes provisions to the effect that the regulations establishing the moratorium may make

“arrangements for the recording of, and access to, information that the moratorium is applying in relation to an individual”.

There is no provision restricting what approach should be taken with respect to accessing that information.

I understand and fully sympathise with the concerns that have been raised about a public register for the mental health moratorium and the potential to stigmatise the individual. I have not committed to having a public register. I am listening to the various concerns that have been raised and am determined to achieve the right balance. I am sure that the committee will understand that I must also consider the rights of creditors. I want to ensure that, where possible, potential future lenders are aware that someone is in a mental health moratorium prior to lending, as is the case under the existing standard moratorium. That would be of benefit not only to the creditor but to the individual, who could be borrowing beyond their means and further exacerbating their difficulty.