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Middle class Scots will be hit by insolvency law changes

Indebted middle class Scots will be treated more harshly if proposed changes to bankruptcy laws are introduced, according to leading insolvency trade body R3, and the Institute of Chartered Accountants of Scotland (ICAS). Both organisations are also concerned that the proposed changes to Protected Trust Deeds (PTDs) in particular will result in fewer Scots being able to access an appropriate route into insolvency.
In general PTDs are taken out by more affluent individuals who have a job and assets. In those PTDs which closed during the period 2010/11 the average dividend paid was 16.2p in the pound. The Scottish Government is proposing to introduce a minimum dividend in a PTD of 50p in the pound. The expectation is that many affluent Scots would repay a much greater proportion of debt than previously but the reality is that more people would be forced down an alternative and possibly inappropriate insolvency route. Repayments under the PTD scheme would last for longer than at present and would result in fewer Scots being able to take out a PTD.
John Hall, Scottish R3 council member, explained: “We agree that those who can pay should pay, but the system needs to be fair. We believe that people want to pay back their debts, but they should not be a slave to them for a disproportionate amount of time. These proposed changes will mean that many more people will either be repaying their debts for years or will not be able to access any route into insolvency and will be trapped simply paying interest on enormous sums. This will effectively condemn many thousands of Scots into a prolonged period of indebtedness. These are individuals, who might otherwise have recovered from their difficulties and contributed greatly to the financial growth of the Scots economy.”
John continued: “There is also concern in the creditor community that the proposals will be unworkable and many are happier with 16.2p of guaranteed repayments rather than 50p of theoretical payments which, effectively, become problematic or impossible to collect. Indeed the costs of collection may well end up being considerably higher if the dividend is raised to 50p”.
Bryan Jackson, Chair of the ICAS Insolvency Committee, said: “Whilst it may appear that these changes will increase the revenue received by creditors the reality is it is unlikely to raise more funds than the current system. It will also exclude many individuals, currently experiencing extreme financial hardship, from any acceptable or appropriate route into insolvency.”
“When individuals are in extreme debt they need advice which will ensure they make the right choice for their circumstances. These proposed changes don’t, we believe, include adequate provision for such advice. Given the PTD route will almost certainly disappear if these changes are implemented, many individuals will be forced either to continue with their indebtedness or be made to choose a route which is not suitable for their individual situation.”
Both R3 and ICAS believe that there have already been substantial amendments to the insolvency legislation in Scotland and that these changes may cause more problems than they seek to resolve. There is a danger these proposed reforms will lead to disparity between the English and Scottish systems, leaving indebted Scots in a disadvantaged position. 
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Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.