Review of Scotland's statutory debt solutions - Stage 3 Consultation

This consutlation forms part of stage 3 of the Scottish Government's review of Scotland's statutory debt solutions - Sequestration (known by some as Bankruptcy), Minimal Asset Procedure, Protected Trust Deeds, and Debt Arrangement Scheme.

A working group was formed of members from R3’s Scottish Technical Committee to respond to the consultation. The group consisted of the following R3 members –

• Eileen Maclean (Lead) (Insolvency Support Services Limited) – LinkedIn

• David Menzies (ICAS) - LinkedIn

• Emerita Professor Donna Mckenzie Skene (University of Aberdeen) - LinkedIn

• Dr Alisdair MacPherson (University of Aberdeen) - LinkedIn

R3’s response was formally submitted on 1 August 2024.

A summary of the key points from the response are as follows:

Concerns about the Consultation Process

R3 expressed concerns about the consultation process, stating that it lacked the detailed consideration they expected and did not sufficiently address the issues raised in the Stage 2 consultation. Furthermore, R3 highlighted the absence of an insolvency practitioner (‘IP’) on the consultation team and the missed opportunity to examine the underlying assumptions and policy issues related to debt solutions in Scotland.

Evaluation of Current Debt Solutions

The views of R3 on the current debt solutions in Scotland were as follows:

- Sequestration: While acknowledging its effectiveness in providing debt relief, R3 pointed out inconsistencies in timescales and a lack of consideration for business debtors in recent amendments.

- Minimal Asset Process (MAP): R3 viewed MAP as a successful solution for individuals with no assets or disposable income but opposed removing the 10-year restriction on accessing it.

- Protected Trust Deeds (PTDs): R3 considered PTDs a highly effective form of debt compromise but noted the complex legal framework and issues related to excluding the debtor's dwelling house.

- Debt Arrangement Scheme (DAS): R3 found DAS to be effective for debtors with disposable income but suggested an upper time limit and revisions to prevent debtors using their supposed intention to do a DAS to deliberately block.

Proposed Improvements and Recommendations

R3 proposed several improvements and recommendations for consideration:

- Values and Principles: R3 expressed reservations about enshrining principles and values in legislation but supported discussions on additional principles.

- Access to Insolvency: R3 identified barriers to accessing statutory debt solutions and suggested solutions such as expanding the debt advice exemption for IPs and improving financial education.

- Single Gateway to Insolvency: R3 saw merit in a single gateway but emphasized the importance of accurate information and debtor choice.

- Repayments and Conditions: R3 agreed with the principle of repayment when affordable and supported further discussions on splitting proceeds of increased income and other incentives.

- Treatment of the Family Home: R3 called for a detailed consultation on this matter, emphasizing the need for data on property realisations and a balance between debtor and creditor rights.

- Matters Linked to Insolvency: R3 highlighted the limitations of the insolvency regime in addressing issues like deficit budgets and emphasized the need for a joined-up government approach.

- Use of Technology: R3 supported the use of technology but cautioned against the complete removal of human interaction and highlighted potential cost barriers.

- Role of the Accountant in Bankruptcy: R3 recommended reducing conflicts of interest by redefining the AiB's role.