Scottish Statutory Debt Solutions Statistics: Annual edition

Insolvency legislation 

Personal insolvency

The Accountant in Bankruptcy (AiB) has a duty to supervise all personal insolvencies in Scotland. It also administers those bankruptcies where The Accountant acts as trustee.

There is legislation for all three statutory debt solutions in Scotland as well as the duties and functions of the AiB. The statute relating to personal insolvency is within the Bankruptcy (Scotland) Act 2016 (“the 2016 Act”) and associated regulations.

Bankruptcy legislation has evolved over many years. The Bankruptcy and Diligence Act 2007 introduced reforms from 2008 introduced:

• self-nominated bankruptcy by application to AiB
• a new access route through Low Income Low Asset (LILA) bankruptcy

This streamlined the bankruptcy process for individuals on low income and with very few assets. The Bankruptcy and Debt Advice (Scotland) Act 2014 (“BADA(S)”) replaced LILA with Minimal Asset Process (MAP) bankruptcy. This took effect from 1 April 2015 and introduced more flexible entry criteria and a lower application fee.

BADA(S) introduced the need for money advice before self-nominated bankruptcy. This placed advice as an essential part of all statutory debt solutions in Scotland. The 2016 Act simplified and consolidated previous statutes into one piece of legislation. This included the main statutory provisions for Protected Trust Deeds in primary legislation. Before, most of this was in secondary legislation through the Protected Trust Deeds (Scotland) Regulations 2013.

Corporate insolvency

The Insolvency Act 1986 is the primary legislation covering UK Corporate Insolvency. There is secondary legislation which applies only in Scotland. They are:

the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018 and;

the Insolvency (Scotland) (Company Voluntary Arrangement and Administration) Rules 2018.

These rules replaced the Insolvency (Scotland) Rules 1986. AiB receives, extracts and records information from documents about company liquidations and receiverships.

Debt Arrangement Scheme legislation

AiB administers the Debt Arrangement Scheme (DAS). A Debt Payment Programme (DPP) under DAS allows individuals to repay debts over an extended period. It provides protection from creditor enforcement. It also safeguards assets including their home as long as mortgage payments are maintained.

A DPP under DAS can last for any period of time agreed by creditors or deemed fair and reasonable. If approved, it will freeze all interest, fees and charges on the debt included. This results in them being waived on successful completion of the programme.

DAS law is under the Debt Arrangement and Attachment (Scotland) Act 2002 and associated regulations - the Debt Arrangement Scheme (Scotland) Regulations 2011.

The Debt Arrangement Scheme (Scotland) Amendment Regulations 2019 came into force in November 2019. These introduced some important reforms and are the most recent DAS regulations. In particular, they removed any fees payable by a debtor for advice provision. They also introduced revised fee structures and arrangements for payments distribution to creditors.

Coronavirus legislation

The Coronavirus (Scotland) Act 2020 and the Coronavirus (Scotland) (No. 2) Act 2020 were introduced by the Scottish Government. This was in response to the emergency situation caused by the COVID-19 pandemic. Both Acts included temporary measures which impact on insolvency legislation. This was deemed necessary to:

• strengthen debtor protections at that time
• solve operational problems caused by the pandemic
• ensure the system was well-equipped to deal with any surge in demand caused by the pandemic

Coronavirus (Scotland) Act 2020

This Act increased the length of the moratorium period from 6 weeks to 6 months. During a moratorium a debtor is protected from creditor debt enforcement. This gives debtors a chance to take advice and consider the best solution for problem debt.

The Act also temporarily allowed more than one moratorium in any 12 month period. This enabled access to protection for those that had a previous moratorium.

Coronavirus (Scotland) (No. 2) Act 2020

This Act made several temporary changes to bankruptcy legislation. Some of these changes focused on the operational aspect of bankruptcy. This was to ensure efficiency and flexibility in bankruptcy administration during the COVID-19 pandemic. These changes included:

• allowing the electronic signing and service of documents
• increasing the deadline for submitting Debtor Contribution Order proposals
• allowing for virtual creditor meetings in bankruptcy

The debt threshold for MAP bankruptcy eligibility increased from £17,000 to £25,000. Student loan debt was removed from contributing to this calculation. The Act provided lower cost access in debtor application bankruptcy. Debtor application costs for Full Administration reduced from £200 to £150. MAP application fees reduced from £90 to £50. Fees were removed for those in receipt of certain prescribed benefits.

The Act changed the eligibility criteria for a creditor to petition for sequestration. The amount of money owed to creditor(s) to be qualified to raise proceedings was increased from £3,000 to £10,000.

Expiry of Coronavirus Acts

The Bankruptcy (Miscellaneous Amendment) (Scotland) Regulations 2021 (the “2021 Regulations”) came into force in March 2021. These Regulations brought forward the expiry of some of measures in the Coronavirus (Scotland) (No.2) Act 2020 by replacing them with permanent provisions. The provisions aim to streamline the bankruptcy administration process. This improved access to MAP bankruptcy and reduced the cost of accessing bankruptcy.

In particular, these regulations amended the 2016 Act and associated regulations to:

• reduce all bankruptcy debtor application fees
• remove application fees completely for those in receipt of certain prescribed benefits
• increase the debt threshold for eligibility for MAP to £25,000
• remove student loan debt from the eligibility calculation
• allow the electronic signature of bankruptcy forms
• provide trustees twelve weeks to submit Debtor Contribution Order proposals

The remaining provisions were extended until 30 September 2022.

The provision allowing more than one moratorium in any 12 month period was not extended. This measure expired on 30 September 2021. The original provision in the 2016 Act is now reinstated. Only one moratorium application is permitted within 12 months.

Coronavirus (Recovery and Reform) (Scotland) Act

The moratorium and bankruptcy parts of the Coronavirus (Recovery and Reform) (Scotland) Act commenced on 1 October 2022. These include:

• modernising provisions that enable electronic delivery of documents and
• allowing remote meetings of creditors in bankruptcy proceedings

The Act provides more protections for those dealing with problem debt. It amends the debt level creditor(s) must be owed to be qualified to raise proceedings to £5,000. The Act fixes the period of protection provided by the moratorium period at 6 months. Before the temporary provisions, the protection period was fixed at 6 weeks.

The Bankruptcy and Debt Arrangement Scheme (Miscellaneous Amendment) Regulations 2023

The Bankruptcy and Debt Arrangement Scheme (Miscellaneous Amendment) Regulations 2023 came into force on the 6 February 2023. The provisions included in the regulations were brought in to help with the current cost crisis.

Changes to bankruptcy legislation include:

• the removal of the minimum debt level to access Minimal Asset Process bankruptcy
• the removal of application fee requirements for bankruptcy if the applicant is assess by the Common Financial Tool as having no surplus income
• increases to the deposit paid by creditors from £300 to £750 where AiB is nominated as trustee in a creditor petition bankruptcy

For the Debt Arrangement Scheme, measures amended the payment break process so that an application could be made where there was a 50% reduction in disposable income where it is considered that the reduction will last for the period of the break, and the circumstances previously required for a payment break were removed.