Stage Three Review – Final Report

Core recommendation 1.1

The overarching aim of the insolvency regime should be:

To deliver an equitable insolvency system that balances the needs of those struggling with unsustainable debts with the interests of their creditors and other borrowers.

Core Recommendation 1.2

The three overarching principles for the regime should be:

Justice

Ensure that fair and effective debt advice, debt relief and debt management is accessible to the people of Scotland.

Responsibility

Balance the interests of people in debt and their creditors and businesses by facilitating repayment of debts by those who are able and in doing so help ensure that all those who need to borrow can do so as economically as possible.

Future focus

Provide a safe route out of current debt problems that supports people to build a stable financial situation for the future.

Rationale

A clear and effective aim, underpinned by strong principles, sets the tone for the overall regime and becomes the key reference point for all future changes, including the process of implementing changes we recommend in this review.

The aim and principles promote fairness for all stakeholders in insolvency.

Core recommendation 1.3

The language used across creditor, Insolvency Practitioner (IP), advice sector and AiB communications should be reviewed and made more positive, accessible and person-centred, reducing the risk of stigma, confusion and shame.

Rationale

Changing the language around insolvency can stimulate cultural change in how society and practitioners support people with problem debt. It can also make the system more inclusive and accessible for people who may benefit from a debt solution.

Core recommendation 1.4

Greater consistency is needed across the standards that debt advisers, IPs, creditors and AiB are held to. Every standard setter should review existing rules, guidance and principles to ensure they have broad alignment with the FCA’s Consumer Duty, as well as including a recognition that all stakeholders in the system should be treated with dignity and respect.

Rationale

There are inconsistencies between the different standards that exist for different stakeholders in the insolvency regime. This creates issues for people in debt and for those advising them and administering their solutions. Some creditors are also likely to be experiencing unfairness compared to other creditors where some may choose to act to lower standards.

The FCA Consumer Duty is currently seen as best practice and has been robustly tested and consulted upon, so is the best available standard to promote alignment to. More information can be found in the FCA’s letter to CEOs of debt advice agencies sent in 2023.

Greater focus on dignity and respect by all stakeholders in the system is a matter of decency and is the right thing to do. Overall, a consistent approach enables a more predictable, efficient and fair insolvency system.

 

Core recommendation 1.5

AiB should uprate all limits and allowances stated in pound sterling within the insolvency legislation and guidance by the CPI inflation measure each April. For example, this would include the upper debt limit in Minimal Asset Process (MAP) Bankruptcy and allowances for assets.

Rationale

Limits and allowances which are stated in pound sterling in the regime become out of date over time. Linking them to inflation ensures they do not become disconnected from the reality of people’s lives, pro-actively avoiding issues around ongoing adequacy.