This item was published during the term of a previous administration that ended in April 2007
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Measures to help recovery from bankruptcy
02/07/2004
Legal reforms to help individuals and small businesses to get back on their feet again after bankruptcy have been published today.
The measures also provide for a more robust system which ensures the interests of creditors are safeguarded.
The proposals to modernise Bankruptcy legislation sit alongside important changes to improve Diligence procedures - the enforcement of the orders of civil courts - in a new draft Bill unveiled by Deputy First Minister Jim Wallace.
Personal bankruptcy affects individuals and small businesses (sole traders and partnerships). Bankrupts have their assets transferred to a trustee to be distributed amongst their creditors. They are also subject to certain disqualifications for a three year period - including restrictions on borrowing, not being permitted to form a limited company and not being authorised to serve on certain public bodies.
Key proposals include:
- reducing the bankruptcy period from three years to one year;
- streamlining the bankruptcy process and reducing court involvement;
- introducing time-limited claims against a bankrupt's home and inheritance to help balance returns for creditors with the ability of debtors to move on with their lives;
- Bankruptcy Restriction Orders (BROs) : protecting the public and business interests by continuing to enforce restrictions on potentially fraudulent or culpable bankrupts once they are discharged from their bankruptcy;
- encouraging a 'can pay, should pay' principle so that contributions towards debts can be continued after the period of bankruptcy has been discharged.
Mr Wallace said:
"Personal bankruptcy has serious legal consequences but the stigma lingers for far too long.
"We want to encourage people to get on with their lives and businesses, and make a fresh start after a period of bankruptcy. In business, responsible risk-taking may sometimes involve failure. But the climate must be right to move on and try again.
"At the same time, it is vitally important that we have checks and balances. Creditors need to have confidence that a robust system is in place to protect their interests and ensure debt recovery, and there must be measures in place to deal with the small minority of bankrupts who have acted fraudulently."
Diligence
Diligence is the enforcement of the orders of civil courts and is a key part of the civil justice system. An order for payment, or for delivery, or to prevent the disposal of assets pending the results of a court case, must have effect. If that were not to happen, suppliers would not be willing to enter into the many agreements and contracts the economy and society relies on.
Key proposals include:
- reforming the diligence which allows for the freezing of all the funds in a debtor's bank account so there is a subsistence level below which funds are protected from arrestment;
- setting up a new public body called the Scottish Civil Enforcement Commission to oversee and improve the accountability of messengers-at-arms and sheriff officers in a single unified profession, and to provide a cost-effective way of dealing with difficult diligence issues formerly dealt with by the courts;
- implementing Scottish Law Commission recommendations for modernisation of the diligence which protects assets pending the outcome of a court case;
- creating a new form of land attachment to strike a fair balance between creditor interests in recovery and the risk of a debtor's ejection from their home.
Mr Wallace said:
"The Bill's provisions to reform diligence will modernise the current range of enforcement methods so that debtors do not have excessive or unfair debt enforcement measures imposed.
"It will create a better balance between debtor and creditor interests, and set up a public body to oversee the improved enforcement system and ensure consistency and high standards."
Modernising Bankruptcy and Diligence in Scotland: Draft Bill and Consultation sets out proposals for reform of bankruptcy and civil enforcement and is available at www.scotland.gov.uk/publications
It is being drafted in two phases. Phase one forms the draft Bill which is published today, together with phase two proposals which are for consultation. The consultation period ends on 30 September 2004.
The Bill when introduced will have provisions giving effect to the other proposals in this document, if adopted by the Executive. The reform of diligence in particular is very wide ranging, and technically complex. The Executive consider that it is better for that reason to seek comments only on those provisions in the bill which are closest to the form in which they can become law.
The Executive issued a consultation document on current bankruptcy legislation Personal Bankruptcy Reform in Scotland: A Modern Approach in November 2003. That consultation closed on 20 February 2004.
The consultation paper Enforcement of Civil Obligations in Scotland in April 2002 followed a wholesale review of diligence. That paper set out the Executive's policy aims and intentions for reform of the structure and organisation of the enforcement system as well as the various types of diligence. An independent analysis of responses was published in November 2002. Detailed scrutiny of the analysis and responses supports the need for legislative reform in the areas consulted upon.
Diligence reform has already started in new legislation - the Debt Arrangement and Attachment (Scotland) Act 2002 - and draft regulations for the new debt arrangement scheme (DAS) were approved by Parliament earlier this year.