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| This research project was commissioned by Scottish Courts Administration as part of a programme of work to evaluate the reforms made to the procedures for enforcing debts introduced by the Debtors (Scotland) Act 1987. The aim of the research was to investigate the views and experiences of those who 'facilitate' the operation of the debt enforcement system: sheriffs, court staff, officers of court, debt collectors, solicitors, advice workers and employers. These different groups play important roles in the operation of the Act and their views are presented in this report. |
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| Main Findings |
- Overall, facilitators reported that the level of protection received by debtors had increased following the introduction of the Act.
- The extension to the list of goods exempt from poinding and the increased level of earnings protected from an earnings arrestment were the main aspects of the reforms introduced by the Act which had increased the level of debtor protection.
- As a result of changes introduced by the Act, facilitators reported greater use of informal measures including informal negotiation between debtor and creditor facilitated by advice workers, and greater use of informal recovery methods, in particular door-to-door collection by debt collection agencies.
- Wider social changes outwith the Act were also reported to be involved in reducing the effectiveness of the poinding and warrant sale as a means of debt enforcement. One such factor was the greater public awareness of debt and debt enforcement procedures, largely as a result of public campaigns related to the introduction of the community charge.
- Time to pay directions and orders were found to have had limited impact upon debt enforcement. One problem with time to pay directions was said to be the practice of limiting their use to agreements where repayment would be made within a two-year period.
- The new earnings arrestment was viewed positively by all groups of facilitators. The diligence was found to be an effective means of debt enforcement for creditors as well as providing some protection to debtors.
- Facilitators varied in their overall views as to whether the changes introduced by the Act were good or bad. Those acting on behalf of debtors viewed the increase in debtor protection positively, seeing the shift to using informal negotiation as a better way of resolving debt problems. Facilitators acting for creditors felt that the balance of power had shifted too far in favour of debtors to the disadvantage of creditors. They felt that the Act had reduced the effectiveness of the courts in general, and of poinding and warrant sale in particular, as a means of debt enforcement.
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| Introduction |
| The Debtors (Scotland) Act 1987 introduced a series of reforms to debt enforcement by diligence designed to address the deficiencies of the existing system which had been identified by the Scottish Law Commission 1. The main reforms were as follows: |
- Two new court orders, available at different points in the court process, which gave debtors an opportunity to pay off their debts by instalments or deferred lump sum, free from the threat of diligence. The orders were called time to pay directions and time to pay orders.
- Greater protection for the debtor subject to enforcement by poinding and warrant sale through a range of measures including: rights given to debtors to seek the court's protection where the use of the diligence was viewed to be unreasonable 2; procedural changes to the diligence, including an increase in the types of goods which could not be poinded; and discretionary powers for sheriffs to intervene in the process.
- A new diligence against earnings called an earnings arrestment which remained in effect until the debt was paid off and required deductions to be made according to a sliding income scale to ensure the debtor was left with sufficient money on which to live. Provision was also made for more than one creditor to benefit from a single earnings arrestment under the new conjoined arrestment order.
- Measures to assist the unrepresented debtor make use of the procedures of the Act, including the removal of the risk of paying for the other party's expenses regardless of the outcome of an application.
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| This research project considered the reforms to diligence from the perspectives of those who 'facilitate' the operation of the Act; ie sheriffs, court staff, officers of court, debt collectors, solicitors, advice workers and employers. |
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| Time to pay directions and orders |
| These orders were introduced to help debtors who wanted to repay their debts but could not afford to do so outright - the so-called 'can't pays'. Only limited experience of time to pay orders was reported in the interviews and the level of use of time to pay directions, while much higher than for time to pay orders, had not increased significantly above the level of use recorded for previously available instalment decree 3. |
| A number of reasons for the low level of use were reported by interviewees. These were as follows: |
- Time to pay directions tended to be granted only to those debtors who requested to pay off their debt within 2 years. This situation resulted from the way in which creditors' agents and sheriffs interacted in making decisions about the acceptability of time to pay directions. Thus, many debtors with low incomes, heavy commitments, or large debts were often excluded from this provision.
- Advice workers found time to pay directions an unsuitable measure for helping debtors with multiple debts. In such cases, advice workers were required to negotiate with a number of creditors at the same time. As time to pay directions only focused on one debt at a particular stage of enforcement and provided no support for negotiation with more than one creditor, advice workers preferred to negotiate informally with creditors.
- Advice workers and solicitors reported that debtors' knowledge and understanding of time to pay directions was limited, which may have also contributed to the limited use made of the provision.
- A final factor which may have had an impact on the use made of time to pay directions was what advice workers reported as the growing acceptance of informal negotiation within the credit industry. This change in attitude seemed to be associated with the introduction of the Act.
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| Facilitators referred to other problems with time to pay directions relating to their effectiveness as a method of debt recovery. Interviews with those facilitators who acted for creditors suggested that there were significant problems with debtors defaulting on time to pay directions. Debt collectors questioned whether time to pay directions were useful in recovering debts. Many considered them simply a means by which a debtor could delay repayment rather than make payment, and that default and subsequent enforcement were inevitable. Because of this some debt collection agencies did little to persuade debtors to maintain or start instalments. A common view among facilitators who acted for creditors was that monthly time to pay directions were not acceptable because rules on default meant that it could take 3 months before enforcement could commence. |
| It was suggested by solicitors and advice workers that high levels of default may have been a result of debtors having difficulty understanding the process of obtaining a time to pay direction and, in particular, not knowing when or to whom to make payment. In addition, advice workers felt that debtors who applied for time to pay directions without the benefit of advice tended to make unrealistic repayment offers which they often could not afford. This made default more likely. |
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| Poindings and warrant sales |
| Facilitators reported that the changes to the procedures introduced by the Act had increased the protection provided to individual debtors subject to the diligence. Some facilitators, notably those who acted for debtors, viewed this as a positive impact of the Act as the increase in debtor protection had made the diligence less attractive to creditors and negotiated settlement more attractive. Facilitators who acted for creditors, on the other hand, were more critical, seeing the effectiveness of the diligence reduced and fearing that the balance of power had moved too far in favour of debtors to the disadvantage of creditors. |
| Although there was general agreement that the reforms had increased protection, some of the provisions of the Act were more successful than others in promoting greater protection for debtors. Changes to the diligence which restricted the actions of creditors or their agents were reported to have had the greatest impact. In particular, the extension of the list of goods exempt from poinding was identified by many facilitators as having had a significant impact upon the use and effectiveness of the diligence. By reducing the occasions on which a sale was viable, the reform was reported to have reduced the persuasive qualities of the diligence as well as its role in realising assets. |
| In contrast to the impact of changes to the rules which restricted the actions of creditors, the introduction of rights for debtors to seek the protection of the courts where the diligence was viewed to be incorrectly used was said to have been less effective in promoting debtor protection. Facilitators reported little experience of debtors making use of the new rights, which is not surprising given the level of use of these measures recorded in official statistics. Similarly, the discretionary powers given to sheriffs to intervene in the diligence process were little used. Sheriffs reported that they were more relaxed about the use of the diligence because the Act had introduced protections to debtors in the form of rights to intervene in the diligence process which they could use if they wished to do so. |
| Other factors outwith the legislation were said to have further reduced the impact of poinding and warrant sale procedure. These included changes in public awareness about debt enforcement following campaigns against payment of the community charge; the impact of EU safety legislation on the sale of goods at auction; and increased levels of indebtedness in society. However, although the occasions on which the diligence could be used effectively had declined, the threat of poinding and warrant sale remained effective in eliciting payments in certain circumstances. |
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| Reforms to diligence against earnings |
| The introduction of the earnings arrestment was generally viewed by facilitators as a positive innovation. The continuous nature of the diligence was seen as more effective in enforcement terms, while reasonable protection was provided to debtors by the new scale of deductions. There was some criticism that the new deductions could be too harsh in certain circumstances, especially where the debtor had multiple debts or a high level of other commitments which had to be paid out of the remaining earnings. These problems were exacerbated by the lack of scope for negotiation with creditors who preferred the reliability of earnings arrestments and the low use of time to pay orders. |
| Facilitators reported limited experience of conjoined arrestment orders. Those that had had experience expressed concerns that creditors received payments which were felt to be unacceptably low. However, few creditors were said to be put off using the orders by this. |
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| Overview |
| Interviews with facilitators suggested that the changes to debt enforcement procedures introduced by the 1987 Act had rebalanced the system in favour of the debtor. By reducing the attractiveness of poinding and warrant sales in particular, the Act had encouraged a shift towards the use of informal procedures in debt cases. |
| A key factor which has provided greater debtor protection and, as a consequence, reduced the effectiveness of poinding and warrant sale was the extension to the list of goods exempt from poinding. This was reported to have reduced the range of goods creditors could attach, thereby making the diligence less viable and, as a result, had led to greater use of informal negotiation and informal methods of recovery, including door-to-door collection. |
| Time to pay orders and directions were said to have had limited impact on court business for a number of reasons: debtors on low income were unlikely to be granted such an order; they were unsuitable for multiple debt cases; there was a lack of debtor knowledge about the orders; and there was increased use of informal negotiation. Time to pay directions were seen by facilitators associated with creditors as a means by which debtors could delay repayment. |
| Interestingly, the impact of the Act was said to have been affected by wider changes in public awareness of debt enforcement procedures, changes in the use of rented and hire purchase goods, and increased levels of indebtedness in society. |
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| About the study |
| The Debtors (Scotland) Act 1987 aimed to strike an equitable balance between the interests of creditors and debtors by providing effective machinery for the recovery of debts, while at the same time ensuring that debtors were protected from undue economic hardship and personal distress. The Act dealt with 3 main areas: firstly, it introduced 2 new procedures - time to pay directions and time to pay orders - to give debtors time to pay their debts free from the threat of diligence; secondly, it introduced reforms to the procedures for poindings and warrant sales; and thirdly, it introduced 3 new diligences against earnings - the earnings arrestment, the conjoined arrestment order and the current maintenance arrestment - replacing the previous system of arrestment of earnings and action of furthcoming. |
| Scottish Courts Administration commissioned a programme of research to evaluate how the Act was working in practice and the extent to which it was meeting its main objectives. The research consisted of 7 separate studies. Four qualitative studies sought information on the views and experiences of commercial creditors, individual creditors, debtors and facilitators (solicitors, advisers, sheriffs, sheriff officers) and 3 quantitative studies examined the characteristics of payment actions, the characteristics of poindings and warrant sales, and trends in the use of the measures introduced by the Act. Findings from each of the studies, as well as an Overview, have been published by The Scottish Office Central Research Unit (SOCRU) as follows: |
- Headrick, D. and Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Study of Individual Creditors. (Report and Research Findings No.10)
- Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Study of Commercial Creditors. (Report and Research Findings No.11)
- Whyte, D. (1999) Evaluation of the Debtors (Scotland) Act: Study of Debtors. (Report and Research Findings No.12)
- Fleming, A. (1999) Evaluation of the Debtors (Scotland) Act: Study of Facilitators. (Report and Research Findings No.13)
- Fleming, A. (1999) Evaluation of the Debtors (Scotland) Act: Survey of Poindings and Warrant Sales. (Report and Research Findings No.14)
- Fleming, A. and Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Survey of Payment Actions in the Sheriff Courts. (Report and Research Findings No.15)
- Fleming, A. and Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Analysis of Diligence Statistics. (Report and Research Findings No.16)
- Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Overview. (Report only)
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| 'Evaluation of the Debtors (Scotland) Act 1987: Study of Facilitators', the research report summarised in this Research Findings, is available priced £5. Cheques should be made payable to the Stationery Office and addressed to: |
The Stationery Office Bookshop, 71 Lothian Road, Edinburgh, EH3 9AZ.
Telephone: 0131-228 4181
or Fax: 0131-622 7017
http://www.thestationeryoffice.co.uk |
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| This Research Findings may be photocopied or further copies may be obtained from: |
| The Scottish Office Home Department |
Central Research Unit
Room J1-0
Saughton House
Broomhouse Drive
EDINBURGH
EH11 3XA |
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| This document and other Research Findings and Reports may be viewed on the internet at http://www.scotland.gov.uk/cru/ |
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| Footnotes |
| 1 Report on Diligence and Debtor Protection (1995) Edinburgh: The Scottish Law Commission, No. 95. |
| 2 Provision is made by the Act for debtors to apply to the court to seek to have goods released from the poinding (DSA 16(4), 40 and 23(1)); recall a poinding (DSA 24(3)); or object to the granting of a warrant of sale (DSA 30(2b)). |
| 3 The instalment decree was a measure, available under summary cause procedure, which allowed all debtors to repay the debt by instalments, as specified in the decree. |