Scottish Government

BUSINESS-RELATED BANKRUPTCIES UNDER THE BANKRUPTCY (SCOTLAND) ACT 1985 (AS AMENDED)- PHASE 1: SCOPING STUDY

2 Bankruptcy and Sequestration

2.1 Introduction

2.1.1 n Scotland, there are two strands to insolvency law, with the insolvency of limited companies being covered by the Insolvency Act 1986, and that of individuals, partnerships and other unincorporated bodies being covered by the Bankruptcy (Scotland) Act 1985, as amended in 1993. While limited companies are liable to liquidation, receivership or administration if they become insolvent, individuals are liable to bankruptcy, which involves sequestration - that is, the debtor's estate passes to a trustee, for distribution to the creditors.

2.1.2 Bankruptcy legislation was first introduced in Scotland in 1621, with sequestration appearing in the legislation in 1772, though at that time it applied only to debtors who were in trade. It was not until the mid-19 ^th Century that bankruptcy law was extended to cover all debtors. The new law made provision for a debtor to obtain a discharge from debts, even if creditors had not been paid in full, and also abolished the penalty of imprisonment for debt. The role of the Accountant in Bankruptcy was also created at this time, to provide impartial supervision of the sequestration process. Current bankruptcy law was introduced by the Bankruptcy (Scotland) Act 1985, which was amended in 1993; however, there are still a few bankruptcies being administered under the Bankruptcy (Scotland) Act 1913, which preceded the current legislation.

2.1.3 Bankruptcy law in Scotland does not distinguish between individuals on the basis of the cause of their bankruptcy, or on whether they were trading as a business at the time of, or in the period leading up to, their bankruptcy. Likewise, the statistics currently available about bankruptcy in Scotland do not distinguish between those involving business debts as compared to those involving only consumer debts ⁹. However, the statistics for Scotland do show that the number of sequestrations has been increasing consistently, though not dramatically, over recent years, with 2,340 sequestrations in the year ending April 1995, rising to 3,185 by the year ending April 2000 ¹⁰.

2.2 The objectives of sequestration

2.2.1 Current bankruptcy law has three main objectives:

• firstly, the law serves the economy and society as a whole, ensuring a climate in which debts are generally paid, by acting as a deterrent to non-payment of debts;
• secondly, the law provides for the repayment of debts to creditors: in sequestration the debtor's assets pass to the trustee, whose duty it is to realise them and distribute them equitably to all creditors;
• thirdly, bankruptcy law provides relief to debtors unable to pay their debts: with sequestration, creditors can no longer exercise debt recovery procedures against the debtor, whether formal or informal, and the debtor is discharged after three years irrespective of whether the debts have been paid ¹¹.

2.2.2 In contrast with some other jurisdictions, Scottish bankruptcy law does not place emphasis on protecting the business, the business' employees, or the debtor's family, and may be considered to be more creditor-orientated than much bankruptcy law in continental Europe and the USA. Bankruptcy law does not currently provide for an independent assessment of the viability of a business, or for attempted business rescue, prior to sequestration. This is an important point, to which we return later in the report.

2.3 The process of sequestration

2.3.1 The formal process of sequestration begins with the presentation of a petition for sequestration at the debtor's local Sheriff Court, or at the Court of Session. A petition for sequestration may be presented either by the debtor him/herself or by a creditor, though specific criteria must be met in both cases. Firstly, the debts must amount to 1,500 or more, and generally the debtor must also be "apparently insolvent", a term which has a strict legal meaning.

2.3.2 There are three main ways in which a debtor's "apparent insolvency" can be established. These are through:

• a "statutory demand" having been served on the debtor, and payment not having been made within the 21 day notice period, or the debt having been disputed;
• an ordinary court action having resulted in the award of a decree, a "charge for payment" having been served, and payment not having been made within the 14 day notice period;
• a "summary warrant" having been granted in relation to unpaid rates or taxes, and the debtor's goods having been "poinded".

2.3.3 Petitions by debtors are normally awarded immediately, on the same day that they are applied for. Petitions by creditors, in contrast, take at least 14 days. Following a petition by a creditor, a Warrant to Cite is issued by the court, which allows the debtor 14 days in which to take action to prevent the sequestration being awarded. Sequestration is a summary proceeding, and if the sequestration cannot be dismissed - due to payment having been made - it will be awarded at the hearing. However, some sheriffs are willing to continue consideration of the motion, perhaps if the debtor produces a cheque at the hearing, or states that s/he will be able to pay the amount in full within the next few weeks. In this respect there is some variability in practice between sheriffs.

2.3.4 Any petition for sequestration may include nomination of an interim trustee, but if an interim trustee is not nominated this role will go to the Accountant in Bankruptcy (a statutory official, appointed to provide impartial supervision of the sequestration process ¹²). The main role of the interim trustee is to investigate and preserve the debtor's estate, including investigating the reasons for the debtor's insolvency, and the extent of both their assets and liabilities. The interim trustee may also call a statutory meeting of creditors, although such meetings are frequently considered unnecessary in cases where there is little or nothing by way of assets.

2.3.5 At the statutory meeting of creditors a permanent trustee may be elected, and in these cases creditors may also elect commissioners from amongst their number, to supervise the work of the permanent trustee. If a permanent trustee is not elected, the interim trustee will apply to become permanent trustee through submission of an Act and Warrant to the court. The main role of the permanent trustee is to manage and realise the debtor's estate and distribute it amongst the creditors according to their relative entitlements.

2.3.6 Once awarded, sequestration can be recalled. However the debtor must pay all the fees owing, including the trustee's fees and court fees, as well as their own legal fees. They must also pay all their debts in full, unless creditors are willing to make a written statement that there is no current problem with the debtor's account. Recall of sequestration must take place in the Court of Session, rather than a sheriff court, and is relatively time-consuming and costly.

2.4 Pathways to sequestration

2.4.1 For creditors, a number of alternatives exist for attempting the recovery of debts. In some cases these may lead to sequestration, though in practical terms, sequestration of the debtor is rarely of benefit to the creditor. For the purposes of recovering moneys due, other forms of debt recovery are generally more effective, and sequestration is often a last resort, or if sought earlier, may be an action designed to tackle a debtor who won't, rather than can't, pay. There are therefore numerous pathways leading to sequestration:

• creditors may employ informal debt recovery procedures, including issuing final demands and letters, and making telephone calls and face-to-face visits;
• creditors may attempt to assist debtors, through use of intensive care procedures, and/or be willing to come to an arrangement for payment of the debt over a period of time;
• creditors may take formal action to prove the debt, including applying to the sheriff court for a decree or a summary warrant (if a local authority or government department), or issuing a statutory demand;
• government creditors may follow up a summary warrant by poinding, in order to establish apparent insolvency, or by other forms of diligence; other creditors may follow up a court action by issuing a charge for payment (thus establishing apparent insolvency), and doing diligence;
• Having proved the debt, a creditor may attempt a number of different forms of diligence - including inhibition, earnings arrestment, ordinary arrestment, poinding and warrant sale ¹³;
• Having established the debtor's apparent insolvency, and either having already attempted to do diligence, or instead of doing it, the creditor may petition for the debtor's sequestration;
• apparent insolvency having been established (as indicated above), the debtor may petition for his/her own sequestration in order to seek relief from further debt recovery procedures.

2.4.2 When debts are not paid, creditors appear to operate on the basis that the debtor "won't pay" rather than "can't pay", and that applying continued pressure will eventually force the debtor into payment. Thus creditors tend to work their way through a range of debt recovery procedures, as a step-by-step process, at each stage hoping that the pressure being applied will convince the debtor to pay. There is much evidence that these measures are effective in many instances. Many creditors emphasise the importance of debtors communicating and co-operating with them, and state that whatever stage has been reached in debt-recovery procedures, they are always happy to consider a realistic arrangement for payment of the debt.

2.4.3 The debt-recovery procedures chosen by a creditor, and their route through diligence and potentially to sequestration, are based on a number of considerations. These include:

• the size of the debt;
• the debtor's debt history;
• the extent of the debtor's assets and/or income;
• what is known about the debtor (in terms of assets, employment, bank details, etc);
• whether the debt is likely to be disputed;
• the likely cost of the action.

2.4.4 Some creditors have a policy of avoiding warrant sales, and sometimes even poinding, but in the main the route creditors take is based on clear commercial considerations.

2.4.5 For many creditors, petitioning for the sequestration of a debtor is considered to be a last resort, only to be turned to when informal debt-recovery procedures and doing diligence have failed. However, there are some creditors who use sequestration quite early on in their debt-recovery procedures, and do not attempt diligence before turning to sequestration. In either case, petitioning for sequestration is generally just one more step in the process of putting pressure on a debtor in order to force payment. The creditor's primary aim rarely appears to be to sequestrate the debtor as such, rather it is to push the debtor into payment by the threat of sequestration.

2.4.6 Nevertheless, creditors may have other motives when petitioning for a debtor's sequestration. Creditors may use sequestration as a warning to other debtors; and in some cases a creditor may sequestrate as a deliberate act of punishment or retribution, if they feel a debtor has acted dishonesty, or has been deceptive. Government departments, such as the Inland Revenue and Customs & Excise, very clearly use sequestration in order to put a debtor out of business, and prevent the build-up of any further debts.

2.4.7 Creditors claim that the decision to petition for the sequestration of a debtor is generally made on a commercial basis, taking into consideration such issues as the cost of sequestration, the value of the debt and the likely value of the debtor's assets. Yet, the small proportion of cases in which dividends are paid out to creditors, in sequestration, shows that it is rarely a successful mechanism for recovering debts. Statistics from the Accountant in Bankruptcy ¹⁴ show that during 1999/2000 a dividend was paid to preferred creditors only in 124 (4% of) cases, with preferred creditors being paid in full and a dividend also being paid to ordinary creditors in a further 261 (9% of) cases. More than half of the ordinary creditors to whom a dividend was paid received less than 25p in the pound, and the average dividend paid to ordinary creditors who did receive one was 25.5p in the pound. 51 ordinary creditors (20% of those who received a dividend) received full repayment of their debt - full repayment thus being received by ordinary creditors in just 2% of sequestrations.

2.4.8 Given these figures, it is perhaps not surprising that some creditors deliberately avoid any action which would make a debtor apparently insolvent, since this would allow the debtor to petition for his/her own sequestration. Such creditors believe that they have a better chance of recovering their debt through informal debt recovery procedures, and see sequestration as protecting the debtor from further attempts at debt recovery. In these cases, the debtor is denied the relief of sequestration, and may be put under repeated, and even aggressive, pressure by creditors.

2.4.9 Notably, although the overall number of sequestrations has increased over recent years, the number of creditor petitions in 1999/2000 (at 1,140) was actually slightly lower than in 1994/95 (at 1,163). The increase in sequestrations is therefore entirely attributable to an increase in debtor petitions, which have nearly doubled over the same period, rising from 1,171 in 1994/95 to 2,026 in 1999/2000 ¹⁵. Evidently, while there is little change in creditors' use of sequestration, there is an increasing trend towards debtors using sequestration to obtain relief from debt.

2.5 An alternative to sequestration - protected trust deeds

2.5.1 There is little doubt that, for many debtors, sequestration provides a way out of intractable debt problems and, as such, is a source of relief. For some such debtors however, an alternative does exist to petitioning for their own sequestration, this being to enter voluntarily into a trust deed.

2.5.2 A trust deed is a formal, legally binding contract between a trustee and a debtor, entered into voluntarily, under which the trustee administers the debtor's assets for the benefit of his creditors. Provided it meets certain conditions a trust deed automatically becomes protected if notice of it is served on all creditors, unless the majority of the creditors, or one third of creditors (by value of the debt), object in writing. Once the trust deed becomes protected it is binding on all creditors, and no further debt recovery measures may be undertaken.

2.5.3 From the debtor's point of view a protected trust deed provides a way of dealing with intractable debt problems without having to meet the formal criteria of apparent insolvency, and without the social stigma of bankruptcy. Signing a trust deed has the advantage of being a private and voluntary arrangement, which does not involve the courts, formal bankruptcy, or restrictions on obtaining credit. However, there is no formal discharge from protected trust deeds after three years, and debtors do still lose their assets - one of the conditions for registration as protected is that the trust deed should convey all the debtor's assets to the trustee, for distribution to creditors.

Chart 1 - Debtor & creditor petitions for sequestration and protected trust deeds ¹⁶

2.5.4 Although many debtors are still unaware of the possibility of entering into a trust deed, the number of protected trust deeds is currently increasing rapidly in Scotland. In 1994/95 there were just 424 protected trust deeds registered, while in 1999/2000, at 2,353, they surpassed debtor petitions for sequestration for the first time. This rise has prompted some concern that insolvency practitioners may be encouraging the use of protected trust deeds even in cases where there is little benefit to creditors, as long as their own fees and expenses are paid. Some creditors claim that protected trust deeds are very slow to come to completion, and there is also evidence that dividends are often very low - indeed, there is concern that protected trust deeds may be entered into even where the debtor has no assets or income. However, very little is currently known about how protected trust deeds are being administered, or even in what circumstances debtors are entering into them, rather than petitioning for sequestration.

2.6 The debtor's experience of sequestration

2.6.1 Although there may be an element of relief when sequestration occurs, for many debtors this is combined with a range of other emotions, including anger, frustration, a sense of failure, a loss of self-esteem, and a sense of powerlessness. Many bankrupt people feel that they were badly treated by their creditors, who did little to help them through their debt problems, or who petitioned for their sequestration when they could have traded through their problems. Others have a strong sense that bankruptcy shows they have failed, both as a business person and as a manager of their own financial affairs, while some resent the loss of control over their own affairs. In addition, many debtors are very conscious of the stigma that attaches to bankruptcy, often feeling that other people frequently associate bankruptcy with dishonesty.

2.6.2 The stigma attached to bankruptcy appears to be supported by many of the restrictions placed on bankrupt people. While bankrupt, a person cannot act as an MP, a local councillor or even be on a school board, some professional people are unable to practice while bankrupt and others lose their licence or certificate of professional competence as a result of bankruptcy. In addition, the Directors Disqualification Act does not allow a bankrupt person to be the director of a limited company, although directors of companies that go into liquidation are not generally disqualified. Even application forms for a range of jobs, including nursing and working as a prison officer, ask if the applicant is bankrupt, while some contracts of employment include bankruptcy as a reason for dismissal.

2.6.3 Once sequestrated, many debtors appear to feel that they are given little information about bankruptcy, and seem to have a very incomplete understanding of bankruptcy law, or of their own rights and responsibilities. Debtors may feel that there is nobody to whom they can turn for help or advice as they go through bankruptcy, and since many solicitors and accountants are unfamiliar with bankruptcy law even these advisers are often ill-placed to advise them. Most debtors have little contact with their trustee, and in some cases feel that they have been unreasonably or badly treated by the trustee, or even that s/he has bullied or hounded them. Debtors may feel that, having taken over their affairs, the trustee has not handled them effectively, perhaps that the trustee has done too little to recover money owed to them by their own debtors, or has sold off assets for significantly less than their market value.

2.6.4 For many debtors their house is their main asset, and trustees are therefore obliged to realise the value of their equity in the house, sometimes through agreeing a voluntary sale with the debtor and his/her spouse, and sometimes by going to court to force eviction. Alternatively, agreement may be reached whereby the debtor's spouse, or other family members, are able to buy out the trustee's interest in the house. Although a bankrupt person is discharged after three years, the trustee is not discharged until all the debtor's assets have been realised, and realisation of the house as an asset may remain outstanding well beyond the debtor's discharge. This can result in the debtor and his/her family living with uncertainty and insecurity about their home for several years. At present, no statistics are available about how frequently debtors lose their homes as a result of sequestration.

2.7 Concerns about trustees

2.7.1 Amongst both creditors and debtors involved in the scoping study there is some concern about the extent of accountability of insolvency practitioners working as trustees, and as agents of the Accountant in Bankruptcy.

2.7.2 The creditors' concerns include the suggestion that trustees can build up fees without undertaking sufficient investigation of debtors, and that trustees' work proceeds at too slow a pace, being "fee driven", rather than being driven by the objective of getting the best for creditors. Some creditors also feel that there is insufficient communication between themselves and trustees, with trustees failing to keep them informed about progress in the realisation of assets.

2.7.3 The debtors share some of these concerns, and feel there should be more regulation of trustees, and that trustees should be obliged to inform the debtor how much they have realised from his/her assets, paid to creditors, and taken in fees.

2.7.4 One of the roles of the interim trustee is to "ascertain the reasons for the debtor's insolvency and the circumstances surrounding it" ¹⁷. However, the level of fees payable to trustees, and especially to agents of the Accountant in Bankruptcy, means that the time they are able to devote to such investigation is restricted, and often minimal. If a business is involved, the trustee may not even look at the business's books, and in practice trustees can frequently undertake little or no investigation into the causes of insolvency, with their assessment at best being superficial, cursory and subjective. Even if they suspect wrongdoing, trustees rarely seem to be able to make a thorough investigation of the circumstances surrounding bankruptcy. Occasionally a large creditor may finance such investigation if they feel a substantial amount of money may be recovered, but this is dependent on a cost-benefit analysis. Where the Accountant in Bankruptcy is trustee, there appears to have been a shift of emphasis away from thorough investigation in recent years, in order to avoid unnecessary expenditure of public funds.

2.7.5 In some cases, trustees may allow a business to continue trading for a while following sequestration, thereby taking on personal liability for the business, in all aspects, including financial, health & safety and employment. The trustee will usually have to request that the main creditor fund the continued trading. This generally appears to occur with particular types of business - such as hotels and pubs - because the assets are likely to be worth considerably more if the business is sold as a going concern than if closed down. Currently no statistics are available to provide more information about the frequency, circumstances, or success of this approach.

2.8 The effectiveness of sequestration

2.8.1 The effectiveness of sequestration is best viewed against the objectives of the process.

2.8.2 Since one aim of bankruptcy legislation is to ensure that debts are generally repaid, it is clear that the legislation is producing mixed results. While the majority of debts are undoubtedly repaid, there are nevertheless increasing debt problems in society, and the demand for the debt counselling provided by Citizens Advice Bureaux, amongst others, is clearly increasing. These changes cannot be blamed primarily on bankruptcy legislation, and indeed they may better be blamed on the ease with which credit is now obtainable. However, bankruptcy legislation is evidently not acting as an effective deterrent, particularly as regards consumer debt. In addition, there is some argument for suggesting that, in cases where consumer debtors have neither assets nor income, existing bankruptcy law is largely inappropriate for the relief of their debts, and that this could more effectively be dealt with by a simpler, less formal, and less expensive alternative.

2.8.3 The second aim of bankruptcy legislation - to provide for the recovery of debts by creditors - is again achieving mixed success. Undoubtedly, the threat of bankruptcy, in the form of a creditor petitioning for sequestration, does "force the hand" of many debtors who are able to pay the debt off, and hence have the sequestration dismissed. Around half of creditor petitions are dismissed as a result of the debt having been paid ¹⁸. However, in cases where the sequestration goes ahead, the return to creditors is generally extremely low. The actual sequestration of a debtor is frequently of little or no benefit to his/her creditors.

2.8.4 The third aim of bankruptcy legislation - to provide relief to debtors with intractable debt problems - is frequently achieved. Many people who have been sequestrated experience a clear sense of relief when this occurs, having been living under enormous pressure from their debt problems. However, the dependence of sequestration on apparent insolvency, which means that sequestration does not rely on either practical insolvency (inability to pay debts as they fall due) or absolute insolvency (having debts of a value greater than assets), can result in apparent anomalies.

2.8.5 On the one hand, although a debtor is practically insolvent, s/he may be unable to obtain the relief of sequestration, since no creditor has taken action which results in his/her apparent insolvency. This situation principally affects consumer debtors, who may be unable to obtain relief from repeated, aggressive debt-recovery procedures.

2.8.6 On the other hand, a debtor may be apparently insolvent, although not absolutely insolvent, and in some cases not even practically insolvent. This situation principally affects debtors running a business, who may not have any significant debt problems, or may believe that they can cope with these problems and trade through them, but are being prevented from doing so by a creditor petitioning for their sequestration.

2.8.7 In some such cases failure to repay the debt prior to award of the sequestration may be the result of a simple mistake, or a failure in service of the papers (such as the papers being served on a third party, who fails to pass them to the debtor). In other cases the debtor's business, although profitable, may have been experiencing cash flow problems which prevent immediate payment of the debt, and due to the summary nature of bankruptcy proceedings, result in the award of sequestration. Given that sequestration itself rarely results in creditors receiving full payment of outstanding debts, it is unlikely that in these cases the sequestration benefits the creditors. Indeed, had the debtor been given the opportunity to continue trading, a far higher level of payment to the creditors may have eventually been achieved.

2.9 Potential for rescuing businesses in difficulty

2.9.1 The research undertaken in the scoping study has suggested a range of causes of business failure, leading to bankruptcy. In many cases the business difficulties appear to result from a lack of business expertise, in some cases combined with the owner being responsible for running all aspects of the business, leading to problems such as a lack of adequate financial control, and the build up of debt. In other cases the business may be under-funded, a lack of adequate working capital resulting in the business being unable to survive bad debts, and cash flow being hit very hard by late payments. Even for successful businesses, market changes such as a much larger competitor opening up nearby or the loss of a main customer, may result in a dramatic fall in sales and a build up of debt, which cannot be survived unless the business is able to make significant changes.

2.9.2 The real need in all these circumstances is for change, perhaps a dramatic change in direction or product in order to cope with market changes, or changes to the management, organisation, staffing or funding of the business. Yet the response many business people make is simply to work harder, or to take a "head-in-the-sand" approach, in the hope that the problem will resolve itself.

2.9.3 The research has shown a clear lack of support for businesses experiencing these types of difficulty, and in need of assistance in making the necessary changes. Local enterprise companies concentrate on business start-up, information provision and growth and while they are concerned with business survivability there is inconsistent practical assistance for businesses in difficulty. Money advisors (for instance with Citizens Advice Bureaux) deal mainly with consumer debt, and generally do not have the expertise to assist effectively with business debt. Even many accountants and solicitors, the normal business advisers, are unable to provide the assistance needed by a business in difficulty. Appropriate assistance is available from specialists, such as business recovery professionals or insolvency practitioners, yet many business people do not know this, or find the high up-front fees charged prohibitive.

2.9.4 This evidence would suggest that there could be real benefits to be gained by ensuring that business people seek assistance when encountering difficulties, and that they have ready access to professionals able to give the specialist advice and support required. It seems possible that in many cases this type of intervention could result in the business being turned around, sequestration being avoided, and hence avoidance of further debt, and repayment over time of existing debt.

2.10 The impact of bankruptcy law on enterprise

2.10.1 In assessing the impact of bankruptcy law on enterprise, a number of different strands need to be considered.

2.10.2 Firstly, there is the issue of whether bankruptcy law is having an adverse effect on the propensity for potential entrepreneurs to start up in business. The scoping study has failed to find any such evidence; rather it would appear that, when starting in business, the possibility of future bankruptcy figures little in entrepreneurs' thoughts.

2.10.3 Secondly, there is the issue of whether bankruptcy law allows the sequestration of people who are running viable businesses, thus putting them out of business unnecessarily. Potentially, it is clear that this is the case, yet statistics do not exist to show how frequently it occurs.

2.10.4 Thirdly, there is the question of whether bankruptcy law actually prevents people from going back into business, or makes it difficult for them to do so. Bankruptcy law itself does not directly seek to prevent bankrupt people from being in business, though other legislation does prevent them from being the director or manager of a limited company. In practice, many debtors remain in business, or go back into business while bankrupt, in some cases simply continuing work in a self-employed capacity, in others working for a limited company set up by another member of their family. Many debtors have little choice about going back into business, since it is the only way they have of earning a living.

2.10.5 Finally, there is the issue of whether bankruptcy law treats debtors so harshly that they may be dissuaded from any further attempts at running their own business. Certainly for some people, the experience of mounting debt problems and failure in business in itself puts them off wanting to go back into business. For others however, this is felt to have been a learning experience, and they believe they would be more likely to make a success of running their own business a second time around. The research undertaken in the scoping study suggests that, at three years, the period of undischarged bankruptcy may be unnecessarily long, and includes a punitive element. Under current bankruptcy law a bankrupt person loses all their assets including their home, however much money they had put into the business. It is also an offence for a bankrupt person to obtain credit of 250 or more, unless they have informed the creditor of their status in writing. However, the research has not clearly shown the extent to which any of these aspects of bankruptcy act to dissuade or prevent people from going back into business.

2.10.6 Consideration of the impact of bankruptcy suggests that it is not necessarily bankruptcy law itself which causes the difficulties experienced by people who are bankrupt, rather many of these difficulties and restrictions of opportunity are caused by attitudes, the prevailing culture and by other legislation. For instance, difficulties in obtaining credit while bankrupt, and after bankruptcy, cannot be attributed to bankruptcy law alone, but also to the attitudes of lenders and credit reference agencies. Similarly, the difficulties some bankrupt people experience in opening a bank account are caused by the attitudes of banks, rather than by bankruptcy law. These difficulties are symptomatic of the prevailing attitude to failure in Scotland, which contrasts with attitudes in the USA, where there is much less criticism of failure and more emphasis placed on being given the chance to try again.