Scotland reforms bankruptcy rules

The treatment of debt-laden individuals in England and Wales has been a
thorny subject for some time.

The Enterprise Act 2002 introduced legislation to reduce the stigma of
bankruptcy and offer alternative methods of improving the return to creditors
through individual voluntary arrangements (IVAs).

While arguments have raged as to whether bankruptcy is too easy to enter
into, or whether too much credit had been made available in the first place,
Scotland is now lining up to go through its own version of changes to the
treatment of debtors and creditors, which may have a big a effect on the working
lives of insolvency practitioners north of the border, as it could to their

The Scottish Executive has released a consultation paper, which runs until 14
April, on the reform of protected trust deeds, which are roughly an equivalent
of the IVA ‘soft bankruptcy’ route that has proved so popular in England and

Under Scottish law, a debtor can offer everything they own towards paying
their debts to creditors, which, if agreed, is then put into the care of a
trustee (administered by a qualified insolvency practitioner).

But a failure to agree with creditors could lead to their property being
sequestrated and the person declared bankrupt.

The reform is aimed at regulating the trust, which would be undertaken by
Scottish executive agency Accountant in Bankruptcy, and setting a minimum return
for creditors of between 20p and 30p in the pound, to make sure that debtors do
not take advantage of its current ‘relaxed’ rules that contain no minimum

But concerns have arisen that the level of return could be so high as to
force debtors into sequestration, relieving practitioners of what has become a
big part of their service offering.

Stephen Lightley, finance director at Scottish insolvency firm Invocas,
believes that firms offering both services should not suffer greatly. But many p
ractitioners are focused on trusts and might not have the skillset to offer
sequestration services.

‘The dividend level would be so high that trustee situations would not arise
as often,’ said Lightley.

‘Trustees that don’t currently set a minimum dividend to take on work could
be the ones affected most.’

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