Bankruptcy and Diligence (Scotland) Bill: business and regulatory impact assessment

Purpose and Intended Effect

2. The Bankruptcy and Diligence (Scotland) Bill (the "Bill") will bring forward stakeholder-led recommendations to introduce improvements to current debt solutions and debt recovery processes.

3. Its key aim is to help and improve the lives of people who are struggling with debt and serious mental health issues. In addition, amendments to the Bankruptcy (Scotland) Act 2016 ("the 2016 Act") will correct errors and remove ambiguity in the operation of certain sections. At the same time, more efficient debt recovery processes will assist businesses and local authorities to collect debts from those who can pay.

Background

4. The Scottish Ministers committed to undertake a wide-ranging policy review of Scotland's statutory debt solutions, specifically moratorium protection, bankruptcy, Protected Trust Deeds and the Debt Arrangement Scheme, with the aim of further enhancing and improving our system.

5. The policy review was organised into three stages. The first stage concluded with immediate changes being introduced through the Bankruptcy (Miscellaneous Amendments) (Scotland) Regulations 2021. These included important measures to improve access to bankruptcy by reducing or removing application fees for those in need of debt relief. The second stage was undertaken by stakeholder-led working groups. Their remit was to look at the operation of existing statutory debt solutions, aimed at providing recommendations and options for improvement.

6. In addition to this review the Scottish Parliament's Social Justice and Social Security Committee produced a report: Robbing Peter to pay Paul: Low income and the debt trap following an inquiry into low income and debt problems. The report urged the Scottish Government to implement a mental health moratorium.

7. A similar policy review of Scottish diligence measures was conducted through a stakeholder-led working group which was established to consider the feedback received from a public consultation in 2016. This working group consisted of stakeholders with a wide range of experience in diligence and the debt landscape.

8. The Scottish Government proposals in response to the working groups' recommendations were included in the public consultation published in August 2022.

9. This Bill largely brings together the areas requiring primary legislation from Stage 2 of the review of statutory debt solutions and the review of diligence. Other areas can be taken forward in secondary legislation or through guidance.

Objective

10. The purpose of the Bill is to bring forward stakeholder-led recommendations to introduce improvements to current insolvency solutions. As well as making technical changes to bankruptcy legislation, its aim is to help and improve the lives of people who are struggling with problem debt and serious mental health issues by introducing an enabling power which will provide the platform for future regulations to introduce a mental health moratorium.

11. It also brings forward stakeholder-led recommendations to improve existing debt recovery processes known as diligence and make them more efficient while maintaining protections for those who are subject to diligence. It looks to assist parties who are owed money to collect debts from those who can pay, whilst protecting those who are unable to pay.

Summary of main provisions in the Bill

• Mental Health Moratorium - introduction of an enabling power to permit the development of a new form of moratorium protection for a specific group of individuals, being those who are experiencing serious difficulties with their mental health as well as having problem debt
• Clarification of Bankruptcy Recall Legislation - minor amendments to these sections to clear current ambiguity for the recall of bankruptcy where Accountant in Bankruptcy (AiB) is the trustee
• Award of Bankruptcy – technical amendment which will correct a cross referencing error and make it clear that, under section 22(1)(b), all bankruptcies which meet the required criteria under the relevant subsection of section 2 of the 2016 Act, are to be awarded
• Gratuitous Alienations - technical amendment which will correct a cross referencing error in section 98(7) of the 2016 Act
• Time periods for appeal against decision by the AiB – minor amendments to insert into section 69 and 134 of the 2016 Act that the time period for an appeal to the sheriff against a determination by AiB must be made within 14 days
• Arrestment and Action of Furthcoming – introduce a new requirement for an arrestee to provide information if the arrestment was unsuccessful and the reason why, for example whether this was due to insufficient funds
• Diligence Against Earnings - introduce a new requirement for an employer to notify the relevant party if an arrestment is unsuccessful within 21 days after the arrestment schedule is served
• Diligence on the Dependence - requirement for a Debt Advice and Information Package ("DAIP") to be issued to a debtor in advance of the relevant court hearing stage
• Exceptional Attachment - extend the redemption period where attached assets are left in the dwellinghouse and removed at a later date prior to the auction
• Money Attachment - amend the hours during which money attachment may take place

12. Full details of the provisions can be found in the accompanying Policy Memorandum.

Rationale for Government intervention

13. The Scottish Government recognises the responsibility it has to take action to help the people of Scotland by ensuring its debt management and debt relief solutions are fit for purpose and are accessible to those who need help.

14. The package of measures outlined above can only be achieved through the introduction of primary legislation by the Scottish Parliament. Additionally, the proposals in the Bill are very much in line with the Scottish Government's National Outcomes, which form part of the Scottish Government's National Performance Framework.

15. It is assessed that the following National Outcomes are relevant to this Bill:

• We tackle poverty by sharing opportunities, wealth and power more equally – ensuring the diligence mechanisms and statutory debt solutions are designed and available to help people in severe financial difficulty and give them a fresh start
• We have thriving and innovative businesses, with quality jobs and fair work for everyone – ensuring the diligence mechanisms and statutory debt solutions (including bankruptcy processes) are fit for purpose and able to be clearly interpreted in order to help those who need them and to assist people to get back on their feet and contribute towards the economy
• We have a globally competitive, entrepreneurial, inclusive and sustainable economy – providing predictability and confidence for lenders by ensuring statutory debt solutions (including bankruptcy processes) and diligence mechanisms are interpreted consistently, are sustainable and meet the needs of the people of Scotland
• We respect, protect and fulfil human rights and live free from discrimination – ensuring statutory debt solutions are available to everyone and that everyone is treated consistently and with dignity and respect when accessing debt solutions, subject to diligence measures or otherwise involved in the bankruptcy process
• We are healthy and active – ensuring specific mental health protections are put in place and are available to those with problem debt who are also experiencing serious mental health issues in order to improve mental well-being and reduce inequalities