The Bankruptcy (Scotland) Amendment Regulations 2024 Island Communities Impact Assessment Screening

Step One – Develop a clear understanding of your objectives

What are the objectives of the policy, strategy or service?

2. This is an amendment to the methodology for calculating the prescribed rate of interest which can be paid on creditors’ claims in bankruptcy (sequestration) where there are sufficient funds to settle these claims in full as opposed to a new policy.

3. The Bankruptcy (Scotland) Act 2016 (the “2016 Act”) sets out that interest is payable from the date of sequestration until the creditors’ claims are paid.

4. The interest payable is the higher of the prescribed rate and any contractual rate agreed between the person with debt and individual creditors before the sequestration. This will not change.

5. Currently the Bankruptcy (Scotland) Regulations 2016 (the “2016 Regulations”) set the prescribed rate as a fixed percentage of 8%. The policy is to amend the methodology of calculating the prescribed rate of interest to be based on the Bank of England base rate at the date of sequestration plus 2%.

6. This will more accurately reflect the prevailing rates of interest at the date of sequestration for each bankruptcy case.

Do you need to consult?

7. The recommendation to amend the mechanism for calculating the prescribed rate of interest was from a stakeholder-led working group formed at stage 2 of a wider review of Scotland’s statutory debt solutions. This working group, which included representatives from the advice, creditor and insolvency sectors, considered bankruptcy issues, including the prescribed rate of interest.

8. This recommendation, was included in a public consultation completed in October 2022 entitled ‘Scotland’s statutory debt solutions and diligence policy review’. Responses to this consultation did not raise any concerns that the proposed amendment would have any undue impacts on the island communities.

9. There were also no concerns raised by the initial stakeholder working group about any undue impact the provision would have on the island communities.

How are islands identified for the purpose of the policy, strategy or service?

10. The order of priority of distribution of the estate, including interest on creditors’ claims, is laid out in the 2016 Act and applies to all bankruptcy cases irrespective of the location of the party who is bankrupt or of their creditors. We do not consider therefore that the amendment will differently affect those on island communities.

What are the intended impacts/outcomes and how do these potentially differ in the islands?

11. The provisions in this instrument are to amend the methodology for calculating the prescribed rate of interest which can be paid on creditors’ claims in bankruptcy where there are sufficient funds to settle these claims in full. It will move from a fixed rate of 8% to a rate calculated on the Bank of England base rate at the date of sequestration plus 2%.

12. This will more accurately reflect the prevailing rates of interest at the date of sequestration for each bankruptcy case.

13. The order of priority of distribution of the estate, including interest on creditors’ claims, is laid out in the 2016 Act and applies to all bankruptcy cases irrespective of the location of the party who is bankrupt or of their creditors. We do not consider therefore that the amendment will differently affect those on island communities.

Is the policy, strategy or service new?

14. The 2016 Regulations currently set the prescribed rate of interest at a fixed percentage of 8%. This is not a new policy but an amendment to the methodology of calculation of the prescribed rate of interest to more accurately reflect the prevailing rates of interest at the date of sequestration for each bankruptcy.