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

Step Three – Consultation

Who do you need to consult with?

20. Wide ranging bankruptcy reforms were introduced through the Bankruptcy and Debt Advice (Scotland) Act 2014 (the “2014 Act”), which came into force in April 2015. To gauge how these reforms were working, the Scottish Government asked for views through the Bankruptcy and debt advice review: consultation in November 2019. They shortly afterwards published their summary of responses which can be viewed at the following link: ‘Review of the Bankruptcy and Debt Advice (Scotland) Act 2014 – the report of the summary of responses’. The majority of the respondents answering the question on the level of the prescribed rate of interest indicated that at 8% it was too high but there was no consensus on the level it should be set at.

21. The recommendation to amend the mechanism for calculating the prescribed rate of interest was from a stakeholder-led working group formed as part of a three stage 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.

22. Following the working group’s recommendations, a public consultation was completed in October 2022 entitled ‘Scotland’s statutory debt solutions and diligence - policy review response: consultation’.

How will you carry out your consultation and in what timescales?

23. No further consultation is considered to be required.

What questions will you ask when considering how to address island realities?

24. Not applicable, no further consultation is considered to be required.

What information has already been gathered through consultations and what concerns have been raised previously by island communities?

25. The Scottish Government published the Bankruptcy and debt advice review: consultation in 2019 to ask for feedback on the bankruptcy reforms introduced through the 2014 Act. The consultation asked – “Do you consider that the currently prescribed 8% rate of interest for dividends in bankruptcy is appropriate?”. Of those responding to this question 77% answered no and indicated that the prescribed rate of interest was not appropriate.

26. There was a follow up question – “If you have answered “no” to Q13, what interest rate do you think should be applied?”. Of those responding 42% believed that the Bank of England rate + 2% to be the most appropriate and 37% believed the Bank of England rate alone was most appropriate. Some respondents believed that given the economic climate it was more appropriate to link to the Bank of England rate as it is responsive to changing circumstances and market conditions. It was also suggested that the rate should be above the Bank of England rate, as there should be some level of reward or compensation for a creditor having to wait for repayment.

27. The recommendation to amend the mechanism for calculating the prescribed rate of interest was subsequently made by a stakeholder-led working group formed as part of a three stage 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.

28. A public consultation was completed in October 2022 entitled ‘Scotland’s statutory debt solutions and diligence - policy review response: consultation’. 89% of respondents to the consultation answered the proposal “Reform the basis for the prescribed rate of statutory interest and link this to the Bank of England base rate plus 2% - fixed at the date of bankruptcy”. Of those responding 66% agreed with the proposal, 17% disagreed and 17% neither agreed or disagreed.

29. There were no concerns raised either from the consultation responses or from the stakeholder-led working group about any undue impact the provisions would have on the island communities.

Is your consultation robust and meaningful and sufficient to comply with the Section 7 duty?

30. Not applicable.