Scotland's statutory debt solutions and diligence - policy review response: consultation

2. Introduction

The Scottish Government committed to a policy review of both formal debt recovery mechanisms (known as diligence) and the statutory debt solutions (moratorium protection, bankruptcy, Protected Trust Deeds and the Debt Arrangement Scheme) with the aim of further enhancing and improving our system.

The Ministerial Working Group on Statutory Debt Solutions discussed the approach to the policy review at a meeting in October 2020 and it was agreed that the review should consist of three stages:

• Stage 1 – priority steps to be taken to help address the immediate impact of the COVID-19 pandemic
• Stage 2 – a wider review looking at the operation of existing statutory debt solutions, aimed at providing recommendations and options for improvement
• Stage 3 – a longer term strategic review to assess if the current range of statutory solutions meet the needs of the economy

The review of diligence was taken forward separately through the Diligence Working Group which has produced and published its report and recommendations.

Stage 1 of the review was completed in the latter part of 2020 with a number of immediate priorities identified. This work, in particular, focused on aspects of the emergency legislation, introduced through the Coronavirus (Scotland) (No.2) Act 2020 which were identified as appropriate for permanent implementation. Stage 1 culminated in the Bankruptcy (Miscellaneous Amendments) (Scotland) Regulations 2021 which were approved by the Parliament, and came into force on 29 March 2021. These reforms included lowering the cost of access to bankruptcy where it is identified as the right mechanism to resolve debt issues and removed all fees for the most financially vulnerable.

This consultation sets out the Scottish Government's response to the second stage of the review. Stage 2 of the review has been stakeholder led and involved the creation of three dedicated working groups to look at key aspects of current statutory debt solutions. The working groups drew on a wide range of expertise and knowledge from representatives from all sectors involved in the debt landscape. Each working group produced a paper outlining its considerations and recommendations. Some of the issues considered were complex in that there were strongly opposing views amongst stakeholders - it was not always possible to reach a consensus on the best way forward. Where that was the case, the key arguments and information discussed was set out for ministers to consider further.

In light of the consultation and work undertaken to date, the Scottish Government's response to these policy reviews, and its proposals for future action contained in this document are being opened to consultation over an abbreviated timeframe of eight weeks.

The feedback received during this consultation will enable us to finalise changes and plan for these to be taken forward, either through legislation, guidance or working with stakeholders.

The third and final stage of the review will be taken forward separately. The timescale and format of this has not yet been finalised but is expected to conclude with a report of recommendations being presented to ministers.