BADAS, as it was inevitably going to be known, came into effect on 1 April 2015, to much fanfare from the Scottish Government, and some groaning from the profession. Was yet more change really required? So, what’s happened in the first few months of the new Act, and what should we as a profession be looking out for further down the line?
At the time of writing, the Accountant in Bankruptcy has just released its statistical analysis of Quarter 1 appointments under the new regime. It is clear, comparing these to the statistics for the preceding Quarter 4, the last under the 2008 statutory regime, that debtors and their advisers voted with their feet and the Accountant in Bankruptcy saw a deluge of debtor applications in that final quarter. Debtors opted for a short period of acquirenda and a three year period of contribution rather than the increased four (on both counts) and, I suspect in some cases, the flexibility of a contribution set in agreement between the debtor and Trustee, rather than the now compulsory framework of the Common Financial Tool or Statement. The new Minimal Asset Process (MAP), designed to replace LILA (Low Income Low Asset) as an entry route, but with the revised “sequestration lite” approach which was always missing from LILA, has been slow to take off, but the Accountant in Bankruptcy is expecting the MAP sequestration process to become more popular in due course. Newly announced UK Government policies on welfare and tax credits may also play a role in an increased uptake.
The requirement for mandatory money advice pre-application and the setting of a Debtor Contribution Order up front, have placed a significant burden onto the money adviser before sequestration is awarded. A lack of anecdotal evidence surrounding these processes suggests that most of us acting as money advisers are getting it right. Internal restructuring to deal with the increased administrative burden at the Accountant in Bankruptcy, from which Scottish Courts have been relieved, is also complete, and will be tested as sequestrations awarded under the new legislation increase in number and complexity.
Another welcome change is the ability to shorten the first accounting period to six months, effectively reinstating the pre 2008 position. While designed to allow early distributions in cases with significant funds, it will also facilitate a degree of working capital management.
The great unknown at the moment is the impact of the changed discharge procedure, which is no longer automatic, and has to be actively applied for by the Trustee. We will need to wait and see what the practical implications of these changes are, one year from now.
And dare I say it, there would appear to have been a missed opportunity. There has been no wholesale consultation on the role of the debtor’s family home in sequestration, or an attempt to straighten out the exemption provisions for the debtor’s dwelling house in protected trust deeds. Next time perhaps?
Eileen Maclean, Director, Insolvency Support Services
This article first appeared in Insolvency Practitioner, IPA, September 2015