The new Insolvency (Scotland) Rules 2018 are finally here!
Due to commence on 6 April 2019, now is the time for familiarisation, planning and preparation. Here’s how we can assist you.

Common Financial Tool (Scotland) Regulations 2018 – Giving evidence to Parliament

Eileen Maclean, R3 Scottish Technical Committee member, gave evidence to the Scottish Parliament Economy, Jobs and Fair Work Committee, on the new Common Financial Tool (Scotland) Regulations 2018 on 30 October.

Eileen said: “It was a privilege to be asked to give evidence on behalf of the profession. Now we await the Committee’s recommendation, with interest.”

You can watch the session here:


Lifting the corporate veil

It seems that the protection afforded by Limited Liability has received a body blow in the Budget with an announcement that directors may face personal liability for their company’s tax liabilities:

“Tax abuse and insolvency – Following Royal Assent of Finance Bill 2019-20, directors and other persons involved in tax avoidance, evasion or phoenixism will be jointly and severally liable for company tax liabilities, where there is a risk that the company may deliberately enter insolvency. (69)”

The language is perhaps a little confused. Insolvency is, after all, a measurable financial position, defined in statute with reference to two established tests, so not something that is “deliberately” entered, per se. It’s also not entirely clear which company is being referred to – the one with the liabilities or the successor. At a guess, the provisions are aiming at behaviours that cause or contribute to the insolvency of a company, but viewed with hindsight of an insolvency proceeding.

But leaving aside the semantics, there could be some significant and tangible impacts for business owners looking to avail themselves of the entrepreneurial encouragement to “have another go” that Limited Liability is intended to afford. Whilst there is no great surprise that tax evaders should be targeted, interestingly, both avoidance and phoenixism (like them or not – both currently legal practices), appear to be encompassed also.

We will have to await further details before the impact of this on the advice provided to directors of insolvent companies can be fully assessed. However, if the trigger for personal liability is the act of starting again (i.e. phoenixing), these provisions may have the unintended consequence of discouraging business restarts at a time when the economy is likely to be sorely in need of them. They may also impact the saleability of distressed assets, where often a connected party is the only interested purchaser. If such a purchase risks the imposition of personal liability for the debts of the predecessor company, the well-advised might reasonably look to buy their stock and fixtures and fittings elsewhere, or at the very least, be willing to pay rather less for them!

Alison Curry
Director, Insolvency Support Services 

Technical note: state pension

We were asked recently whether, if a debtor is at state pension age but is still working and therefore obtaining an income, they have to claim their state pension because they are eligible for it, or are they able to defer claiming it until after they have finished working?

The answer is yes, they can defer.  Guidance can be found at

When the individual does eventually claim they can get the missed payments back as higher weekly payments or a one-off lump sum.

It is our view, particularly as state pension isn’t paid automatically – you have to actively claim it, that in line with the guidance provided by Horton v Henry, the Trustee would be unable to compel the debtor to claim their pension if they choose not to.

New Scottish Bankruptcy Book

Published at the end of last year, this new text takes the place of the classic work of McBryde on Bankruptcy. Authored by Donna McKenzie-Skene, this book is the most up-to-date work on bankruptcy in Scotland. You can buy your copy here:

Rescue Remedies Q&A

Eileen Maclean, a director of Insolvency Support Services, was interviewed by business journalist Ian Harper for his Rescue Remedies feature on the Insolvency and Corporate Recovery market in the latest issue of CA Magazine from ICAS.  Here are Ian’s questions and Eileen’s answers.


IH: What would insolvency practitioners like to see Anna Soubry (the newly appointed minister with responsibility for UK/England & Wales insolvency policy) tackle as a matter of priority?

EM: Single issue licensing – we need to know what is happening and when.  Personally I think that this is a positive contribution to the insolvency regime, although I appreciate many do not, but the current uncertainty as to its introduction and its operation need to be addressed. We have an opportunity to work together to create change for the benefit of creditors, debtors, companies and consumers, to ensure that we have a licensing regime fit for purpose and that all stakeholders support.


IH: What are insolvency practitioners keen for Anna Soubry not to change?

EM: I think that a period of consolidation is in order.  We have had change on so many fronts that a period of reflection and feedback on the various changes would be welcome!  The one exception is a proposed consultation on employee claims.


IH: Following the Citylink collapse, MPs have called for tougher sanctions on company directors to protect staff and creditors. Do you think tougher sanctions are appropriate or necessary, and what changes would you like to see implemented as a result of this collapse?

EM: I would welcome a period of consultation on  employees’ positions in insolvency.  A lot of the criticism in City Link came about because self-employed contractors lost out on the administration of the company, and the self-employed are not automatically classed as employees. Given the changing nature of work in the 21st century, i.e there are more self-employed contractors in many sectors these days (whereas in the past it might have been more limited to oil & gas, IT etc). I think that there is a debate around the changing nature of work and workforce composition, and there is perhaps an argument for widening the definition of “employee” on insolvency.  However, any such changes would impact on employment law generally, so this would need to be carefully considered.

There are various sanctions against directors available to the IP and set out within the existing insolvency legislation (Insolvency Act 1986) (e.g. recovery from directors personally via actions for misfeasance, wrongful and fraudulent trading) as well as the ability to limit directors’ activities via the directors’ disqualification regime.  However, there are often few assets in a case to fund litigation, or no appetite among creditors to finance an investigation or recovery action with no guaranteed outcome.  Rather than bring in tougher sanctions, perhaps setting up some form of funding scheme that would allow IPs to run the action with sufficient support (particularly since the IP exemption for 3rd party funding is due to be reviewed again)? Regarding the disqualification regime, it needs to be properly funded.  There is no point bringing in ever more legislation to address any perceived problem, without equivalent funding.   That’s just ticking the “policy achieved” box.


IH:  How is the new regime on ‘prepacks’ (following the report by Teresa Graham) working out in practice? From the experience to date, what are the good points about the new regime and what are the bad ones?

EM: Not hearing many grumbles or comment on the grapevine.  The perception is that this another “policy achieved” tick box exercise. Perhaps of more relevance to creditors generally is the “phoenix” operation that springs up, and as part of the Disqualification regime, or indeed HMRC could have a wider role to play in policing the directors’ business activities post insolvency.   But that requires funding.  And a more joined up approach from government generally.


IH: Following the announcement by Business Minister Jo Swinson on 3 March, insolvency practitioners in England & Wales are now required to provide upfront estimates of the cost of working on insolvency cases, so ending the uncertainty of unlimited hourly charges. What has the effect of this been in practice?

EM: In Scotland, we have always had a more transparent approach to fee setting and approval.  We do not currently have equivalent corporate provisions.  We do have them in our PTD regime, and it has allowed creditors to see, and if necessary, to challenge the expected costs at the outset. However, we have to find a balance, and creditors constantly need to be reminded that not all of our impact is measured in dividend returns: for example, processing employee claims, ensuring third party assets are returned safely, credit insurance claims are facilitated.


IH: Regarding insolvency practice north of the border, what do you believe are the pressing issues that need to be resolved in Scotland?

EM: We need clarity and careful consideration of the Corporate Insolvency Rules.  While we have always had separate Rules in recognition of our distinct jurisdiction, we are now at very disparate legislative positions.  Given the work and time taken to get the English rules to their current position, I would not want to see a quick “cut and paste” into Scottish legislation.  We also need our policy makers north and south of the border to be quite clear about their intentions, and again, that’s a debate we should all be part of.


IH: The number of company directors disqualified by Insolvency Service rose by 83% to 119 in the past year. Jeremy Willmont, head of insolvency at accountancy group Moore Stephens, was quoted by the Daily Mail as saying: “While it’s great to see more criminal directors banned from running firms, there’s a feeling a number are slipping through the net due to lack of resources at the Insolvency Service.” What is your view on this – do you agree with Mr. Willmont that the Insolvency Service is under resourced?

EM: I totally agree. The Government needs to be clear on its priorities and policies.  If public and SME protection is an important aspect of the UK business environment, and a stated government policy, then a robust, properly funded disqualification regime has an important role to play in policing UK commercial activity.  Without it, and without equivalent supporting powers to investigate and curb commercially dangerous behaviour,  any risk in business transfers to the customer or the creditor, with no responsibility for good behaviour required of directors.


IH: What other issues would you like to raise regarding the current state of the insolvency regime in the UK?

EM: We , media, IPs and government, have a role to play in making sure that our contribution to the economy, and the complexities of what do, are understood and valued.


CA Magazine’s Insolvency and Corporate Recovery feature is included in the September 2015 issue.

Bankruptcy and Debt Advice (Scotland) Act 2014 – the story so far

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

Does an earnings arrestment still fall on the award of Sequestration?

Does an earnings arrestment still fall on the award of Sequestration, even in the wake of the new Bankruptcy and Debt Advice (Scotland) Act 2014 (‘BADAS’)? What if it was executed within a 60 day period before the date of sequestration?

Yes, an earnings arrestment still ceases to have effect on the date of sequestration: meaning either the date of the award if it’s a debtor application or, in the case of a creditor petition, the warrant to cite date. This is set out in detail in s72 of the Debtors (Scotland) Act 1987.

As regards the timing of the execution of an earnings arrestment and the so-called 60 day rule, the Bankruptcy (Scotland) Act 1985 is quite clear: the provisions in relation to diligence by a creditor do not apply to earnings arrestments (s37 (5A)). The 60 day rule only applies to arrestments and attachments. There are 60 day provisions applying to inhibitions too.

However, it is worth bearing in mind that following the implementation of BADAS there is now an optional 6 week period of moratorium and any earnings arrestment that that is in place before the moratorium starts, continues. It only stops in the event of sequestration, whereas if there is no earnings arrestment in place before the moratorium begins, the moratorium stops a new earnings arrestment.

It’s only an “only”, but it’s an important only!

The recent BADAS introduced not only changes to sequestration, but made some amendments to the Protected Trust Deeds (Scotland) Regulations 2013.  The eagle-eyed among you will have spotted the insertion of the word “only” into Regulation 23(1).  This means that for trust deeds signed on or after 1 April 2015, a trustee’s remuneration can only be structured on a fixed fee and administration fee basis.  That “only” shuts the gate on other fee bases once and for