Bankruptcy Law Reform

1. Bankruptcy Law Reform Claire Orr Executive Director of Policy & Compliance

2. What is our world like now? Debt management firms Consumer debt Credit cards Business closures Recession threats New forms of communication & advertisement Claire Orr|AiB|Dec 2012

3. Developing a Vision for the 21st Century A “Financial Health Service” for debt advice, debt management and debt relief which: • Ensures access to fair and just processes of debt relief and debt management • Supports the principle that those debtors who can pay should pay their debts • Acknowledges the wide range of circumstances and events that contribute towards bankruptcy for individuals and businesses • Secures the best return for creditors – ensuring that the rights and needs of those in debt are balanced with the needs of creditors and businesses Claire Orr|AiB|Dec 2012

4. A “Financial Health Service” continued • A focus on individual responsibilities - with a greater emphasis on: • debtors through an agreement/contract between debtors and the deliverers • creditors in terms of responsible lending, active engagement and more differentiation of individuals credit rating • Insolvency Practitioners in terms of seeking to help stamp out bad practice from debt management companies • AiB to effectively regulate the service and ensure fair and effective delivery • Debtors provided with appropriate advice and aware of the range of options • An educationrole – seeking to impact on the culture and behaviours of individuals and prevent repeated financial issues Claire Orr|AiB|Dec 2012

5. Bankruptcy Law Reform Consultation http://www.scotland.gov.uk/Publications/2012/02/628 Key Principles within the consultation: • A range of new solutions/products for debt relief and debt management • Ensuring debtors make a fair contribution • Integrating debt advice and education • A review of the court processes and preventing debtors abusing the system Closed on 18th May 2012 • 129 responses including 89 organisations Summary of responses published http://www.aib.gov.uk/news/releases/2012/08/bankruptcy-law-reform-consultation-summary-responses Claire Orr|AiB|Dec 2012

6. Government response • Published 1 November • Sets out provisions to be included in a Bankruptcy Bill • Further provisions by Regulation • Stronger Guidance Claire Orr|AiB|Dec 2012

7. Bankruptcy Bill • Compulsory advice from approved money adviser before statutory solution • a single Scottish-specific Common Financial Tool which applies to bankruptcy, PTDs and DAS • Provision for contributions to be deducted from wages • Standard minimum contribution period - 48 months - in DAS, PTDs and bankruptcy Claire Orr|AiB|Dec 2012

8. Bankruptcy Bill cont. • Financial education as an integral part of Scottish statutory debt relief processes – certain criteria • 6 week moratorium period across all statutory solutions • Simplifying Apparent Insolvency criteria and increase the minimum debt level to £3,000 • A ‘No Income’ product for individuals on state benefits, who have been assessed as unable to make a contribution Claire Orr|AiB|Dec 2012

9. Bankruptcy Bill cont. • Creditor petitions to AiB where not contested • Debtor co-operation linked to discharge and discharge delayed indefinitely where debtor cannot be traced • Exclusion of certain debt incurred within 12 weeks of bankruptcy • Creditor claims must be within 120 days of notice • Electronic sederunt book Claire Orr|AiB|Dec 2012

10. Bankruptcy Bill cont. • Clarification of recall process to ensure distribution of funds • Removal of composition and consideration of commissioners’ role • Provision for payment holidays where income shock experienced – discharge delayed accordingly • Administrative decisions made by AiB instead of sheriff • Sheriff retains appeals and decisions concerning family home Claire Orr|AiB|Dec 2012

11. Regulations • RoI to be moved from Act of Sederunt to Bankruptcy (Scotland) Regulations • DAS Regulations to introduce review process for decisions of DAS Administrator, composition to be developed • DAS type solution for sole traders and small business partnerships, linked to advice from IPs or Business Gateway • PTD Regulations to introduce minimum debt level, minimum dividend and standard front sheet • Removal of need to publish trust deeds in Edinburgh Gazette with new requirement to publish on RoI. • Form 4s to be provided to creditors annually Claire Orr|AiB|Dec 2012

12. Stronger Guidance • More proactive supervision by AiB including greater use of powers of direction • PTD guidance to be introduced to encourage best practice • Includes revised structure for trustee fees consisting of up-front fee and percentage fee based on funds ingathered Claire Orr|AiB|Dec 2012

13. Benefits Realisation Securing the best return for creditors – ensuring that the rights and needs of those in debt are balanced with the needs of creditors and businesses • A focus on debtor responsibilities – so that those who can pay do pay a contribution • A minimum dividend in relation to PTDs • A longerminimum period (4 years) of contributions across all products • A more consistent and transparent approach to assessing a debtor’s surplus income • Debtors accessing a product which is fairer to them and to their creditors - removal of any “perverse incentives” Claire Orr|AiB|Dec 2012

14. Next Steps Autumn 2012 • Ongoing stakeholder discussion • Specific engagement with creditors • Drafting of legislation and Regulations Before Summer recess 2013 • Bill introduced to Parliament • Following Royal Assent, Consolidation Bill introduced 2013 – 2014 • Preparing for the change • Development of a case management system that delivers a digital public service - will provide greater creditor interaction (as in DASH) Claire Orr|AiB|Dec 2012

15. Claire Orr Executive Director of Policy & Compliance T: 0300 200 2699 E:claire.orr@aib.gsi.gov.uk