This post is inspired by a post on Iain Dale’s diary asking if bankruptcy is too easy?
I don’t often post about law on the LJ. However, the following has been concerning me.
One of my research interests is the law of bankruptcy and debt enforcement. Yesterday the Enterprise and Culture committee finalised its consideration of Stage 2 of the Bankruptcy and Diligence etc (Scotland) Bill.
This bill will reform the whole mechanism for debt enforcement in Scotland and will see the introduction of reforms to Scottish bankruptcy law, based on the reforms introduced into England a couple of years ago. The principal reform is that the discharge period for bankruptcy will be reduced from 3 years to one year – the consequence being that all debts of a bankrupt will be wiped clean after a year. Among other reforms it wholly reforms the law relating to enforcement of judgments against land, reforms the court officer system, reforms the law of floating charges, the law whereby bank accounts or earnings can be seized, reforms means by which landlords can seek payment for unpaid rent, and more. There is enough in this 200 plus section bill for 3 or 4 pieces of legislation. yet, for some reason the Executive are pushing through all of this in the one bill.
The bill is still to be considered by the full Parliament but after that assuming Her Gracious Majesty gives royal assent that will be it.
In presenting the bill the Executive indicated that the conditions in Scotland were seeing an increase in bankruptcies in line with general UK conditions. The increase in 2005 was to around 12,500 insolvencies (an increase of around one third on the previous year). In England the increase was a little higher. Accordingly, when the bill was presented to the Scottish Parliament it was stated by the Executive that there was no correlation between the increase in personal insolvency and the introduction of a one year discharge period in England.
The Executive though did not wait to see what the long term trend was and have been pushing through the Bankruptcy Bill – including guillotining the Stage 2 line by line consideration in the Scottish parliament.
The Insolvency Service gather figures for the whole UK on a quarterly basis. These figures include sequestrations and protected trust deeds (private arrangements). The most recent press release was issued last week. In Scotland the last four quarters have the following statistics (with Protected Trust Deeds being about 3/5 of the figures). The last quarter of 2005 saw 2,961 personal insvolvencies; the first quarter of 2006 3,111; the second quarter of 2006 3,544; and the third quarter of this year 3,601. There is an upward trend but year on year the increase is 0.2% (although sequestrations are up by nearly 5% year on year). Interestingly, a large number of the creditor-initiated sequestrations in Scotland are initiated by local authorities (for unpaid council tax or unpaid poll tax).
In England and Wales the figures are also provided by the Insolvency Service. There were 20,679 personal insolvencies in the last quarter of last year; 23,653 in the first quarter of 2006; 26,144 in the second quarter of 2006; and 27,644 individual insolvencies in England and Wales in the third quarter of 2006(). Year on year the increase is 55%, the increase in bankruptcies (English equivalent to sequestration) being up 26%.
One could suggest that where the Scottish figures have levelled off, the ENglish figures are increasing substantially. This is contrary to the impression given by the Scottish Executive in promoting its Bankruptcy Bill. A bill that did not need to be rushed is being pushed through with a scattergun approach to the reform of many areas. The current product is poor with much of the substance of the reforms likely to be left to subordinate legislation. This serves neither the creditors seeking payment, nor the debtors caught up in the enforcement system.
I predict a substantial increase in insolvencies in Scotland, and much litigation within the next five years trying to work out what various provisions mean (increasing costs for creditors and debtors). It is almost but not quite too late for the MSPs to do something about it – but the political will and intellect is not there.