WARNING: POST CONTAINS DETAILED BANKRUPTCY STATISTICS. MOVE ALONG NOW THERE’S NOTHING TO SEE
A year and a half ago I commented that the Scottish government was pushing through reform of bankruptcy with a sleight of hand. At the time the bill went through the suggestion that the reforms in England in the Enterprise Act 2002 (which reduced the period of discharge to one year) had greatly increased the number of bankruptcies was met with the response that the Scottish bankruptcies were increasing at a similar rate. However, the statistics at the time did not confirm that (as is apparent from that earlier post). I said,
“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).”
Well, the new legislation came into force on 1st April 2008. To date there has been no reported litigation, because cases wouldn’t get to court and decided withis this timespan. However, the first set of statistics under the new Act is available.
At the time I wrote in November 2006 the figures were as follows:
“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. “
So, where do we stand today?
“There were 4,735 individual insolvencies in Scotland in the first quarter of this financial year. This was an increase of 44.6 per cent on the previous quarter and an increase of 35.4 per cent on the same period a year ago, according to figures published by the Accountant in Bankruptcy today.
“This was made up of 2,853 bankruptcies, an increase of 104.5 per cent on the previous quarter and an increase of 78.3 per cent on the corresponding quarter of the previous year, and 1,882 Protected Trust Deeds (PTDs), virtually no change on the previous quarter and a decrease of 0.5 per cent on the corresponding quarter of last year.”
The government advise us that the reason for the increase is the number of Low Income Low Asset debtors using sequestration and indicate that
“Had the LILA route to bankruptcy not been introduced there would have been a decrease of 25.5 per cent compared to last quarter, in the number of debtors applying for bankruptcy in the first quarter of 2008/09, and a decrease of 36 per cent compared to the corresponding quarter of last year.”
Now, the use of the statistics here is interesting.
First, these figures refer to applications, the top line figure (which is up by 104.5% on the quarter for sequestrations and 78% year on year) is for instances where sequestration is granted (it appears). Should the two be compared, or is it better to strip out all of the figures to allow full comparison.
Second, small debtors sometimes agreed to creditor application for bankruptcy. The statistics indicate that the number of creditor applications has gone down (by 3% in the quarter, 15% year on year). The process is no longer necessary given the new procedure. Like for like comparison is therefore a little problematic – factoring in the increase in debtor applications (now easier with no necessity for creditor involvement) and the reduction in creditor applications still leaves us with the headline figures that see a vast increase in numbers.
Third, when the bill was promoted the procedures for Low Income Low Asset debtors were not prioritised in the presentation to the Parliament – this was a bill about entrepreneurship. Scotland’s business culture required encouragement for risk-takers. And one year discharge period was the answer. This was, of course, cobblers. Worldwide the principal users of bankruptcy processes are those hit by consumer indebtedness. This confirms that. But why did the then government not stress this during the parliamentary process?
Whether the new one year discharge period – and the encouragement to have sequestration – is a good thing or bad thing is a matter of personal preference. Sequestration can offer an escape to those snarled up in the worst of debt – but at the price of losing their assets (excluding various essentials), the potential that income will be sliced to repay creditors, and potential problems in raising credit in future. Making the process easier may discourage those tempted to rely on loan sharks and others. But, if that was the real objective why did the Parliament not say so? Because the whole low income low asset regime was an afterthought – present in sketchy form when the bill was in Parliament but still being consulted on while progressing through Parliament (and not inalised until march this year) fourteen months after enactment.
If this had been the real focus (as now seems to be the spin on the legislation judging by the press release today) then the legislation could have been drafted differently, and matters hidden away in statutory instruments put in the principal statute. That though is not how modern legislation is prepared. Law-making by government proclamation is undesirable as it means proper scrutiny is not there. Given the paucity of SNP legislation to date we don’t know how they act – but given that we’re still waiting for consultation papers on some topics where legislation was promised in the autumn one can only assume a similar contempt for parliament and the srcutiny of the parliamentary process remains endemic in government.
Anyway, back to the figures. If we look at the equivalent quarter two years ago we have gone from 3,111 personal insolvencies to 4.735 personal insolvencies in the two years since the Bankruptcy Bill was introduced. And now sequestrations (with the new one year discharge period) form the majority of the insolvency figures, where previously the informal protected trust deed procedure comprised around 60% of insolvencies.
And these figures have gone up before the worst of the credit crunch has kicked in (in order to have an impact on unpaid debts reaching a stage that they end up with court processes). More will follow – and again, whether this is a good or bad thing is a matter of personal preference – but should really have been presented to the Parliament in a manner that allowed proper consideration of the consequences at the time.
And while the number of insolvencies in Scotland will keep increasing rest assured that within the next year and a half the litigation will follow.