22nd August, 2006

CLAIRE O’NEILL

The Bankruptcy and Diligence (Scotland) Bill has been introduced by the Scottish Executive to modernise the way debts are enforced in Scotland. The Bill proposes some radical changes and aims to make the enforcement system more user-friendly, striking a balance between being effective for creditors yet protective for debtors.

Two of the important sections of the proposed Bill cover bankruptcy and diligence. With bankruptcy, there are three key proposals : a reduction in the bankruptcy period from three years to one; reform of the requirements for "apparent insolvency"; and new "Bankruptcy Restriction Orders".

The reduction in the bankruptcy period to one year will bring the duration of bankruptcy into line with the law in England and Wales. In the consultation process of the Bill, there was an almost equal divide for and against the reduction in the period. Concerns include a lack of contributions by debtors towards debts, a lack of deterrence to irresponsible behaviour and a possible increase in the cost of credit for people seen as bad risks.

The Executive proposes that a debtor whose conduct is fraudulent or culpable will be subject to a Bankruptcy Restriction Order which imposes particular restrictions on a debtor for a period of up to fifteen years after discharge depending on the debtor's conduct in relation to the bankruptcy. Alternatively, a debtor who is not subject to one of these Orders may agree an undertaking to be bound by certain restrictions.

The Bill intends to modernise the current law of diligence to create a better balance between creditor and debtor interest. It proposes to: abolish adjudication for debt, replacing it with Land Attachments and Residual Attachments; reform of the law on Inhibitions and Arrestments, both on the dependence and on execution; and the introduction of a new diligence on the dependence to attach moveable property in the hands of a debtor.

One of the main concerns with this new diligence is how it will affect a debtor's place of residence. Is it unduly harsh on debtors? A major underlying principle promoting the introduction of Land Attachment is that all the debtor's property, regardless of its form or character, should be subject to legal processes.

I believe the reforms are well-intentioned if perhaps too debtor-friendly for litigators who are keen to pursue debts for their clients.

Claire O'Neill is an Associate with Mitchells Roberton, Glasgow’s oldest firm of solicitors.