Reform of the bankruptcy laws in Scotland has been discussed for some time and when the Enterprise Act changes to personal insolvency law were introduced in England and Wales it was clear to many that similar reforms for Scotland would not be too far away – indeed some of you predicted that unless similar reforms were introduced quite quickly this could encourage debtors to consider a move south to take advantage of the new regime in England and Wales.
It is not too surprising that a number of the reforms introduced in the Bill seek to mirror the English reforms. In particular :
- The bill provides for the bankruptcy period to be reduced from the current three years to one year
- After the one year period unless the trustee has taken steps to defer the discharge of the debtor the debtor will receive an automatic discharge
- Unless the AIB has obtained a Bankruptcy Restriction Order or agreed a Bankruptcy Restriction Undertaking the debtor will be free from all restrictions placed upon him as an undischarged bankrupt such as obtaining credit and disqualification from holding certain offices or positions.
- The bill proposes to introduce Bankruptcy Restriction Orders and Bankruptcy Restriction Undertakings designed to ensure that those debtors whose conduct has caused their bankruptcy and debtors who fail to co-operate in the bankruptcy process will not obtain the full benefit of a discharge after a one year period. ( We will cover the detail of BROs in a future bulletin.)
Although the restrictions imposed by bankruptcy will generally come to an end after a period of one year, the bill seeks to preserve the interests of creditors. The bill recognises that debtor's who are in a position to contribute to their estate from their income should continue to do so for the full three year period, as currently. To have decided otherwise would have had a detrimental effect on the level of dividends payable to creditors.
The bill proposes that :
- A trustee can make an application for an income contribution order but only prior to the discharge of the debtor.
- An income contribution order can be made by the court but can last for up to three years (i.e. after the discharge of the debtor).
- The debtor and the trustee can enter into an income contribution agreement which is to have the same effect as and be enforceable in the same way as an order made by the court.