Bankruptcy consolidated: what do I need to know?

The 30 November 2016 is scheduled for bringing into force the Bankruptcy (Scotland) Act 2016, which is a consolidation of the Scots law of bankruptcy and of protected trust deeds (PTDs) for creditors.

This milestone has taken some time to reach, as part of a Scottish Law Commission, Scottish Government and Accountant in Bankruptcy (AiB) project. The new Act had its origins in a proposal by AiB and a 2013 SLC consultation on a draft bill (Scot Law Com 232). Substantive changes were made to bankruptcy law in the Bankruptcy and Debt Advice (Scotland) Act 2014, which came into force on 1 April 2015, also making the majority of the changes which the SLC recommended. The 2013 draft was adjusted to take account of this before the Consolidation Bill was introduced.

Parliamentary consideration

The bill for the 2016 Act was passed by the Scottish Parliament under its consolidation bill procedure, allowing changes only as a result of SLC recommendations or minor technical restatement. As the 2014 Act had implemented the relevant SLC recommendations, the bill was taken forward as a “pure” consolidation. It was the second consolidation bill before Holyrood since 1999, following the Salmon and Freshwater Fisheries (Consolidation) (Scotland) Act 2003, although other asps have consolidated areas of Scots law while making particular reforms.

The bill, introduced by the Lord Advocate and taken forward by Fergus Ewing MSP as Minister for Business, Energy & Tourism, was scrutinised by the Delegated Powers & Law Reform Committee. The committee suggested a number of useful minor changes to the bill, summarised at this link.

Structure of the new Act

Practitioners will be familiar with the Bankruptcy (Scotland) Act 1985, now much amended. What will change?

The short answer is, not too much.

While the pure consolidation does not change the underlying bankruptcy law, it results in a clean Act (without “(ZA)” subsections), though practitioners will have to familiarise themselves with new numbering.

The Bankruptcy (Scotland) Act 2016 retains the basic 1985 Act running order, with a few exceptions. It begins more immediately with the tests for sequestration (s 5 of the 1985 Act, which currently goes on for 8 pages or so), then follows sequestration process sequentially. The cast list, trustees in sequestration and commissioners representing creditors, is relegated to part 4, and AiB to part 16, of the Act. The diligence moratorium introduced in 2014, covering more than sequestration, shifts to part 15.

As usual for consolidations, detailed tables of derivations and destinations are being published on leg.gov and in the annual volume of statutes, and are available on the Scottish Parliament and AiB websites. A short Cook’s tour of familiar 1985 Act provisions is in the table below.

Renumbering – a short guide

1985 Act
2016 Act

s 3: functions of trustee
s 50 (part 4 on trustees)
s 5: grounds for sequestration
s 1
s 7: apparent insolvency
s 16
s 12: award of sequestration
s 22
ss 16 and 17 etc: recall of sequestration
ss 29 and 31 etc
s 31 etc: vesting
s 78 etc (part 5)
ss 32-32G: debtor income contribution
ss 85 and 89-97 (part 6)
s 32(6): acquirenda
s 86(4)-(6)
s 32(10): “relevant date” for vesting
s 79(5)
ss 39 and 40: gratuitous alienations and unfair preferences
ss 98 and 99 (part 7)
s 51: priority of debts
s 129
s 55: effect of discharge of debtor
s 145 (part 11)
ss 63 and 63A: curing procedural defects
ss 211 and 212
s 69: debtor duty of cooperation
s 215

Protected trust deeds

The biggest structural innovation is part 14 of the 2016 Act, writing the legal framework for PTDs back into primary legislation, to replace the Protected Trust Deeds (Scotland) Regulations 2013 (SSI 2013/318 as amended). Part 14 will be supplemented by slimmed-down PTD regulations containing only the PTD forms.

Transitional arrangements

Transitionals and savings are built into the 2016 Act, as one might expect. The new Act will apply to sequestrations petitioned for or applied for on or after 30 November 2016 (ss 234(3) and 236). Accordingly, sequestration processes begun, in that sense, before that date will continue under the 1985 Act.

The PTD rules in part 14 of the 2016 Act will apply to trust deeds executed on or after the same date, 30 November 2016 (ss 162 and 234(3)).

The Act also contains familiar consolidation provisions for the continuity of bankruptcy law by the consolidation (s 235).

Bankruptcy regulations and s 104 order

The regulations under the 1985 Act are also being consolidated to apply to sequestrations falling under the new Act (i.e. petitioned or applied for on or after 30 November 2016). Draft regulations were published on the AiB website, and the website will be updated with further details. The plan is for combined Bankruptcy (Scotland) Regulations 2016, taking in the common financial tool and money advice provisions, but retaining the separate Bankruptcy (Applications and Decisions) (Scotland) Regulations, focused on AiB decision and review procedure.

The 2016 Act will be accompanied by a Westminster order under s 104 of the Scotland Act 1998 – the Bankruptcy (Scotland) Act 2016 (Consequential Provisions and Modifications) Order 2016. This completes replacement of the 1985 Act by restating the few provisions which sound in England & Wales and Northern Ireland, and making consequential amendments to other cross-UK and reserved statutes. The 104 Order is short as the 2016 Act itself restates the reserved matters in the 1985 Act, e.g. on priority of debts, using para 7 of sched 4 to the Scotland Act 1998, allowing the coherence of the 1985 Act to be retained. Needless to say, the law as restated remains reserved.

Court rules

Work is ongoing with the Scottish Civil Justice Council to update the Sheriff Court Bankruptcy Rules and the Rules of the Court of Session where they touch on bankruptcy, alongside the civil court rules rewrite project.

Accountant in Bankruptcy fees

Under the savings and continuity of law provisions in the 2016 Act, the current fees payable to AiB under the Bankruptcy Fees Regulations 2014 (SSI 2014/227 as amended) will continue to apply pending a fee policy review planned for 2017, for sequestrations under the old and new regimes. An informal version of the Fees Regulations showing the corresponding provisions for the new regime is available on the AiB website.