As part of the Scottish Government’s aim of introducing a “Financial Health Service” in Scotland, the Bankruptcy and Debt Advice (Scotland) Act 2014 will this year bring into effect some of the widest reaching changes to the law on personal insolvency seen in the last five years. We set out below a brief guide to the main changes, as follows.

1) Business DAS – introduced in December 2014

  • We have previously reported on this here.

2) Reduced Time for Creditor Claims in sequestrations – to be introduced on 1 April 2015

  • Currently, creditors must submit their claim no later than 8 weeks before the end of the 12 month accounting period in the sequestration but this will be changed to 120 days from the date of notification of sequestration. There is provision for late claims in “exceptional circumstances” but currently no guidance as to what this may amount to.
  • Creditors should ensure their internal procedures allow for sequestration notices to be acted on quickly.

3) Moratorium for Self-Sequestrating Debtors – to be introduced on 1 April 2015

  • A moratorium of six weeks will be introduced to protect debtors making applications for their own sequestration. The moratorium will prevent creditors taking enforcement action (such as serving a charge for payment, petitioning for sequestration or executing diligence) against that debtor.
  • A debtor may not rely on this moratorium twice within a period of twelve months.

4) Removal of Automatic Discharge – to be introduced on 1 April 2015

  • The automatic discharge of a debtor twelve months from the date of his sequestration is being abolished. Discharge will become dependant on the conduct of the debtor.

5) Transfer of Decision Making to the Accountant in Bankruptcy ("AiB") – to be introduced on 1 April 2015

  • A number of powers previously only exercisable by the Sheriff will be transferred to the AiB (for example consideration of applications for recall of sequestration where the debtor can pay their debts in full).
  • This change will largely impact trustees rather than creditors but the broader impact in practice is unclear at this stage. However, there remains an ultimate right of appeal from the AiB to the Sheriff.

6) Common Financial Tool (CFT) – to be introduced on 1 April 2015

  • The CFT will be a way of providing a consistent approach in all cases to the assessment of the debtor’s liability to contribute to their sequestrated estate. It applies a specific method to assess the debtor’s financial circumstances (based on assets/liabilities and income/expenditure) and thereby determine the proportion of the debtor’s income which will constitute his or her contribution.
  • The debtor’s contribution can be fixed at zero but only under certain limited circumstances, for example where the debtor’s income is from social security benefits and tax credits.

The existing rules under the Bankruptcy (Scotland) Act 1985 (as amended) will continue to apply to any sequestration where the petition is presented prior to 1 April 2015.