���˿���

Thank you for the offer, but I have nothing to add.

Amendment 15 agreed to.

Amendment 30 not moved.

Sections 11 to 13 agreed to.

Long title agreed to.

I offer a clarification for Colin Smyth, which I sought to make clear in my introductory remarks. I am very grateful to Mr McIntosh for raising that point. The potential unintended consequence that has been identified is not the policy intent, which was to provide an additional option, not to create a situation that was materially different to the existing process.

With regard to Mr Smyth’s request, we will, as I said, look to introduce an amendment at stage 3 to remedy that, to ensure that the policy intent is met and that the unintended consequence that Mr McIntosh has identified does not materialise. I would be happy to engage with the member directly ahead of stage 3 to provide that reassurance.

We will address the issue at stage 3, and I reiterate my gratitude for it being brought to the Government’s attention.

On Mr Fraser’s points, I appreciate his approach in trying to identify a halfway house. The Government has engaged and consulted on a range of proposals. I recognise the implications for arrestees that he mentioned. That is why, as I said earlier, the Accountant in Bankruptcy is committed to a process of engagement and to minimise the administrative implications.

I note that the arrestee will already have to undertake and be subject to a process. If there is no requirement to report, there is always the risk that, should someone follow up to identify whether an arrestment has failed, a duplication of work will occur. However, I reassure the member and the committee that we are committed to engaging constructively to ensure that the measure can be implemented as effectively as possible and to minimise any additional administrative requirements. It is an important provision that will strengthen the existing processes and support the rights of creditors.

On that basis, I ask the committee not to support amendments 4, 5 and 6.

Amendment 13 agreed to.

Amendment 26 moved—[Paul O’Kane].

Both Government amendment 10 and Murdo Fraser’s amendment 3 seek to introduce a process to allow sequestrations to be transferred to the AIB when a debtor fails to co-operate with their trustee. They both address a recommendation that the committee made, as we have heard. However, there are some important differences between how the two amendments would achieve that aim, and those differences mean that, although I support the principle of amendment 3, I invite Murdo Fraser not to move it and the committee to support amendment 10.

My amendment 9 is ancillary to the changes in amendment 10 and is intended to avoid introducing any doubt about the current position under the Bankruptcy (Scotland) Act 2016. Although Murdo Fraser’s amendment 2 is also complementary to his other amendment, it seeks to change the current position on a trustee’s resignation and entitlement to fees when dealing with an untraceable debtor, so I cannot support it.

It is not unreasonable to expect a bankrupt debtor to co-operate with their trustee in return for relief from debts. However, we accept that, in some cases of serious or long-term non-co-operation, there is an issue with trustees being left unable to be discharged and having to carry out nugatory administrative tasks.

Under the provisions applying to bankruptcies made on or after 1 April 2015, the discharge of a debtor from bankruptcy is within the Accountant in Bankruptcy’s discretion. If a debtor co-operates with their trustee, they can ordinarily expect to be discharged from bankruptcy and have their debts written off after one year.

Although the Accountant in Bankruptcy’s general policy position has been to refuse discharge in instances of non-co-operation, the AIB recognises that it is not appropriate to defer discharge indefinitely when the failure to co-operate is not significant to the administration or likely final outcome of the case—for example, when contributions have been paid but some of the paperwork is missing. In August 2023, an advice letter that addressed that point was issued to trustees. Therefore, the Accountant in Bankruptcy does not refuse discharge in all cases of non-co-operation.

However, that leaves cases in which non-co-operation is more substantial. That can leave the trustee in limbo, despite having done everything that they could have reasonably been expected to have done to get the debtor to engage with the process. Private trustees accept these appointments. They have chosen to act as a trustee, sometimes in exchange for a fee from the creditor, so there is a reasonable expectation that they will make all reasonable efforts to engage with the debtor over a reasonable period of time and that they should be able to demonstrate that they have done so. However, ultimately, if a debtor steadfastly refuses to co-operate, a case will reach a point at which there is no benefit to anyone from the trustee remaining in post, unable to carry out the statutory functions of their office.

I turn to the differences between the amendments. My amendment 10 provides that, when a debtor has not co-operated with their trustee and, as a result of that non-co-operation, the trustee has been unable to carry out their statutory functions, and a period of five years has elapsed, the trustee may apply to the Accountant in Bankruptcy for authority to resign from office. If that is granted, the Accountant in Bankruptcy will be deemed to be the trustee and will take over the case.

A period of five years is considered to be appropriate. It may be apparent much earlier that an individual is unwilling to engage with the process of their sequestration, but we expect that trustees will have made some effort to persuade a debtor to co-operate—and, in most cases, a period of five years is sufficient for dealing with assets, contributions and acquirenda. Some cases take longer to complete, but that is not necessarily due to non-co-operation and is not inconsistent with the debtor’s discharge at an earlier date.

It is important that this function be one of last resort, designed to deal with the most serious cases of persistent and continuing non-co-operation. It should not be used lightly.

It is also worth noting that amendment 10 will allow for the counting of any part of the five-year period that predates the changes in the bill. That means that cases in which non-co-operation is already an issue will be included—provided, of course, that the other tests are met.

By contrast, amendment 3, in the name of Murdo Fraser, does not specify any minimum period of time over which non-co-operation would require to be established. Under amendment 3, a trustee could apply to resign at any time—even very soon after the sequestration had been awarded. As I said, my view is that a minimum period of time should elapse before the trustee may seek to resign, to ensure that the power is available only for cases of true and long-term non-co-operation.

Similarly, under amendment 10, trustees will have to provide evidence of non-co-operation and show that they have made reasonable efforts to secure the debtor’s co-operation before the Accountant in Bankruptcy will be able to grant authority for the trustee to resign office. The amendment includes a process for review by the Accountant in Bankruptcy and, if necessary, for onward appeal to a sheriff. Review and appeal are available for the trustee, the debtor, and any creditor who objects to the trustee’s application being granted by the Accountant in Bankruptcy.

By contrast, amendment 3 does not require the trustee to provide evidence about the debtor or demonstrate that they have made reasonable efforts to secure co-operation; it does not provide any rights of review or appeal; and it does not give the AIB any discretion in the process—it seems that, if a trustee applied for change, the Accountant in Bankruptcy would be compelled to grant that application without hearing from any other affected parties. That is not a fair way of approaching the process. It is important that the AIB, as decision maker, is able to hear from all interested parties on any given application, and that those decisions are subject to review or onward appeal. The Accountant in Bankruptcy must also have some discretion to refuse applications for discharge if the AIB takes a different view of the case.

When it comes to how a trustee should be released from a sequestration, I consider that the trustee should resign, as provided for in my amendment 10, rather than be discharged, as is proposed in amendment 3 and in amendment 2 as regards untraceable debtors. Resignation is more appropriate if the case is incomplete and the office of trustee remains necessary. When trustees resign, they are entitled to outlays and remuneration for work done as trustee up to the date of their resignation, and to be paid out of any funds that have been ingathered from the sequestrated estate or contributions. However, if any amount is not paid because those funds are insufficient, the trustee must make a claim on the estate as an ordinary creditor should anything be ingathered after their resignation.

My amendment 10 also makes some administrative processes discretionary for cases that have been transferred to the Accountant in Bankruptcy under its provisions. The intention is that the ball be put into the debtor’s court. As long as the debtor refuses to co-operate, nothing else will happen and they will remain bankrupt. As soon as the debtor co-operates, it will be in the power of the Accountant in Bankruptcy to complete whatever actions remain outstanding and to grant the debtor’s discharge. It is important that there should be a route out of bankruptcy, and that people should not remain bankrupt for longer than is necessary, but I remain of the view that discharge should not happen until a debtor has made reasonable efforts to engage with the process.

Amendment 10 provides the same administrative discretion in cases that meet the same conditions but in which the Accountant in Bankruptcy is already the trustee. That is not the case with amendment 3, which would leave an undesirable disconnect between cases that are managed by the AIB as a trustee and cases that are managed by a private trustee.

Amendment 9, in my name, makes a small change to section 142 of the Bankruptcy (Scotland) Act 2016, consequent on amendment 10, to maintain the current position and to avoid any implication that the process is different where a trustee resigns in the case of a debtor who cannot be traced.

I ask the committee to support amendments 10 and 9, and I ask Mr Fraser not to press amendments 2 and 3. If he chooses to do so, I ask the committee to reject them.

Good morning. I put on record my thanks to members for the proposed amendments 18, 19, 16, 17, 20 and 21, which are in relation to section 1 of the bill.

As has been outlined, the bill currently provides an enabling power for Scottish ministers to implement a mental health moratorium by regulations. There is sound reasoning for having the detail of the moratorium process in regulations. As has been acknowledged by the committee and others, the mental health landscape is multifaceted and the treatment for those who have mental health issues is ever evolving. As a result, achieving a balance between protecting vulnerable individuals who have mental health issues and the rights of their creditors is a complex task.

Understandably, stakeholders expect a review of the moratorium to be undertaken after a reasonable period of time has lapsed since its introduction. Such a review might identify improvements to the moratorium process, such as further widening the eligibility criteria. Amendments 16 to 19 would alter that approach by requiring specific provisions to be included in the bill, as well as requiring specific provisions to be included or specifically prohibited from inclusion in the regulations.

Having specific provisions in the bill, as with amendments 18 and 19, would mean that any improvements that are identified from a review would require to be made through future primary legislation. That would take longer to implement than if changes are made through secondary legislation, and I wish to avoid any unnecessary delays in making improvements to the system. For that reason, the expert working group and stakeholders agree that having the details in secondary legislation is the most reasonable approach to take. It is also the reason that the details of the mental health crisis breathing space scheme in England and Wales are contained in secondary legislation.

Although I understand the desire to have aspects of the mental health moratorium prescribed in the bill, the provisions in amendment 18 have not been consulted on and their unintended consequences would need to be considered. That is where I would agree with the principle of amendment 20, which is that we get the process correct through consultation.

Section 1(2)(e) of the bill provides that the regulations that establish a moratorium may include provisions about

“the actions creditors must, may or may not take during the moratorium”

and

“the consequences (if any) for creditors of taking or failing to take such actions”.

I believe that that is the correct approach, rather than requiring sanctions to be stipulated in the regulations, as stated in amendment 16.

I am mindful that many creditors that will be impacted by a mental health moratorium have regulatory bodies that can impose sanctions, such as fines. It might be best to use the consequences that have already been established rather than convoluting those with consequences that we propose. That was the approach that was proposed in the consultation, which received 77 per cent support from respondents. It is also the approach that has been taken in England and Wales, and the expert working group recommended mirroring that approach.

As I have said before, a review of the mental health moratorium might conclude that such an approach is not sufficient and, if so, regulations can be amended accordingly. Therefore, it is better to have a flexible approach to the bill when requiring sanctions to be stipulated in regulations. Section 1(2)(g) of the bill includes provisions to the effect that the regulations establishing the moratorium may make

“arrangements for the recording of, and access to, information that the moratorium is applying in relation to an individual”.

There is no provision restricting what approach should be taken with respect to accessing that information.

I understand and fully sympathise with the concerns that have been raised about a public register for the mental health moratorium and the potential to stigmatise the individual. I have not committed to having a public register. I am listening to the various concerns that have been raised and am determined to achieve the right balance. I am sure that the committee will understand that I must also consider the rights of creditors. I want to ensure that, where possible, potential future lenders are aware that someone is in a mental health moratorium prior to lending, as is the case under the existing standard moratorium. That would be of benefit not only to the creditor but to the individual, who could be borrowing beyond their means and further exacerbating their difficulty.

Yes, I am happy to confirm that we are considering the system that is provided for in the regulations in England, which is why I accept that a fully public register might not be the answer. However, it would be better for the bill not to restrict the options that are available for the recording of, and access to, information relating to a mental health moratorium, so that we avoid any unintended consequences of restricting what we can do in the regulations that would be consistent with addressing the concerns that the committee has expressed.

I thank members for their amendments in this group.

The amendments would amend the Debtors (Scotland) Act 1987, affecting the powers that allow creditors to obtain repayment of debts by arresting earnings from an employer or attaching funds deposited in a bank account. They are all intended to place some limitations on the use of those powers to protect debtors who are struggling to pay their debts. I ask the committee not to support the amendments at this stage, and I will explain my reasons for doing so. However, I hope to work with members and others to identify a way forward to deliver at least some of the intent of the amendments before stage 3.

I agree, in principle, that diligence needs to include sufficient protections for debtors from undue hardship. Those matters need careful consideration to ensure a balance between the interests of debtors and creditors and the impact on the employers and banks that are also affected by those changes of their application in practice.

I do not believe that the changes that the amendments propose and their consequences have been sufficiently considered. As we have heard, amendment 12 would increase the monetary threshold at which an earnings arrestment can take effect. When a person earns less than £1,000 per month, amendment 12 would remove the ability to recover the debt through an earnings arrestment altogether; for those people earning above the threshold, it would reduce the amount that a creditor can recover each pay period to repay the debt. That concern has been raised on several occasions, and I appreciate that the committee included a recommendation in its stage 1 report that the Scottish Government consider such a change. I reassure the committee that I have been exploring the issue and gathering information to allow me to assess the potential impact that such a change would have.

Ministers already have the power to change the earnings arrestment figure through negative procedure regulations, and that has been the method considered appropriate for the figure to be updated. The Scottish Government has reviewed the earnings arrestment tables in schedule 2 of the 1987 act every three years, with the exception of last year, when we brought forward the review, as we recognised the pressures that the cost of living crisis and high inflation were putting on families. That approach has sought to maintain the correct balance between protecting both those people who are in debt and subject to an earnings arrestment and the creditors seeking to recover the debt.

More than 90 per cent of earnings arrestments are served by local authorities seeking to recover unpaid council tax. Those local authorities have found diligence to be the most effective means of recovering debt. I have heard concerns from COSLA—I understand that it has written to the committee to outline them—about changes to the current system of earnings arrestment and the potential impact that those changes would have on the councils’ ability to deliver services to their communities. Local authorities are clear that they use earnings arrestment as a last resort when someone has refused to engage with them over the debt.

The Institute of Revenues Rating and Valuation has written to me to advise that around £30 million was collected from 34,000 successful wage arrestments last year. Although data is limited, if we assume that each of those arrestments affected an individual earning at least £1,000 a month—I offer this purely for illustrative purposes—the potential loss to local authorities could be around £26.5 million. That is an alarming amount, and very much a worst-case scenario, but the cost is substantial even with more cautious estimates.

We also know that the Scottish Courts and Tribunals Service is a major user of earnings arrestment for the pursuit of unpaid court fines, with 838 arrestments issued in the last quarter for which figures have been published—that is, from October to December 2022. The Society of Messengers-at-Arms and Sheriff Officers, when giving evidence, also raised concerns about the lack of evidence to support an increase of the monthly threshold of £1,000.

I hope that the committee will appreciate that I cannot simply ignore those representations, in the same way that I cannot ignore the call that earnings arrestments are too harsh. I need to find a good balance in this. If we make earnings arrestments ineffective, there is a risk that creditors will simply resort to pursuing bankruptcy more often, which is something that I would like to avoid—I think that we would all agree on that.

I have not yet found a solution, but I continue to look into it. This is an area that can be addressed through existing powers under the 1987 act, and regulations have regularly been made to increase the thresholds and bands. I would like more time to reflect on the matter and to bring forward any considered and appropriate proposals at a later date through regulations.

I have seen the recent letter from Dr MacPherson and Professor McKenzie Skene, which sets out some ideas that seem to me to be worthy of consideration.

I am not aware that that was the case specifically. I would have to go back and check the Official Report of the Parliament’s deliberations to see what was discussed regarding the landfill tax and the land and buildings transaction tax, and whether that issue was raised then. I apologise, but I cannot give the rationale that was set out historically, which set the precedent that has informed the change that is being made.

I cannot speak to the specific cost of doing that by truck. There can be other means of transport, such as by sea and by rail.

We will engage constructively with HMRC. I will invite Jon Waite to comment, but in terms of the engagement that we have had—

Mr Waite touched on a particular point. If the committee has views regarding the need for additional legislative provisions to provide additional support for Revenue Scotland, or if there is anything in the bill that would inhibit Revenue Scotland from carrying out its duties, we would want to be made aware of that. Our position and our understanding is that what we have provided for will allow Revenue Scotland to discharge its responsibilities as a tax authority, which include compliance issues.