Discharge in Personal Insolvency -The Scottish Experience of Discharge

The English and Welsh position on discharge in personal insolvency is well know. What is the position though in other jurisdictions? Let us first examine Scotland (pictured).[1] It has been opined that Scottish law makers do not like “English law dressed up in a Kilt”. That is to say legislators at the Scottish Parliament would sooner enact legislation created by themselves rather than incorporate English law in a Scottish context by giving it a Scottish seal of approval by passing it through the chamber. This of course is at odds to the usual pattern of reform activity in the British Isles. It could be argued that it is an axiom of English and Welsh reform activity that legislation is to some extent road tested in Scotland before incorporation in England. This perhaps leads to legislation swapping its kilt for a bowler hat.

Upon completion of the Bankruptcy Courts Survey 2005,[2] the author of this blog entry was invited to address the Scottish Parliament’s Parliamentary Enterprise and Culture Committee who were considering the Bankruptcy and Diligence etc (Scotland) Bill.[3] The committee were considering the effects of the Enterprise Act 2002 in England and Wales and the appropriateness of adopting similar provisions in Scotland.[4] The committee’s final report[5] and the eventual statutory enactment mirrored the English and Welsh position. The period before automatic discharge was reduced from three years to one year. The Bankruptcy and Diligence etc. (Scotland) Act 2007[6] s.1 relates to the discharge of a debtor. Subsection one of the provision notes that section 54 of the Bankruptcy (Scotland) Act 1985[7] which relates to the automatic discharge of debtor, is amended so that in subsection (1), the words “3 years” are substituted “1 year”. Section 54 of the Bankruptcy (Scotland) Act 1985 now reads:

“(1) Subject to the following provisions of this section, the debtor shall be discharged on the expiry of 1 year from the date of sequestration.
(2) Every debtor who has been discharged under or by virtue of this section or section 75(4) of this Act may apply to the Accountant in Bankruptcy for a certificate that he has been so discharged; and the Accountant in Bankruptcy, if satisfied of such discharge, shall grant a certificate of discharge in the prescribed form...”[8]

Has the reduction in the automatic discharge period in Scotland affected the numbers using sequestration (the Scottish name for bankruptcy)?[9] An analysis of the statistics released by the Accountant in Bankruptcy (AiB) can go some way to answering that question.

Table Three: Bankruptcy (Scotland) Act 1985 (as amended) Sequestrations[10]
Sequestrations (registered)

Table Three shows that there has been a marked upsurge in recourse to the sequestration provisions following the reduction in the automatic discharge period in 2007.[11] Indeed, the annual sequestration figure more than doubled between 2008 and 2009, up from 6,158 to 14,600. This is a significant rise in those seeking recourse to the sequestration procedure. The interesting point about the Scottish experience is that the use of sequestration prior to the changes to the discharge provisions remained relatively constant with only slight uplift in recourse. This was the case even against the backdrop of the world credit environment and issues with credit. This pattern of use supports the “liberal regimes thesis” that has been examined elsewhere, i.e. the idea that less onerous bankruptcy discharge provisions cause greater recourse to the bankruptcy provisions and the relief that they afford.

[1] On Scottish personal insolvency law generally see: McKenzie Skene D. Forgiving our debtors: a Scottish perspective on a fresh start for debtors (2005) International Insolvency Review, 14(1), pp.1-26, and; McKenzie Skene, D. Dealing with multiple debt - an examination of the proposals for a debt arrangement scheme in Scotland (2002) Insolv. L. 2002, 6(Oct), 212-222;
[2] Tribe, J. Bankruptcy Courts Survey: 2005 - Final Report: A Pilot Study. Kingston Business School Occasional Paper, No.59: ISBN: 1-872058-88-4. (222 pages, 41,648 words). January 2006. 
[3] 2.00pm, Tuesday 7th March 2006, Parliament Building, Edinburgh, Scotland. I was on the panel with Mike Norris (Director of Policy, Insolvency Service) and Pat Boyden (Insolvency Practitioner, PriceWaterhouseCoopers) and Stephen Lawson (R3 and Deputy High Court Registrar).
[4] On this period of reform see: Mckenzie Skene, D. The reform of bankruptcy law in Scotland (2009) Insolv. Int. 2009, 22(2), 17-25.
[5] Enterprise and Culture Committee 7th Report 2006: Stage 1 Report on the Bankruptcy and Diligence etc (Scotland) Bill (SP Paper 559) - http://www.scottish.parliament.uk/business/committees/enterprise/reports-06/ecr06-07-Vol01-00.htm.
[6] asp 3
[7] (c.66),
[8] Ibid, s.54.
[9] On sequestration generally see: Tribe, J & Baister, S & Morgan, S & French, P. Personal Insolvency: A User’s Guide. Jordans Publishing Ltd, Bristol, 2010, at Chapters 28 (Low Income Solutions) and 29 (sequestrations).
[10] Source: Accountant in Bankruptcy (AiB) - http://www.aib.gov.uk/About/annualtargets (historical statistics). 2007 bold to reflect discharge reduction date change. 
[11] Recent press comment has indicated that the trend may continue. See: http://business.scotsman.com/personal-finance/The-bigger-picture-shows-insolvency.5296333.jp

Picture Credit: http://www.vfp.org/images/photos/UK/map_of_Scotland.gif