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Proposals to modernise debt law
25/01/2008
A consultation has been launched on the draft Interest (Scotland) Bill which proposes to modernise the law in Scotland on interest on debt and damages.
Currently interest on debt and damages is often not payable unless a sum has been "wrongfully withheld".
This means that interest does not begin to run from the date payment fell due but rather from the date on which court proceedings were commenced. The draft Bill will change the law on entitlement to interest on debt and damages payments and create a statutory right to claim interest, to run from the time when a sum of money becomes due by one person to another. The courts will only be involved if there is a dispute.
Justice Secretary Kenny MacAskill said:
"It is right that there should be better consistency in the way that interest is charged on debt and damages.
"Small businesses and individuals owed money for work done should not have to wait until court proceedings start to claim interest. This draft Bill will create a right to claim interest on late payment where there are no existing terms or conditions.
"It will ensure that Scots law will keep pace with society's expectations on how its business is conducted and will further improve the right of individuals and businesses in Scotland.
"I am keen to hear the views of anyone interested in this subject and would encourage them to respond to this consultation, particularly on the financial implications of the proposals."
The Interest (Scotland) Bill is a small law reform measure which will create rational and consistent rules on interest on debt and damages.
The Bill is concerned with the late payment of money owed by individuals and businesses. It will create a right to claim interest where there are no existing terms or conditions. For example, tradesmen doing work for householders where late payment of invoices can affect cash flow.
The Bill will not apply to debts:
- For which there is already an agreed rate of interest between the parties, such as credit card debt, commercial loans and the like
- For which there is already a statutory regime for interest
- Where the payment represents a fine, penalty or tax due to a public authority, such as council tax
- Where interest has been claimed under the Late Payment of Commercial Debts (Interest) Act 1998 (which deals with commercial contracts)
- Which the Scottish Ministers have exempted by order from the Bill provisions - it is proposed that this would include utility debts and rent arrears to public sector landlords
The courts will only become involved if there is a dispute.
The consultation runs until April 4, 2008.
The draft Bill builds on the earlier comprehensive work carried out by the Scottish Law Commission in their review of the law which resulted in the publication of their Report on Interest on Debt and Damages. The consultation takes forward further consideration of the SLC draft Bill to include the impact on employers of the cost implications for backdated pay.
The rate of interest will fluctuate in line with the Bank of England Rate and run at 1.5 per cent above that rate, which would be seven per cent at the current rate. This rate is intended to provide adequate compensation to the creditor without being overly harsh on the debtor.