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ENFORCEMENT OF CIVIL OBLIGATIONS IN SCOTLAND: ANALYSIS OF CONSULTATION RESPONSES
PART 4 DEBTOR PROTECTIONS
A. Time to Pay Arrangements
Q4A.1 Should Creditors be offered the option, on lodging their summons, of paying an additional nominal fee to receive by post, details of any TTPD offer for payment made by the debtor and the debtor's financial circumstances?
4.1 Although it appears that there is a degree of opposition to this question, the question was phrased in such a way as to evoke positive and negative responses which were actually in agreement with each other.
4.2 There was near universal agreement, across all sectors, that creditors should automatically receive details of any TTPD, and near universal disagreement that creditors should be required to pay a fee to be sent the TTPD. There was a proviso from a few respondents that the debtor should also be aware that the information was being sent to the creditor. Several respondents pointed to the fact that money advisers routinely send creditors a copy of their client's full financial statement when applying for time to pay.
4.3 There was a plea in response to this question that debtors in small claims and summary cause cases should be informed if his/her offer has been accepted or rejected, without the debtor having to check the position with the court - a requirement many debtors are not aware of.
4.4 A local authority respondent raised the point that details of the debtor's financial circumstances would only need to be sent to the creditor if access to debtor financial information is not made available by other means e.g. sharing information with third parties. Such sharing of information is seen as the preferred route to arranging payment and thereby avoiding recourse for enforcement.
4.5 The additional question relating to the debtor's financial circumstances was answered to some degree in this question but the question itself was repeated at Q4a.2 and, so is dealt with under Q4a.2.
Q.4A.2 Should application forms for TTPDs be revised to enable debtors to provide more detailed information about their financial circumstances?
4.6 Only one respondent replied in the negative to this question. All other respondents supported this proposed change, stressing that a revised form should enable the fullest possible picture on multiple debt and the range of creditors to be disclosed, along with full details on the debtor's income and assets. Useful forms which were suggested as possible models for a revised TTPD are the Citizens' Advice Bureaux Income and Expenditure form, and the British Bankers Association and Money Advice Trust Financial Statement.
Q4A.3(a) Should the rules relating to TTPDs be revised to require acceptance to be notified several days prior to the hearing?
(b) If so, what period would be appropriate?
4.7 There was general agreement to requiring acceptance, or rejection, of the TTPD to be notified several days prior to the hearing. This is seen as benefiting those debtors (arguably the majority) who are unaware that it is currently their responsibility to check the position with the Court. Some respondents added that debtors should also be notified of non-acceptance of the TTPD since debtors need to be made aware of refusal and the likely action which will follow from that.
4.8 Enforcement agencies made a suggestion that the period between the return date and the calling be extended to 14 days with an obligation on the Sheriff Clerk to notify the creditor if an application for a TTPD has been lodged and allowing the creditor seven days to notify the Sheriff Clerk whether or not the TTPD was acceptable and for the Sheriff Clerk to notify the debtor of same and thus allow both creditor and debtor to appear in Court on the calling date. These respondents also recommend that if a TTPD were granted, it would not be in the form of the granting of an instalment decree but the action would be continued sine die allowing the debtor to make payment by the agreed instalments and only upon failure would a decree after application be granted.
4.9 The small number of respondents opposing this suggested change were of the view that this is only an issue in relation to Small Claim and Summary Cause actions since in Ordinary actions there is no immediate need to accept a TTPD application and on rejection the Court fixes a hearing with notice to both parties. It was considered that the proposed two day notice under new summary cause and small claim procedural rules is deemed to be sufficient.
4.10 There was a majority view from those in favour of change that one week's notice prior to the hearing date of acceptance or rejection would be appropriate. This may mean a total of fourteen days, allowing seven days for the creditor to be informed of the offer, to consider it and reply to the Court who will then inform the debtor. The seven day notice for the debtor is regarded as being of most importance where the offer has been rejected since the debtor may need that time to seek advice and representation.
Q.4A.4(a) Should statutory guidance be introduced to specify the factors which ought to be taken into consideration by the Sheriff in disposing of TTPD and TTPO applications?
4.11 Most respondents were in favour of introducing statutory guidance to specify the factors to be taken into consideration by the Sheriff in disposing of TTPD and TTPO applications. The principal argument in support of statutory guidance, put by respondents across all sectors, including the legal sector, is that this would ensure fairness and consistent treatment of debtors. Advice agencies argued in addition that Sheriffs and court staff would benefit from training to accompany the guidance to support a consistent approach across the country.
4.12 A small number of respondents suggested that debtors too should be aware of the statutory guidance given to the court, although there were also views in opposition to this on the grounds that the debtor might be overwhelmed with information.
4.13 There was a strongly put opinion from elements of the legal sector and from a few local authority respondents that whilst statutory guidance as to which factors can be taken into consideration might be of assistance, the judiciary should retain their discretionary powers to give appropriate weight to the individual circumstances of each application.
4.14 No respondents offered a view as to how the balance between statutory guidance and judicial discretion might be achieved to the satisfaction of all involved.
Q.4A.4(b) If so, should any other factors than those mentioned be taken into account?
4.15 Factors to be taken into account in disposing of TTPDs or TTPOs, which were most consistently mentioned across all respondents, include the debtor's ability to pay; the existence of a multiple debt situation; the length of repayment period already agreed for an existing debt/loan; personal circumstances e.g. divorce/bereavement; and debtor previous behaviour in repaying debt.
4.16 Several respondents pointed to the need for judiciary training with regard to the reality of multiple debt, and for more flexibility on the issue of length of time for repayment. It was stated that at present in granting or refusing TTPDs, Sheriffs frequently use their discretion to limit the time allowed for repayment to between one year and eighteen months. Organisations in the money advice, legal, and local authority sectors state that this time period is often too short for debtors with multiple debt to be able to comply with.
Q4A.5 Should a charge for payment served on a debtor who is eligible to apply for a TTPO, and other documents served or intimated to the debtor during the course of diligence, be accompanied by a note explaining TTPOs and an application form for an order?
4.17 There was only one negative response to this question, with the positive responses supporting the concept of clear, straightforward information being sent to debtors informing them of their rights and of the procedures involved in applying for a TTPO.
4.18 There was also a suggestion to include a "Debt Advice Package" to make debtors aware that if they are multiple debtors, they have the opportunity of applying for a Debt Arrangement Scheme.
Q4A.6 Should the absolute rule against the granting of a TTPO to a debtor who has already enjoyed the protection of a TTPD be retained?
4.19 Unusually, given the relative preponderance of positive responses to questions in this section, there was a more equal balance of positive and negative responses to this question. Overall respondents were in agreement with retaining the rule but all the advice sector agencies, almost half the legal sector respondents, and almost half the local authorities were against retaining the rule.
4.20 Reasons given for retaining the rule included principally that it protects creditors' interests and encourages debtors to observe the terms of TTPDs. It was also pointed out by several legal sector organisations that there is discretion for a TTPD to be varied by the Sheriff if the debtor is having difficulty meeting repayments.
4.21 Money advice organisations argued for a "second chance" for debtors who, through factors outwith their control, and changing circumstances, were unable to comply with a TTPD. Some agencies suggested that guidance for Sheriffs in this area might be included in the statutory guidance already proposed at Q4A.4(a) above. The SMASO support the "second chance" argument and suggest a Sheriff should have discretion in granting a TTPO even although a TTPD has already been granted.
Q4A.7 Should further information and publicity about TTPDs and TTPOs be included within the Scottish Civil Enforcement Commission's general information and education strategy?
4.22 Only one organisation had reservations about this being a function of the proposed Civil Enforcement Commission. Organisations which responded positively made suggestions in relation to the means by which further information and publicity about TTPDs and TTPOs could be made available to the public. A number of respondents reported that many debtors do not read written documentation and suggestions for addressing this issue included the provision of mediated advice and information by money advisers, and advertisements on radio and television. Extension of the advice service projects currently operating in some courts across all courts was also suggested.
Q4A.8 Should the rules regarding representation in applications for time to pay arrangements be the same under the 1987 and 1974 Acts?
4.23 There was straightforward agreement that rules regarding representation should be consistent and uniform, although one respondent pointed out that the 1974 Act is a reserved matter for the UK parliament. Both negative responses point to legal aspects of the 1974 Act, i.e. that it does not allow for lay representation because a time order application involves more complex discussion and argument and more detailed knowledge of the Act as a whole. One objector to this proposed that "the Sheriff should make the judgement call".
4.24 Given the support for the rules to be the same this would appear to be a case for further discussion between the Scottish Executive Justice Department and the DTI.
Q4A.9 Should similar protections in the 1987 Act, for service by the sheriff clerk of applications for time to pay and lay representation at hearings, be extended to the 1974 Act?
4.25 There was unanimous agreement that similar protections in the 1987 Act be extended to the 1974 Act. A number of advice agencies recognised the need for additional training in the terms of the 1974 Act, and additional funding for that training. A small number of respondents questioned how this change would be publicised.
B Measures to assist unrepresented parties
Q4B.1 Should the no expenses rule be extended to applications for time to pay orders or other proceedings under the Act in line with current application for time to pay directions?
4.26 The majority of respondents favoured a consistent approach in terms of no expenses - i.e. that it should apply to both TTPDs and TTPOs. SMASO stated it would wish to see it extended to include TTPDs.
4.27 A number of those who opposed extending the no expenses rule did so on the "in principle" grounds that the creditor should not have to bear the expenses of court action which was seen to be to the benefit of the debtor.
Q4B.2 Should measures to assist unrepresented parties and encouragement for party or lay representation form part of an information and education programme?
4.28 The recurrent high level of positive responses continued at this question, with only one individual giving an unqualified negative response. Advice agencies expanded on their positive answers to suggest the need for accreditation of advisors to represent debtors in court and a wish to see the extension of the Edinburgh in-court advice project throughout Scotland. It was stated by some advice agencies that an awareness programme with Sheriffs might be helpful in enabling some Sheriffs to appreciate the benefits of lay representation.
Q4B.3 Should Sheriff Clerks be obliged to assist creditors to use the provisions of the 1987 Act in the same way as for debtors?
4.29 There was general consensus, with only a few exceptions, that in the cause of fairness creditors, and particularly sole traders or small businesses, should have access to assistance from Sheriff Clerks. Several respondents were of the view that this would not impose too severe an extra burden on Sheriff Clerks since most large creditors would engage their own legal representatives.
Q4B.4 Should further training be made available for Sheriff Clerks to emphasise the importance of their role in assisting parties?
4.30 Further training was regarded as useful to support Sheriff Clerks to offer a consistent and well informed level of support, mainly to debtors but also to certain types of creditors. The Scottish Court Service is prepared to provide further training to their staff on their role in assisting parties.
Q4B.5 Should there be a review of the documentation currently in use?
4.31 A review of the documentation currently in use was welcomed by all bar one respondent. Many respondents rehearsed the arguments they had used in previous questions relating to the need for plain English, short and simple forms, clarity of lay-out, "user-friendliness" of documentation, and so on. Pilot-testing the forms with potential users prior to introducing them was suggested.
C WRONGFUL DILIGENCE
Q4C.1 Why is the remedy of wrongful diligence little used?
4.32 There are four basic propositions as to why the remedy of wrongful diligence is little used. Overall, enforcement agencies and the legal sector suggest that wrongful diligence is little used because there is in practice very little diligence which is wrongful, thanks to the general high quality of the work of the officer of court. The alternative proposition suggested by advice agencies and some local authorities is that most individual debtors are ignorant of the existence of the remedy and lack understanding of the grounds on which an action might be raised. A third proposition is that establishing wrongful diligence is difficult under the present law. A fourth proposition suggested by some local authorities and legal sector respondents is that where problems of wrongful diligence may have arisen they are usually addressed and settled without having to prosecute actions through the Court.
4.33 All responses put forward (bar one which was an individual's experience of wrongful diligence) are based on each respondent's perceptions of why this remedy is little used rather than on any recent empirical research.
Q4C.2 Should an enforcement officer or instructing solicitor involved in diligence, which they knew or ought to have known was unlawful be:
(a) jointly and severally liable with the creditor in damages for wrongful diligence?
(b) or wholly liable in place of the creditor?
4.34 There is not a clear cut response to either of these questions. One respondent believes that joint and several liability would make it easier to pursue wrongful diligence and avoid "the pursuer being sent round a circle of blame and counter blame between the creditor and his agents" (The Advice Shop). However, it is clear from the weight of the responses that under either proposal the debtor would have difficulty in establishing the level of knowledge and responsibility for wrongful diligence. There were concerns that if the enforcing officer or instructing solicitor were to be wholly liable, a complicit creditor would escape.
4.35 Some legal sector respondents argued that the present arrangement whereby the creditor is liable and has a right of relief against the officer of the Court and the Solicitor, works satisfactorily. Other legal sector respondents argued that there should be no notion of strict liability and that a party's liability will depend on the facts of a particular matter.
4.36 Overall, the consensus view for both questions is that the individual or individuals responsible for knowingly pursuing wrongful diligence should be held liable - whoever that individual or those individuals might be in a particular case.
Q4C.3 Should the test to be met by a pursuer in an action for wrongful diligence, or malice and want of probable cause, be expanded to include negligence in the execution of the diligence?
4.37 There was a straightforward majority, with virtually no additional comment, in support of including negligence in the execution of the diligence. Some respondents who opposed the test being expanded declared a vested interest position, for example one local authority stated that "this would place an undue and unnecessary high duty of care on the part of the Council as creditor particularly having regard to the large volume of enforcement work which it requires to be undertaken, often relying on the services of external agents". Another respondent, from the legal sector, questioned the "presumptions which in our view do not provide a complete picture of the current law". They refer to para.3 5.26 of Gloag and Henderson on the Law of Scotland and conclude by stating that the "law as it stands is perfectly clear and straightforward and needs no amendment."
Q4C.4 Should the law be clarified to make it clear how a summary warrant wrongfully obtained should be challenged?
4.38 There was universal agreement with this suggestion which was seen to be equitable and in line with the view that the law should be "fair, open and understandable". (Renfrewshire Council). Enforcement agencies suggested that "in order to publicise the remedy, a Charge be executed prior to an Earnings Arrestment or poinding being executed, and contained in the charge should be a statement as to how the summary warrant can be challenged".
D DEBT ARRANGEMENT SCHEME
Q4D.1 Should a statutory debt arrangement scheme be introduced in Scotland?
4.39 In addition to welcoming the establishment of a Debt Arrangement Scheme, many respondents had both general and specific comments. The generality of comments viewed a Scheme as providing protection for debtors from undue hardship and distress whilst streamlining the process for creditors and improving their success rate in receiving payments for outstanding debt, and ensuring a fair distribution of payments. Creditors would have to have confidence in the operation of the Scheme if it was to work as intended. On an issue as significant as this it is understandable that each sector responding has its own particular view.
4.40 Within the Advice Sector, Money Advice Scotland had some specific points to raise. MAS suggests that interest on the outstanding debt should be frozen, otherwise, "debtors may never feel they will see the light at the end of the tunnel. This is a particular case in point with running account credit (credit cards etc) where the interest is usually higher than on fixed sum credit, and will continue to accumulate".
4.41 It was also suggested that any Debt Arrangement Scheme should include the provision for a Composition Order, similar to England and Wales. It was proposed that arrangements for paying off debt should not run longer than three years, otherwise debtors will opt for the Sequestration route, or Trust Deed/Protected Trust Deed, where in the main their debts are written off after three years.
4.42 MAS suggest that Council Tax arrears, might become part of a DAS, with cognisance being taken of how the debtor will make payments on an ongoing basis for Council Tax etc.
4.43 There is a general view that participation in a DAS should act as a "diligence stopper" but variation in views as to at what stage in the process diligence should stop e.g. at the point of application to the court or at the point of acceptance by the creditors. A specific point was made that a DAS needs to allow individuals, such as policemen, to be able to access the system. They are in a difficult position whereby on one hand they want to lawfully discharge their debts, whilst on the other if they do, they possibly will lose their job. Changes need to be considered with regard to the Police Scotland Regulations, for example.
4.44 The Financial and Business Sector had some reservations about the proposal, for example that it has to be clear what a DAS would achieve that is currently not achieved through a protected trust deed, and that a DAS will require the debt to be paid in full within a reasonable time and has sufficient safeguards to prevent abuse.
4.45 Local authorities responding were all in favour of a DAS, so long as there is clear guidance as to how it would operate and the recognition of the unique position of Councils as involuntary creditors within the scheme.
4.46 One local authority indicated a need for further resources. "The Executive has stated that 3 million pounds is available for Money Advice Services, but there is no mention of money to increase Court Services. Local Authorities as both an involuntary and multiple creditor will require resources to collate their debt from the different Services and to pro rata the payments when received and record all DAS in place. To do this effectively, a debt management/corporate income management system will be required. There needs to be allowance made in performance indicators for Council Tax, Rent Arrears and NDR collections to take account of the number of arrangements set up, that will lengthen the time for Local Authorities to collect arrears". (Highland Council)
4.47 Highland Council also requested clarification regarding multiple debt, and whether several debts owed to a Local Authority or more than one year's Council Tax may be classed as multiple debt.
4.48 Opposition to a DAS came from only one sector of respondents - some individual debt enforcement agencies. Reasons for opposing a Scheme varied, from the status quo being seen as adequate to the need for training and infrastructure development before the introduction of a Scheme, and concern over the proposal to make the Scheme statutory for all creditors.
4.49 One respondent raised the point that payment of tax debts should be consistent throughout the UK and that a further statutory period of delay in Scotland would run counter to this.
4.50 The legal sector had concerns that debtors would have difficulty in keeping to the terms of an Scheme over a number of years, with the proposed accompanying restrictions on credit. There was a view that a higher failure rate than experienced with the current limited voluntary schemes would be likely.
4.51 There are clearly a number of technical details surrounding the establishment of a DAS which will benefit from clear and specific guidance to address some of the reservations expressed by respondents.
Q4D.2 In general, do the Executive's proposals offer a good approach for a modern accessible DAS?
4.52 The weight of outright approval for the Executive's approach is more measured than for the principle of a DAS. However, on close examination of the responses, they are either "Yes - but" responses, followed by comments and suggestions for improvement to the DAS or "No - and" responses, followed by comments and suggestions for improvement to the DAS.
4.53 Comments and suggestions in relation to this question vary therefore depending more on whether the respondent is interested in supporting the interests of debtors or creditors than on whether or not they gave a "yes" or "no" answer.
4.54 The Consumer Credit Counselling (Scotland) Service which regards itself as a debtor champion offers voluntary Debt Management Plans based on ability to repay and approved by all creditors. These DMPs average six to seven years in length and therefore the proposed maximum term of three years with a possible extension to five years would make the scheme less flexible and less available.
4.55 Other issues which concern those advising or representing debtors include the wish to have interest payments frozen; the composition of debts; and the establishment of a "debt tribunal" to deal with cases where there is dispute between creditors and debtors, for example a creditor persistently refuses to participate in a arrangement scheme, or seeks to apply pressure to prioritise his debt.
4.56 The SMASO believes that, even with the 3 million per annum allocated for money advice that the quality of advice throughout the country will be of varying standards, SMASO is also concerned that the scheme is extremely expensive for creditors. Others who support the interest of creditors were concerned that the Scheme could be used as a delaying tactic by debtors.
4.57 Local authorities have both general and specific reservations about some of the detail in the proposed Scheme. One local authority suggests that a domestic visit with the debtor's consent, should be incorporated into the procedures at an early stage so that their financial situation could be assessed. If consent was deemed to be unreasonably withheld, the Exceptional Attachment Order should be awarded as a matter of course. There is no proposal in the consultation document that Exceptional Attachment Orders and the Debt Arrangement Scheme are linked in this or any way.
4.58 There was also a concern that currently debtors are only eligible for the scheme if they have "surplus income." The proposal from the respondent is that a debt arrangement scheme should concern itself with a debtor's non-essential moveable assets and heritable property irrespective of whether an applicant has surplus income.
4.59 Another point in relation to surplus funds is that there would need to be some alignment between the basis for determining surplus funds available towards repayment of debts from a DAS, and that which would be agreed under an Earnings or Conjoined Arrestment. The function of a DAS is understood to be primarily for those cases where an Earnings Arrestment is ineffective e.g. where earnings through employment are low but there may be self-employed earnings or other assets.
4.60 The position of local authorities as involuntary creditors is one which consistently exercises these respondents. One position put by a local authority is that as involuntary creditors, debt to local authorities will continue to accrue while a DAS is in place, and therefore an essential feature of any DAS must be that ongoing future charges be paid as they accrue.
4.61 There was general agreement that the detail of the DAS would be important in any final view as to its acceptability to the various interested parties.
Q4D.3 Should title to apply to participate in a DAS be restricted to debtors and not to creditors?
4.62 The majority of respondents were in favour of restricting title to apply to participate in a DAS to debtors on the basis that a debtor would have to voluntarily "buy in" to the scheme and co-operate with it for it to work.
4.63 One debt enforcement added the suggestion that where a TTPD or TTPO is applied for, a Sheriff should have the discretion of insisting that a debtor should seek financial advice where he considers that a DAS would be more beneficial for the debtor and his several creditors .
4.64 Respondents who believed that creditors should also have the right to apply to participate in a DAS offered comments which were based on a mixture of support for establishing equity in procedures, and promoting both debtor and creditor interest. It was suggested in one case that the creditor's right to apply should be contingent on the debtor admitting the debt, and in another, that to prohibit creditors from applying might mean they would have to move to harsher enforcement action. There was a view that it may be in a debtor's interest for the creditor to initiate a DAS rather than allowing debt to accrue.
Q4D.4 Should access to the DAS be open to all personal debtors including small traders but not business debtors?
and
Q4D.5 How should small traders be defined for this purpose?
4.65 There was a comparatively small majority in favour of the proposition that small traders should have access to the DAS, but equally concern about the definition of "small trader". One local authority summed up a number of views: "Small traders may be allowed access to the DAS but defining a small trader could be difficult and open to disputes. Creditors do not want to allocate resources in resolving disputes as to who is and is not a small trader. Any definition would have to be very well defined". (Angus Council). Aberdeen City Council added: "It is difficult to see how there can be any real distinction between "small traders" and "business debtors". The distinction, it is assumed is that the small trader has a personal debt, while the business debtor has a commercial one. Distinguishing the two may be difficult."
4.66 One suggestion from a legal sector respondent, McLure Naismith, was that the definition for exclusion from the DAS should be by type of debt - business or non-business, not by the category of debtor, and that all business debt should be excluded.
4.67 A variety of definitions of "small traders" were offered by respondents including:
"Sole trader or partner with turnover of less than small business tax threshold". (The Advice Shop)
"Perhaps, a business with less than five employees, and/or not VAT registered". (Money Advice Scotland)
"A more useful definition would be "sole trader" or "partner" rather than "small trader." It is suggested that if the total debt is of a commercial nature and under 1,000 or 1,500 then the "sole trader" or "partner" should qualify for the same debtor protection as individual debtors and so come under the umbrella of the debt arrangement scheme. If the debt exceeds 1,000 or 1,500 then the debt should be classed as a commercial or business debt and be the subject of a Commercial Attachment Order and the procedures applicable thereto". (Aberdeenshire Council)
"The definition should not be based on whether one is a small trader or not. The existence of personal liability for the debt should be sufficient". (Argyll and Bute Council)
4.68 The arguments seem to revolve around a definition which is quite simply based on personal liability for the debt, regardless of the employment or business status of the debtor, and a more complex definition of "small trader" based on a mix of turnover, level of debt, legal status of business etc.
Q4D.6 What period should apply to approved schemes and should there be any provision for extension of that period?
4.69 Overall organisations working with debtors adopted a view that five years should be the period for approved schemes, with extension in exceptional circumstances. Financial and legal sector and local authority respondents were slightly more cautious, opting in the main for three years with a possible extension to five years.
4.70 A few respondents e.g. the Consumer Credit Association, Sheriff Court Users Group, and South Ayrshire Council, suggest a fluid timescale depending on the level of debt incurred and the available surplus income.
4.71 One debtor support organisation (Consumer Credit Counselling Service) also objected to any fixed period, on the grounds that any fixed period automatically excludes a sizeable group of debtors.
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