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BANKRUPTCY & DILIGENCE (SCOTLAND) ACT 2007
CHANGES TO EARNINGS ARRESTMENTS etc.
INTRODUCTION
On 1 April 2008, the following sections of the Bankruptcy & Diligence (Scotland) Act will be introduced:
- Part 1 - Bankruptcy
- Part 6 - Diligence on the Dependence
- Part 7 - Interim Attachment
- Part 9 - Diligence Against Earnings
- Part 12 - Summary Warrant, Time to Pay and Charges to Pay
- Section 208 - Abolition of Sequestration for Rent and Landlord's Hypothec.
This bulletin is our fourth and final update on the changes which will shortly be coming into effect. This week we examine the changes to Diligence Against Earnings and changes which will be made to Summary Warrants, Time to Pay Directions and Charges to Pay.
Part 9 - Diligence Against Earnings
From 1st April 2008 important new duties will be introduced requiring the Employer, Creditor and Debtor to provide certain information. Those duties are:-
EMPLOYER:
Upon service of an earnings arrestment, employers will have a duty to provide the creditor with details as to –
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how the debtor is paid (ie weekly, monthly etc);
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the date of the debtor's next pay day;
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the sum to be deducted at that pay date and the net earnings from which the deduction is paid.
The Employer must also provide the Debtor with:
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a copy of the earnings arrestment schedule;
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the date upon which the first deduction will be made;
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the amount which will be deducted; and
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copies of all of the information provided to the creditor as above.
The Employer must provide this information within statutory timescales, namely (i) the later of 6 April next following receipt of the schedule or the day falling 6 months after receiving the schedule; and then (ii) annually on 6th April each year during the currency of the arrestment.
In addition to the foregoing the Employer will now have an additional duty under the Act to notify the Creditor if the Debtor leaves their employment. The Employer must also advise the Creditor of any new Employer, so far as known to them, and must provide a copy of the notification to the Debtor.
There are potentially serious consequences for an Employer failing to comply with this duty without reasonable excuse. In particular, the Creditor may apply to the Sheriff Court to make an order requiring the employer to:-
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provide such information as is known to the Employer as to the Debtor's new employment; and
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pay to the Creditor an amount not exceeding twice the sum which the Employer would have been required to deduct on the Debtor's next payday had the Debtor still been employed by that employer. The Employer cannot recover this sum from their ex-employee.
It is accordingly of great importance that Employers have sufficient diary and accounting systems in place to ensure their new responsibilities are complied with.
CREDITOR:
A Creditor is now under a duty to report to the Employer:
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the sum owed by the Debtor;
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the amounts received under the earnings arrestment;
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the dates of those payments.
The Creditor must provide this information as soon as is practicable after (i) the later of 6 April next following service of the schedule or the day falling 6 months after service of the EA and then (ii) annually on the 6 April thereafter during the currency of the arrestment.
For the Creditor, therefore, new reporting systems may require to be introduced which may involve a diary system to ensure compliance with annual reporting requirements.
Where a Creditor has instructed an Earnings Arrestment, it will need to be clear from its systems what payments are being received via the earnings arrestment and what payments are being received from other sources.
DEBTOR:
The Debtor now has a duty, when his employment ends, to advise the Creditor that he has left his employment and give details of his new employers. The Act does not state any sanction against the Debtor for failure to comply with this duty, and it is therefore uncertain how powerful this new duty will be. Failure to comply may be considered a contempt of court, however.
Part 12 - Summary Warrant, Time to Pay and Charges to Pay
SUMMARY WARRANT
The Act introduces changes to the Summary Warrant system, bringing them more into line with the pre-diligence requirements for Decrees and documents of debt. In particular debtors will now be entitled to apply for Time to Pay Directions and Time to Pay Orders for debts pursued by Summary Warrant.
TIME TO PAY
At present debtors can apply to the Sheriff Court for a Time to Pay Order for debts below £25,000. Currently there is no statutory test for a Sheriff to follow in assessing such applications. Experience suggests that Sheriffs generally refused applications where the debt would take in excess of two to three years to repay.
The Act introduces a new statutory test whereby the Sheriff must grant the order if satisfied that it is reasonable in all the circumstances to do so, having regard to the following matters:-
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the nature of and reasons for the debt in relation to which the order is sought;
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any action taken by the creditor to assist the debtor in paying that debt;
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the debtor's financial position;
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the reasonableness of any proposal by the debtor to pay that debt; and
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the reasonableness of the objection by the creditor to the offer by the debtor to pay that debt
It appears that the Sheriff will therefore be looking for an explanation from the Bank as to what, if any, action they have taken to assist the debtor. Whilst similar criteria apply in relation to applications under the Mortgage Rights (Scotland) Act, this is a new innovation for unsecured debts and may require a more proactive approach from Creditors if opposition to such applications is to be maintained.
FURTHER INFORMATION
For further information on this ezine or any other banking litigation related issue, please contact Ruari MacNeill 0131 625 7279, Claire Martin 0131 625 7285 or Andrew Foyle 0131 625 7247 in the Banking Litigation Team.
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