§ 3.35 p.m.
§ The Lord Advocate (Lord Cameron of Lochbroom)
My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
§ Moved, That the House do now resolve itself into Committee.—(Lord Cameron of Lochbroom.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The LORD ABERDARE in the Chair.]
§ Clause 1 [Time to pay directions]:
§ The Chairman of Committees (Lord Aberdare)
I call Amendment No. 1. I have to point out that, if this amendment is agreed to, I cannot call Amendment No. 2.
Lord Morton of Shuna moved Amendment No. 1:
Page 2, leave out lines 25 to 36.
§ The noble Lord said: It may be for the convenience of the Committee if I speak also to Amendment No. 4, which, in a sense, is consequential upon Amendment No. 1.
§ The purpose of this amendment is to restore to the Bill the provisions on the lines that the Scottish Law Commission recommended. This clause allows time to pay directions to be made by the court when granting decree. Various government and local government types of debt are excluded in the Bill—Inland Revenue, rates, and various Customs and Excise matters.
At paragraph 3.12 of the first volume of its report the Law Commission recommend that there should be the power for the court to make what is, in effect, an instalment decree for such debts. The report states:
Consistently with these recommendations
there are various other recommendations about imprisonment for debt—
and the recommendation made below [we recommend] that time to pay orders should apply to rates and tax arrears being recovered by summary warrant".
§ It is to restore that aspect that I have tabled this amendment. I beg to move.
§ Lord Sanderson of Bowden
My Lords, I looked very closely at this particular amendment and I readily accept that the Scottish Law Commission has recommended the course that the noble Lord, Lord Morton, suggests. However, I am somewhat baffled about the contents. We are talking about Crown debts. In particular I am concerned about the regulations regarding VAT.
As someone with a layman's experience of paying VAT at the time when VAT was brought in, I have always understood that we are unpaid tax collectors or agents. If we are agents, are we entitled to follow the 335 course suggested by the noble Lord opposite? It seems to me that the money which is passing through our hands as VAT is not our own money. We are merely acting as agents for the Government. That is my first point and I should like to hear what the Minister has to say.
Secondly, on Second Reading there was some discussion about the future of rates, the community charge, and so on. I wonder whether the arrangements which Scottish local authorities have at present for the payment of rates by instalments do not meet the very point which the noble Lord, Lord Morton, is making about how to deal reasonably with the payment of rates: albeit that those who are not very well off will get rate rebates. Those were two points that struck me particularly, and that is why I have very great reservations about the acceptance of this amendment.
§ Lord Cameron of Lochbroom
As he explained, in this amendment the noble Lord opposite is attempting to remove an exemption for rates and certain tax debts from the time to pay arrangements. I hasten to add that the amendment does not remove the exemption for summary warrants, so it will apply only to ordinary court actions for the debts concerned. That is an important point to bear in mind.
When deciding to make the exemption for rates and certain tax debts I had in mind certain considerations which are mentioned by the Scottish Law Commission in their report, particularly in paragraph 355. Those considerations are that rates and tax defaulters tend to withhold payment long after they would pay ordinary debts, and also tend to be better off than ordinary debtors; and furthermore that rates and tax collectors are involuntary creditors, in that they are collecting agents in a real sense. I think that that was the point made by my noble friend Lord Sanderson. For instance, as regards VAT, the Committee will recollect the discussions that took place about Crown preference during debates on the insolvency legislation that went through this Chamber two sessions ago. At that time I do not think that there was any doubt—indeed it was accepted by the Scottish Law Commission and in the Cork report—that so far as concerns certain taxes the individual debtor was merely acting as a collecting agent and had no right to the money that he had failed to pass on. In those circumstances one asks for the reasons why he should be given any further extension of time to meet his commitment as a debtor.
Another point to which my noble friend has made reference in regard to rates is that local authorities already have provision for payment of rates by instalments. I understand that they also have recovery procedures for unpaid rates which can allow considerable periods of time for their payment. That again is a matter which I had in mind.
So far as revenue payments are concerned, and PAYE in particular, employers make deductions from the salary of the person who is in fact the revenue payer. Again, the employer is standing in as a collecting agent in a sense.
As regards the individual taxpayer who accounts directly to the revenue departments, the revenue 336 departments allow payment of tax arrears by instalments in cases of genuine hardship. However—and this point is important when one has in mind the whole system of tax collection—the debtor usually has a continuing liability to pay, and indeed instalment arrangements for arrears may disrupt or interfere with the future round of payments. By the same token the revenue departments also have existing recovery procedures which produce lengthy delays between default and eventual payment—that is to say, they are prepared to wait a reasonable time for arrangements for payment to be made.
Having regard to all these matters, I took the view that further time to pay arrangements were neither necessary nor appropriate for debts of the nature set out in subsection (5) and covered by this amendment—namely, subsections (d), (e), and (1)—for debts due to the Inland Revenue, to a rating authority or to Customs and Excise, in relation to the three duties or taxes due thereunder.
I appreciate that in this Bill the noble Lord may be subjecting the status of the Crown as creditor to the same scrutiny that was paid to it during the passage of the Bankruptcy (Scotland) Act 1985 and the Insolvency Act of that same year. However, I do not feel that the considerations which rightly exercised this assembly when examining preferential debts in sequestration apply to time to pay arrangements in this Bill. In those Acts we were dealing with the question of personal bankruptcy or insolvency.
Any privilege, if that is what it is, which is granted to the Crown is not directly at the expense of other creditors. That was an important point made in those debates. Nor, for reasons that I have already given, does it harm the legitimate interests of debtors. Secondly, the continuing liability inherent in rates and taxes is not particularly relevent in sequestration but it is of considerable practical significance in time to pay arrangements. Finally, the Committee may recall that "collecting agent" debts, for instance Pay as You Earn, VAT and National Insurance, were regarded as different from ordinary debts in important respects and so were deserving of special treatment.
I hope that with all those reasons I shall have persuaded the noble Lord opposite that in the circumstances it may be better to withdraw his amendment. I must, of course, make it clear to him that I cannot accept it.
§ 3.45 p.m.
The Earl of Selkirk
Perhaps I may ask the noble and learned Lord one question. How can a debt be due in respect of car tax? One does not receive one's licence until the money has been paid, so the money can never be due, surely?
§ Lord Cameron of Lochbroom
I do not think that the subsection concerns vehicle licences. It is dealing with a specific form of tax that is due, as I recollect it, on new cars. If I am wrong about this matter I shall certainly write to my noble friend, but I am quite clear that it does not refer to vehicle excise licences, which I think is the point to which he is referring.
§ Lord Morton of Shuna
It was interesting to hear something which I do not think the Committee has 337 heard before; namely, the reasons of the Government for leaving out this recommendation of the Law Commission. Of course, the Law Commission had considered these factors and come to a different conclusion. The factors mentioned by the noble and learned Lord the Lord Advocate would be considered by the sheriff or the court in deciding whether to make an instalment order. There might well be circumstances in which they considered that they should not do so and of course they have the power not to make an instalment order. It is a matter of discretion only. I should like to study what the noble and learned Lord has said, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Cameron of Lochbroom moved Amendment No. 2:
Page 2, line 29, leave out from ("action") to ("for") in line 30.
§ The noble and learned Lord said: In speaking to this amendment, it may be for the convenience of the Committee if I also speak to certain other amendments; namely, Amendments Nos. 5, 74, 75, 77, 79, 80, 81, 82, 84, 86, 87 and 96. The amendment that I now move is one of a number of amendments which at first sight may seem to be substantial but which do not make any appreciable change to the provisions of the Bill. Their purpose is simply to take account of the fact that the concept of a "proper officer" which appears at present in the Bill does not fit readily into the collection procedures for car tax and VAT. The amendments quite simply delete references to "proper officer" and substitute references to "the Commissioners". They are, of course, the Commissioners of Customs and Excise and there are therefore certain consequential changes which are necessary and the amendments also provide for these.
§ Perhaps I may touch briefly on the main consequential amendment which is in Schedule 4 relating both to a new paragraph (7) and a new paragraph (9) which deal with the provision of regulations to enable an officer to carry out the functions of the commissioners. This is necessary because without such a power of delegation all these summary warrant procedures would require to be carried out by the commissioners themselves. It does not require much imagination to see that that would be an impossible task.
§ To ensure, however, that summary warrant applications and any diligence—that is to say, legal step which follows—are dealt with at a sufficiently senior level, the regulations are allowed to specify that the officer concerned must hold a certain rank. This continues the current practice that summary warants are dealt with only by officers of a certain rank or above which is required in existing regulations. I therefore commend this amendment and the consequential ones to the Committee and beg to move.
§ On Question, amendment agreed to.
§ Lord Morton of Shuna moved Amendment No. 3:
Page 3, line 7, at end insert—
("(9) The sheriff clerk shall if requested by the debtor advise him if interest is payable on the debt and of the method of calculating such interest.").
§ The noble Lord said: This is a very minor matter in one sense, but in another sense it is fairly important. The intention behind this amendment is to make sure that the debtor who is asking for a payment by instalments or a time to pay direction should be aware of the consequences of what he may have to pay by way of interest. This might well mean that if he were aware of it he would make a different offer and perhaps try to make the payment rather more quickly. It is because it is felt, particularly by the Scottish Consumer Council, that debtors are often unaware of the consequences of interest and expenses mounting up that it is thought—and I would suggest it is proper—that the sheriff clerk should have a duty to explain this matter. I therefore beg to move.
§ Lord Wilson of Langside
I should like to say from these Benches that I hope that the noble and learned Lord the Lord Advocate will accept this amendment.
§ Lord Cameron of Lochbroom
In indicating that I do not think it is necessary to have this amendment and that I cannot accept it for the reason upon which I will now expand, I must ask the Committee to have regard to subsections (6) and (7) of Clause 1. Interest is always payable on court decrees for payment of a principal sum of money, as I am sure the noble and learned Lord, Lord Wilson, and the noble Lord opposite are fully aware. But under the Bill it may only be recovered under a time to pay direction if the creditor claims it in accordance with subsection (7) of Clause 1. That is to say, the creditor must claim it before a prescribed date and he must specify the amount claimed. He must serve notice of that on the debtor so that the debtor is fully appraised of what the creditor's claim is under a time to pay direction.
It is right that the Scottish Law Commission devised this provision to remedy a defect in the current summary cause instalment decree where there is no duty on creditors to intimate a claim for interest in time to ensure that the interest can be paid by the specified intalments. Interest on court decrees runs on the amount due under the decree until it is paid in full. I am certain that both noble Lords are fully aware of that.
Accordingly, it seems to me that since the Bill specifically provides for intimation of the very information which the noble Lord opposite seeks, it could be said that this amendment is totally unnecessary. It may be misleading for the simple fact beyond others that the court which grants the decree is not necessarily the sheriff court but may include the court of session. In those circumstances, the sheriff clerk would have no advice whatsoever to offer to the debtor.
I can appreciate the point which the noble Lord opposite was making and I think it is very valid. But it is already covered in the Bill in a much more satisfactory way because the debtor can assume, if he does not get notice, that no interest is being claimed by the creditor in the time to pay direction. Were there to be something of this kind with the debtor going to a sheriff, he might do that before notice was served and be wholly confused. That must be one of the things which we wish to make certain does not arise in this legislation. For those reasons, I cannot accept this amendment.
The Earl of Selkirk
Some debtors will not have read this Bill. Is it not possible that this would be useful? The noble and learned Lord is not saying that they cannot consult the sheriff clerk. All he is saying that it is not a statutory right. Is that correct?
§ Lord Cameron of Lochbroom
That is exactly what I am saying, yes.
§ Lord Morton of Shuna
Then I think the best thing for me to do is to beg leave to withdraw this amendment.
§ Amendment, by leave, withdrawn.
§ Clause 1, as amended, agreed to.
§ Clauses 2 to 4 agreed to.
§ Clause 5 [Time to pay orders]:
§ Amendment No. 4 not moved.]
Lord Cameron of Lochbroom moved Amendment No. 5:
Page 5, line 25, leave out from ("debt") to ("including") in line 26.
§ The noble and learned Lord said: I have already spoken to this amendment, I beg to move.
§ On Question, amendment agreed to.
§ Clause 5, as amended, agreed to.
§ Clause 6 agreed to.
§ Clause 7 [Disposal of application]:
§ Lord Morton of Shuna moved Amendment No. 6:
Page 7, line 22, at end insert—
("( ) After the sheriff has heard parties he may make a time to pay order either in the terms offered by the debtor or in such other terms as he considers appropriate having due regard to the financial and personal circumstances of the debtor or he may refuse to make a time to pay order.")
§ The noble Lord said: No doubt I shall be told by the noble and learned Lord opposite that this amendment is unnecessary, but the Bill as drafted appears to reach a situation where if the debtor and creditor do not agree, the debtor having made an offer of instalments and the creditor not agreeing, the sheriff then has to make up his mind. But as the Bill is drafted, it appears that he had to make up his mind either to accept or reject the debtor's offer.
§ The amendment seeks to make it clear, as trust is the intention, that the sheriff should have an opportunity to make an order for a different instalment than that offered by the debtor and is not restricted either to accepting the debtor's offer and making that instalment or making no order for instalments at all. I beg to move.
§ Baroness Carnegy of Lour
I have listened to what the noble Lord has said. I understand his saying that this needs to go in so that a different order might be contemplated, but it seems to me to say in the legislation that a time to pay order would require one to take account of the financial circumstances is extraordinary. Anything that was done at any time by such an order would have to take account of the financial circumstances. That is what "time to pay" means.
340 As to the personal circumstances, I wonder whether the noble Lord can tell us what personal circumstances he means. If it is something to do with whether or not the person is employed, the salient point is what he is earning. Those are the financial circumstances. Surely personal details other than financial circumstances are not relevant to this matter.
§ 4 p.m.
§ Lord Morton of Shuna
I must apologise to the Committee. Something has gone wrong with the amendment that I intended to be Amendment No. 6. The best course is for me to beg leave to withdraw the amendment and come back at a later stage with the amendment that I meant to put in.
§ Amendment, by leave, withdrawn.
§ Clause 7 agreed to.
§ Clauses 8 to 15 agreed to.
Lord Morton of Shuna moved Amendment No. 7:
After Clause 15, insert the following new clause:
§ General provision.
§ ("PART IA
DEBT ARRANGEMENT SCHEMES
§ Nature, content and effect of schemes
§ —(1) A scheme (to be known as a "debt arrangement scheme") providing for the orderly and regular payment of the debts of a debtor who is an individual may be made, on application being made therefore to the sheriff, in accordance with the provisions of this Part of this Act.
§ (2) A debt arrangement scheme may provide—
- (a) for an extension of time for the payment of the debts, whether by instalments or otherwise;
- (b) for discharge of the debts on payment only to the extent of a composition; or
- (c) both for such an extension of time and for discharge on payment only to the extent of a composition.
§ (3) A scheme which provides for—
- (a) an extension of time for the payment of the debts, shall specify a period within which the payments shall be made, being a period not exceeding 3 years after the date when the scheme comes into force;
- (b) payment only to the extent of a composition shall state—
- (i) the proportion of the amount of each creditor's debt; and
- (ii) the total amount,
§ Provided that this paragraph shall have effect in relation to a debt which is included in the scheme on its variation under section 28(1) of this Act as if after the words "under the scheme" there were added the words "and under a decree granted under section 31(6)(a) of this Act.".
§ (4) Every scheme shall provide that all sums to be paid thereunder shall be payable to a person appointed under this Part of this Act (to be known as the "administrator") and, subject to sections 36(6)(a)(i) and 37(2) of this Act, shall thereafter be disbursed by him to the creditors whose debts are included in the scheme; and the scheme shall regulate the method and times for the making of such payments to the administrator and for such disbursement by him.
§ (5) A scheme may include a provision (subject to such conditions as may be specified in the scheme) that the debtor shall, within a period specified in the scheme—
- (a) pay such funds to the administrator as may be so specified;
- (b) dispose of such assets (not being articles of moveable property exempt from diligence) as may be so specified and pay the net proceeds of such disposal to the administrator for disbursement to the creditors in accordance with the scheme.
§ (6) A scheme may include a condition that the debtor shall not be entitled, while the scheme is in force, to obtain credit exceeding an amount or amounts specified in the condition: 341 Provided that—
- (a) no condition so included shall restrict the obtaining of credit by the debtor for the purpose of paying—
- (i) rent; or
- (ii) debts incurred in obtaining the supply of fuel or energy, for his residence,
- (b) the scheme may exempt from the condition the obtaining of credit for the purposes of paying for such goods or services as may be specified in the condition.
§ (7) Every scheme shall include a statement that an order may be made under section 25(1) of this Act.
§ (8) It shall only be competent to include in a scheme debts for the payment of which the debtor is personally liable.
§ (9) A scheme shall come into force on the date on which an order under section 24 of this Act confirming the scheme takes effect and shall cease to have effect on the death of the debtor or as provided in section 32()1) of this Act.
§ (10) A scheme may be made only on an application by the debtor and the debtor may withdraw his application at any time before confirmation of the scheme under section 24 of this Act.").
§ The noble Lord said: Perhaps I may with the leave of the Committee speak also to Amendments Nos. 8 to 35 inclusive. The intention of this amendment is to insert into the Bill the debt arrangements scheme provisions recommended by the Scottish Law Commission. In putting forward the amendment, I have taken the wording as it was drafted by the Scottish Law Commission in its draft Bill. I fully realise that if the amendment is accepted, as I trust it will be, numerous alterations will be required on Report to take account of the slightly different cross-references that will be required, as the Government have made certain changes in other place from the Law Commission's draft Bill. The Committee may be prepared to consider this matter in principle, so to speak, rather than deal with the detailed drafting errors that no doubt exist and are of course my responsibility.
§ It is clear from the Law Commission's Report that it regarded the debt arrangement scheme as an important, if not crucial, part of its proposals for reform. It is unfortunate that the Government have not accepted that part of the recommendation. The debt arrangement scheme is supported by the Scottish Law Society and the Scottish Consumer Council.
§ A debt arrangement scheme would be new in Scotland, but as the Law Commission points out in paragraph 4.31, it is a common provision in other countries where the law is on a similar basis to that of Scotland. It has been available in England since 1883 under the scope and name of an administration order.
The Cork Report in connection with England and Wales said (it is quoted at paragraph 4.32):
no doubt that the most urgent need of all is for the introduction of a simple, accessible and inexpensive procedure for dealing with the ordinary consumer debtor, whose conduct does not require investigation, and who has no significant realisable assets, but who has a reasonable prospect of being able to discharge all or part of his liabilities out of future earnings".
§ As I understand it, it was the Law Commission's view that the debt arrangement scheme was necessary and proper. One frequently had a situation where people were in debt, they were in work or had an income, and although their assets at any particular time were insufficient to meet their debts, there was some prospect that they would be able to meet those debts from their future earnings.
§ The survey carried out by the Office of Population, Censuses and Surveys on defenders in debt actions in 342 Scotland, which reported in 1981, said that nearly three-quarters of the defenders in debt actions were having difficulty not only with that bill but with other bills. The Edinburgh University survey of debtors, on a much smaller sample, revealed that one-half of the 100 debtors that it investigated, against whom diligence was being done, were in arrears on other debts as well.
In making this recommendation the Scottish Law Commission says at paragraph 4.6:
The research suggests that procedures are needed to enable multiple debtors to gain time to pay their debts free from the threat of diligence. The plight of a debtor subjected top diligence by one creditor may be bad enough but may be considerably worsened if he is pressed on all sides by several creditors. In Chapter 2, we saw that particular steps in diligence frequently operate as a catalyst for an instalment settlement. Where the debtor has defaulted on debts due to several creditors, he may find it difficult to enter into payment arrangements with all his creditors …if he simply does nothing, then his total indebtedness may be increased considerably since his several creditors may initiate separate court actions".
§ This place has discussed at length—fortunately for me I was not involved—the reform of the bankruptcy law in Scotland. The recent Act however means that a debtor with insufficient assets (the ones with whom we are principally concerned) to make sequestration worth while has now no court procedure by which he can initiate some method of making orderly and regular payments of his debts over a reasonable period.
The changes in the bankruptcy law, according to the Law Commission (I wholly agree with it) increased the need for the debt arrangement scheme. It argues that point convincingly at paragraph 4.15 of its report. At Paragraph 4.18 it points out that the debt arrangement scheme is very much to the advantage of the unsecured creditor who has no preferences and who therefore finds sequestration a futile remedy. The debt arrangement scheme:
is designed essentially for cases where the debtor, while possibly having considerable debts, has assets whose proceeds on sale may be divided among the creditors. But in Scotland, where most people do not own their homes, there are many insolvent small debtors who have income but no assets of any consequence available for distribution.".
§ It was for that purpose that the debt arrangement scheme was put forward. It is an essential part of the Law Commission's proposals for reform.
§ The latest civil judicial statistics, which were published last month but relate to 1984, show that there are over 100,000 summary actions for debt in Scotland each year. If about three—quarters of those debtors have more than one debt and are in difficulties, which seems to be the expectation, it is obvious that a great need would be met by having something like the debt arrangement scheme.
That is essentially what the Cork Report recommended for England and Wales. I strongly urge the Committee to accept it. At paragraph 4.33, the Law Commission states:
a study of other legal systems fortifies us in our conclusion that debt arrangement schemes would fill a gap in the provision made by Scots law for helping ordinary consumer debtors and small traders to arrange for the orderly payment of debts".
§ I am sure every member of the Committee would want that. I beg to move.
§ Lord Wilson of Langside
This is an amendment of great importance. I hope that the Government will 343 give it full consideration even if they do not accept it today. Because of the inclement weather a few weeks ago I was unfortunately unable to be present at Second Reading.
Let me say frankly that after reading this full and comprehensive report but before I had seen the Bill, I had not made up my mind whether the proposals for debt arrangement schemes were sound. I awaited the Bill with interest to see the basis on which the Government had refused to accept these important recommendations, and so reach a conclusion. I was inclined at the early stage to see objections to the scheme. I assumed that, since the Government had not accepted the recommendations it might be said that the scheme would cause undue disruption of the normal work of the sheriff courts, which already have a great burden of civil and criminal work.
I was not able to hear what the Lord Advocate said to justify the Government's refusal to accept the recommendations, but I read what he had to say. In broad terms I understood him to say—I am sorry that I do not have Hansard with me to enable me to quote precisely—that the Government felt that it was not worth the trouble that implementation of the provisions would involve, and that they would not produce results to justify placing such a burden of work upon the courts. Having given the matter further consideration, in the light of everything that the noble Lord, Lord Morton of Shuna, said—I shall avoid so far as possible repeating what he said—I hope that the Government will give further consideration to it.
This matter has preoccupied governments of all political complexions over the years, certainly for as long as I recall having had anything to do with the work of the courts in Scotland. Many commissions have been set up under eminent men of law, but nothing was ever done. The Scottish Law Commission has given prolonged consideration to the matter. What it has produced in effect—this is the sort of consideration that persuaded me to reach a firm and definite conclusion similar to that of the noble Lord, Lord Morton of Shuna—is a package. The whole thing hangs together. I understand that the sheriff clerks are quite happy to accept the burden that would be placed on them if it were accepted, as I hope it will be. They would normally discharge the duties of administrators under these debt arrangement schemes. Now that we have at last got to the stage of dealing with this matter, which is completely non-controversial in any party terms, with the benefit of a full 500-page report in which the Scottish Law Commission has reached a conclusion—and I resist the temptation to refer to any part of the commission's report, because the noble Lord, Lord Morton of Shuna, has directed attention to the crucial passages—I think that it would be a great pity if, for any but the most weighty considerations, the Committee were to decline to reintroduce into the framework of the Bill these powerful recommendations of the Scottish Law Commission.
I wholeheartedly support the amendment presented so effectively by the noble Lord, Lord Morton of Shuna.
§ 4.15 p.m.
§ Lord Sanderson of Bowden
This is a crucial part of the Bill, and I realise that your Lordships must consider every aspect of it before coming to a conclusion. I read with great care what was said by the noble Lord, Lord Morton of Shuna, on Second Reading, and I very much agreed with the words that he used about the debt counselling schemes going on in Birmingham.
I should like to put to my noble and learned friend the Lord Advocate the proposition that the Scottish Consumer Council might take a leaf out of the book of the people of Birmingham and pursue this. Surely, the whole question of debt and getting into debt requires much counselling at an early stage to prevent greater problems arising later. Prevention is so much better than cure.
To come to the amendment, I stress again that I am at a disadvantage as I am not a lawyer in these matters. I have looked at the whole of the debt arrangement scheme, and I think that it is extremely complex. I believe that this was mentioned on Second Reading. I am fortified in that view because I understand that the Scottish Consumer Council and the Citizens Advice Bureaux realise that it is an extremely complex scheme although both, with the Scottish Law Commission, see some merit in it.
It was also pointed out on Second Reading that it was costly and voluntary. Costly it may be, but I would rather leave that on one side. When dealing with such difficult questions as debtors and creditors, it is better to leave that matter alone. The voluntary side of the whole operation gives me some cause for concern in that, as I understand it, the scheme would operate over a three-year period when creditors are bound to hold off.
I wish to ask my noble and learned friend the Lord Advocate whether we have any experience of such an arrangement working elsewhere. I know that the noble Lord, Lord Morton of Shuna, says that it has been in operation in some parts of England for some time. If that is so, what are the facts? Can we deduce from the arrangements that have been made south of the Border that it is "a good thing"? My understanding from what I have heard—and perhaps I have not hard the whole story—is that the figures emerging in relation to the scheme are not particularly encouraging. If that is so, we want to know about those figures before we make up our minds. Finally, if it is so good, why is it a voluntary scheme?
I understand that the Scottish Law Commission looked at the question of whether it should be more than a voluntary scheme, but rejected it because it would mean a full means test inquiry. I have my doubts because, contrary to what the noble Lord, Lord Shuna now says, I understand that the numbers are relatively small when one comes to the final stage in this procedure. If that is the case, are we enacting complex legislation which at the end of the day will produce a mouse?
§ Baroness Carnegy of Lour
I should like to endorse what my noble friend has said about the apparent complexity of the scheme to a lay person. I am surprised that the noble and learned Lord, Lord 345 Wilson of Langside, found it so attractive because in my experience he always pays great attention to how the ordinary person will react to something very close to his own interest. It seems to me that this series of amendments would add 29 pages to the Bill. They are 29 pages of which only one or two are comprehensible to me as a layman even after reading and re-reading them two or three times. I see that the noble Lord, Lord Carmichael, is in agreement with me. I expect that he had the same difficulty. That is a valid criticism which has been made by a number of the people consulted both by the Law Commission initially and by the Government subsequently. I understand that the response was a little lukewarm: I can understand that on those grounds.
I should like to ask my noble and learned friend one point. On this occasion the noble Lord, Lord Morton, made the point that this applies only to people who are earning. In the Second Reading debate (at col. 492 of Hansard) the noble Lord said that the idea was to deal with a situation where people were chasing one debtor who through misfortune, illness or loss of employment had not been able to pay. I do not know whether that was a slip. It seems to me that if this clause makes provision for people who are earning it does not concern those who are unemployed. In that case can I ask my noble and learned friend what proportion of people who fall into debt are in full-time employment? That would be an interesting figure to know. I should also like to know whether he feels that this is as complicated and difficult for people to understand as it seems to me.
§ Lord Carmichael of Kelvingrove
I should like to support all those who have spoken in support of this amendment, which I consider is extremely important. I agree with the other non-lawyers about the complexity of the matter. I thought that the noble Baroness, Lady Carnegy, was boasting when she said that she understood two or three pages. That is why I was laughing. I understood the general impression of the Bill, as did no doubt the noble Baroness and the noble Lord, Lord Sanderson.
I start with the statement by the noble and learned Lord the Lord Advocate at Second Reading, when he said (at col. 486) that more debtors are unable rather than unwilling to pay the debt outright. This is the point at which we should start—good faith.
From the heights of the legal contributions from the noble Lord, Lord Morton of Shuna, and the noble and learned Lord, Lord Wilson of Langside, perhaps I may discuss my experience with regard to debts in my part of the world, particularly when I was in another place. There are many people on very low incomes. I envy them—not because they are on low incomes—for the sheer management of their finances. One does not necessarily have to be in employment to be able to pay some of one's debts. It is quite remarkable how many working-class families with appallingly low incomes are able to organise their finances.
There are three basic reasons for people getting into debt in the areas about which I am speaking and which I know best. That is why this new clause, or something like it, is required. The first factor is rent. Because frequently the DHSS is late in notifying the local authority that the rent is being paid, there is a build-up of rent arrears as a result. The planning of finances is 346 made very difficult. It is even more difficult if it is private accommodation. A single individual who lets only two or three houses could be in very great difficulties if the money does not come through from the social security to the local council to pay the rent. That is another problem that arises.
There is also a problem that people tend to forget. Nowadays when a teenager reaches 16 with regard to rent he becomes a lodger. They are due to pay some of the rent. In a family that can cause great difficulties. The parents get into debt. However, possibly the biggest single and absolutely necessary expenditure of most families after rent, particularly in parts of Scotland and at this time of year, are the gas and electricity bills. I know that the gas and electricity boards are supposed to adhere to a code of practice. But my experience is that it is not always too closely observed. Far too frequently electricity supplies are cut off. I am led to believe that the electricity board also demands something like 25 per cent. of any debt due up front, right away, before it will even discuss the payment of the debt that is owing. To pay off the debt could amount to up to £25 per week, plus the current bills, if the local electricity board has agreed to fit a prepayment meter, which is what is usually done.
There is another group of reasons why families get into debt—door—to-door credit catalogue sales, Provident or shopping cheques. I am not suggesting that there is not a great need for and a great service provided by the organisations which sell door to door. Many of them have been going for generations as a part of the working-class life. All over Britain they are essential for the proper management of very meagre incomes and have been so for a very long time. However, I am afraid that there is another side to it. One has over-eager and sometimes unscrupulous salesmen. Some heart-rending tales are told of people being allowed up to £1,000 credit when they are obviously not able to meet the payment.
I agree with the noble Lord, Lord Sanderson, who spoke about the work of the social workers and the Citizens' Advice Bureau. In many cases the bureaux are doing what we should like this new clause to be able to do. They try to gather all the debts together and to make arrangements with those who are owed money and also for the collection of the money. People are sometimes amazed at the total of the debt when it is added up. They have never actually added up the total debt. The first time that they have appreciated the amount is when the social worker or the CAB goes through all the debts with them. Sometimes a staggering figure is reached. They are at least able to say to those who are owed the money, "If you want a chance to be repaid, the right way is to take your turn, give me some time and we shall pay you every week, month or every so often a set amount of money so that the debt can be cleared".
I have explained in perhaps a rather pragmatic way the way in which people on low incomes view the situation. I agree that very few of them are likely to have read this new clause. However, I am sure that the spirit of the clause is right. I am sure that the noble and learned Lord the Lord Advocate must have sensed the general feeling in the Committee today. Most of those present agree that something like the amendment in 347 the name of my friend Lord Morton of Shuna and myself would be most acceptable.
§ 4.30 p.m.
§ Lord Wilson of Langside
Perhaps I may detain the Committe for one moment to take up a point made by the noble Baroness, Lady Carnegy of Lour. She said that she was surprised I had supported this amendment as though she was saying, in the blunt way we Scots have in personal disputes, that she did not think I was quite that daft.
I quite acknowledge that it is a matter of judgment and it is quite a difficult matter of judgment. My initial judgment tended to be against it. However, I came to the conclusion that I had not looked at the matter in sufficient depth. When I had considered everything in the report, and all the issues raised by the noble Lord, Lord Morton of Shuna, I came to the firm conclusion that it is a matter of judgment. If the noble and learned Lord the Lord Advocate is not going to accept this, I hope that he can give us the kind of detail for which the noble Lord, Lord Sanderson, asked in order to convince us that as a matter of judgment we should vote against the amendment. Unless he does so I think that he will have failed to discharge the onus which the noble Lord, Lord Morton of Shuna, placed upon him in presenting the amendment.
§ Lord Cameron of Lochbroom
I believe, as has already been said, that this matter is not one of party politics, and I would accept that at the very outset. The Government recognise the general desirability of attempting to find ways of dealing with the problems of multiple indebtedness. However, I wish to make it clear that perhaps in certain comments that have been made today—I am thinking in particular of what the noble Lord, Lord Carmichael, said—we are straying into a different territory and that is the question of consumer credit restriction. We are not dealing with that today.
Secondly, we are dealing with the question of multiple indebtedness. I am not suggesting that, for instance, some of the remarks about arrears of rent may not be relevant, but if that is the only debt, we are not into the realm of multiple indebtedness.
The noble Lord, Lord Carmichael, made a very important point, to which I shall return later, that pragmatic voluntary arrangements can be made without any reference to statute and can operate extremely well. So far as I am able, I shall try to assist the Committee to show the main features of the commission's recommended scheme. I do not dispute that it is a complex scheme and, as I shall subsequently say, that is a matter of criticism. As I understand it, and as my noble friend Lord Sanderson said, it starts off as a voluntary scheme. For the reasons that my noble friend Lady Carnegy pointed out, that is because the commission did not wish to be involved in a scheme which concerned compulsory means testing outside the system or process of sequestration. I think that Members of the Committee will fully understand that general principle. It would allow the debtor an extension of time to pay his debts in reasonable instalments over three and possibly five years. The 348 debtor's compliance would be supervised by an administrator, who would normally be the sheriff clerk.
I think it is important to bear the second point in mind because one is dealing with an issue of balance between creditors and debtors. Creditors present and future would be precluded from taking diligence, or otherwise seeking sequestration, during the period of the operation of the scheme. That is an important factor to bear in mind so that even a future creditor would be barred from pursuing his claim if such a scheme were to be effective.
Thirdly, creditors' claims would rank rateably, and they would not be entitled to secure any preferences which they might have under the contract between the individual creditor and debtor. Fourthly, the sheriff would be able to order deductions from the debtor's earnings to be paid to the administrator and disbursed by him to the creditors. Fifthly, the payment of debts in full, or by a composition of less than 100 pence in the pound, would be premitted and the debtor would be discharged only if he complied with the scheme. On the other hand, if he defaulted the scheme would come to an end. Sixthly, there would be no vesting of assets in a trust deed for creditors; the debtor might realise specific assets to pay off the sum of indebtedness.
That is a very brief outline of the scheme. As I retail it I believe that the Committee will see that it is not a simple scheme. It is in fact rather complicated, involving as it does the effect not only on those who are creditors at the time of the scheme coming into operation, but it also affects the rights of those who subsequently, in contracting with the individual, become his creditors, and they are therefore cut off from what would otherwise be their legal rights.
I believe it was suggested that there was no other way to deal with the question of multiple debts. I should remind Members of the Committee that there is the voluntary trust deed. The noble and learned Lord, Lord Wilson, will be aware of that, as certainly will be the noble Lord opposite. It is the most common method of resolving personal insolvency in Scotland, although I accept that for any voluntary trust deed form of composition to be entered into there must be some question of assets.
The scheme also requires that there should be some assets available because, although it is perfectly true that loss of employment per se may not exclude a person, the person who volunteers for the scheme must be likely to be able to produce £600 in, I believe, three years. The problems of doing so, in prospect, obviously have an effect on those who would benefit from the scheme.
Since the Scottish Law Commission's report has been quoted perhaps I may remind the Committee of what the Scottish Law Commission said at paragraph 2.125:Although the research conducted for this report suggests that multiple debt problems may be less common than might be supposed (inasmuch as there appear to be relatively few cases in which two or more debts of a multiple debtor reached the diligence stage simultaneously), we think the problems are sufficiently acute to call for legislative intervention".They go on:In Chapter 4, therefore, we recommend the introduction in Scots law"—349 and I underline these words—of a new insolvency process designed particularly for wage and salary earners and small traders in multiple debt, to be called a debt arrangement scheme".I draw the attention of the Committee to the words "a new insolvency process". This is not a new insolvency process but it cuts down the rights of creditors in a way which would not be done if it were an insolvency process.
When I received the report from the Scottish Law Commission, I arranged for public views to be obtained on their recommendations. The Scottish Law Commission had already done so and I believe that my noble friend Lady Carnegy pointed out that, at the time they issued their consultative memorandum, there had been a mixed response on consultation. That appears in the same paragraph. The consultation paper which was put out on my behalf noted the fact that when the commission sought views on their own provisional proposals there had been such a mixed reaction. Of course despite the possible difficulties the commission recorded the opinion to which the noble Lord opposite has referred with regard to the provision in principle:for the orderly and regular payment of debts outside bankruptcy proceedingsas being available to:multiple debtors, however few, who genuinely wish to meet their creditors' claims and have the means to do so within a reasonable time".Bearing in mind that this is a voluntary scheme, one might, say that if they can volunteer for one form of arrangement, they will be able to volunteer for other arrangements, which is presently the case for any debtor.
There was a similar mixed reaction in responses to my consultation paper. For instance, the Law Society of Scotland expressed concern that a debt arrangement scheme should be so similar to bankruptcy, and they considered that careful thought should be given before any additional informal type of bankruptcy proceeding was introduced, as there may be no real need for any such new alternative procedure. I believe that to be an important comment, particularly in view of the way in which the Scottish Law Commission has proceeded to put the matter forward.
From a different standpoint the Scottish Association of Citizens' Advice Bureaux thought that the debt arrangement scheme procedure would be advantageous in that it would examine the debtor's ability to pay in the light of his other commitments but they noted that the least complex schemes are often the easiest to administer and understand and the most cost-effective in terms of both finance and time. The difficulty is that this cannot be said to be the kind of scheme which they had in mind. The Scottish Consumer Council supported in principle the introduction of debt arrangement schemes but they too thought that the detailed provisions envisaged complicated conditions attached to eligibility, complicated procedures to set up the scheme and a cumbersome method of operation. They thought that the schemes would be difficult for debtors and creditors to understand and expensive to operate. That is a very fair and important criticism to bear in mind.
350 Obviously, one question in particular which the Government had to consider was whether the proposed procedure would benefit a sufficient number of debtors to justify the not inconsiderable expense in administering debt arrangement schemes. The proposed procedure was intended to assist a relatively small sector of debtors. These are persons with several debts at an advanced stage in the recovery process. While there is a small but significant level of multiple debt this as I have already referred to in the Scottish Law Commission's report, is perhaps less common than might be supposed, because as I have already indicated there are relatively few cases in which two or more debts reach the diligence stage simultaneously. That means that in normal circumstances the debts are paid off or otherwise discharged in sequence no doubt but without at the end of the day requiring to go to the diligence stage simultaneously.
It has also to be noted that debt arrangement schemes as proposed by the commission were designed particularly for wage and salary earners and small traders. I should like to observe—and this was a matter that the revenue departments pointed out—that the protection from diligence which was inherent in this scheme would allow such traders to carry on business, possibly both to the detriment of themselves and particularly their suppliers and customers. This is so for reasons which I think the Committee can readily understand because the suppliers and customers would be the future creditors and lose their rights to use the legal steps which would otherwise be open to them during the currency of the scheme.
There are similar schemes elsewhere. Reference was made to England and the use of administration orders, and also to the Cork report. At the end of the day that part of the Cork report was not taken into the insolvency legislation. That is one point. A recent study prepared in connection with the Civil Justice Review in England and Wales investigated administration orders which were granted. The findings showed that one year after the orders had been made over half of the debtors had paid more than 10 per cent. of their debt but,—and this is an important statistic—in 40 per cent. of the cases there was evidence of default. The Committee will observe that under this arrangement immediately there is default the scheme will come to an end. In the first year there should then be 40 per cent. of those who had volunteered for the scheme, for whom the scheme would come to an end. That fact is important when considering the issue of the overall need to bring in the scheme. These findings also highlighted the scale of the repayment problem with large total debts and relatively small repayments over long periods and the limited success in obtaining recovery of the debts. In this connection it has to be noted that the commission's recommended debt arrangement schemes are voluntary and their success—with payments for a period which could be up to five years—would be conditional on a fairly high degree of self—discipline on the part of the debtor.
A further point which I took into account (although at the end of the day it was merely a balancing factor because it seemed that these comments were more against than in favour of the scheme) was that there were resource implications. I am not going to claim 351 that they were so immense that that in itself would have precluded it, but this was a further matter to be considered because, on that view, I was not convinced that it would be justifiable to accept the commission's recommendation that such schemes should be introduced. These schemes are only set up at a fairly late stage in a creditor's indebtedness and only if he volunteers to do so.
It appears from what has been said in Committee that the problem we are dealing with—namely, multiple indebtedness—is one which should be tackled at a much earlier stage. I agree entirely with the point made by the noble Lord, Lord Carmichael, on this matter. But that is the time when establishing communication between the debtor and the creditors and making a realistic disposal of what the debtor has available can secure the best way of dealing with indebtedness.
Debt counselling is not within the scope of the present Bill. Indeed, I have to add that it is not within my ministerial responsibilities—whatever else may be! I know that there are interesting developments in Scotland with regard to the encouragement of such counselling. The Birmingham scheme, which has been noted, is one which I have no doubt was being followed carefully by bodies north of the Border.
Informal debt counselling might well prove to be most useful at the earlier stage of a debtor's indebtedness. I shall watch with interest developments in that regard in Scotland. I apologise for having taken time because I recognise that this is a most important issue. For all the reasons I have set out, I am not satisfied that a scheme of such complexity would be properly understood. The voluntary nature of the scheme makes it difficult to assess the degree of success it will have. The fact that it involves considerable restraint upon creditors' rights in a way which would have to be looked at very carefully, plus the fact that, at the end of the day, there is very likely to be a substantial default which would bring the scheme to an end long before it succeeded in its purpose, mean that I cannot recommend that these amendments that the noble Lord opposite has proposed, and in particular this amendment, should be accepted. The Government were careful to consult further on the matter before they came to the conclusion that they did, but I hope I have said anough to indicate that we took this matter seriously before we reached the decision that this should not be included within this Bill.
§ Lord Morton of Shuna
I am abliged to all Members of the Committee who have taken part in this debate. It is pleasant on a Scottish legal Bill for a change to have something which is not just a discussion between the noble and learned Lord opposite and myself. I am obliged for the kind words and support form the noble and learned Lord, Lord Wilson of Langside, and for the support for counseling which I think I raised at Second Reading.
On the Birmingham matter, no doubt the noble and learned Lord opposite will reallise that in Birmingham this is being run by the local authority, and there may 352 be resource implications if it is to come into local authorities in Scotland.
The noble Baroness, Lady Carnegy, raised the complexity of this part of the Bill, but it is no more complex than the rest of the Bill if one gets into the arrestment and the definitions we get there. It is difficult for a layman to understand what is being talked about. It is even difficult for a lawyer.
There is of course the voluntary nature of this arrangement. It has to be voluntary. The difference between the debt arrangement scheme as proposed by the Scottish Law Commission and this amendment is that it is voluntary on the part of the debtor. The present voluntary arrangements are, in a sense, voluntary on the part of the creditor, because there is no purpose in the voluntary trust deed or the other arrangements that may be made at present unless all creditors join in. One creditor can say, "No, I will not agree", and go ahead and use diligence, and that throws the whole voluntary arrangement out. Under the debt arrangement scheme, if the debtor entered into it, all the creditors would have to agree up until the point of default.
On statistics the noble and learned Lord quoted paragraph 2.125, and perhaps there is a difference in the statistics I quoted. He quoted the few cases in which two or more debts reached the diligence stage simultaneously. There may be reasons for that such as that creditors sometimes give up. Certainly the other statistics I quoted suggested that this is a common problem; that in three-quarters of the cases where decree for debt is granted there are other debtors who have other debts which have to be met.
I do not think that I can go any further into this save to say there are obviously two views. The Law Commission was firmly of the opinion that this was necessary. That also appeared to be the view of the Cork Report for England and Wales—although the Government did not accept that—and I think that the appropriate course is for me to press this matter and seek the opinion of the Committee.
§ 4.55 p.m.
§ On Question, Whether the said amendment (No. 7) shall be agreed to?
§ Their Lordships divided: Contents, 63; Not-Contents, 107.353
|DIVISION NO. 1|
|Airedale, L.||Graham of Edmonton, L.|
|Ardwick, L.||Harris of Greenwich, L.|
|Aylestone, L.||Hatch of Lusby, L.|
|Birk, B.||Hirshfield, L.|
|Bonham-Carter, L.||Houghton of Sowerby, L.|
|Brockway, L.||Hughes, L.|
|Carmichael of Kelvingrove, L.||Jacques, L.|
|Cledwyn of Penrhos, L.||Jeger, B.|
|David, B. [Teller.]||Jenkins of Putney, L.|
|Dean of Beswick, L.||John-Mackie, L.|
|Denington, B.||Kennet, L.|
|Elwyn-Jones, L.||Kilbracken, L.|
|Ewart-Biggs, B.||Llewelyn-Davies of Hastoe, B.|
|Ezra, L.||Lockwood, B.|
|Foot, L.||Longford, E.|
|Gallacher, L.||McCarthy, L.|
|Gladwyn, L.||McGregor of Durris, L.|
|Mishcon, L.||Stallard, L.|
|Morton of Shuna, L.||Stedman, B.|
|Mulley, L.||Stewart of Fulham, L.|
|Nicol, B.||Strabolgi, L.|
|Northfield, L.||Underhill, L.|
|Ogmore, L.||Wallace of Coslany, L.|
|Paget of Northampton, L.||Wells-Pestell, L.|
|Perry of Walton, L.||White, B.|
|Phillips, B.||Wilson of Langside, L.|
|Ponsonby of Shulbrede, L. [Teller.]||Wilson of Rievaulx, L.|
|Winchilsea and Nottingham, E.|
|Ritchie of Dundee, L.||Winstanley, L.|
|Seear, B.||Winterbottom, L.|
|Serota, B.||Ypres, E.|
|Silkin of Dulwich, L.|
|Abercorn, D.||Knollys, V.|
|Aldenham, L.||Lane-Fox, B.|
|Aldington, L.||Lawrence, L.|
|Ampthill, L.||Layton, L.|
|Beaverbrook, L.||Long, V.|
|Belhaven and Stenton, L.||Macleod of Borve, B.|
|Belstead, L.||Mar, C.|
|Bessborough, E.||Maude of Stratford-upon-Avon, L.|
|Blyth, L.||Merrivale, L.|
|Boyd-Carpenter, L.||Mersey, V.|
|Brabazon of Tara, L.||Milverton, L.|
|Brightman, L.||Monson, L.|
|Brougham and Vaux, L.||Moran, L.|
|Broxbourne, L.||Mottistone, L.|
|Burton, L.||Mowbray and Stourton, L.|
|Caithness, E.||Murton of Lindisfarne, L.|
|Cameron of Lochbroom, L.||Norfolk, D.|
|Campbell of Alloway, L.||Nugent of Guildford, L.|
|Campbell of Croy, L.||Onslow, E.|
|Carnegy of Lour, B.||Orkney, E.|
|Carnock, L.||Orr-Ewing, L.|
|Cathcart, E.||Plummer of St Marylebone, L|
|Cox, B.||Porritt, L.|
|Craigavon, V.||Portland, D.|
|Cranbrook, E.||Rankeillour, L.|
|Cromartie, E.||Reay, L.|
|Cullen of Ashbourne, L.||Richardson, L.|
|Davidson, V. [Teller.]||Rodney, L.|
|Denham, L. [Teller.]||Rugby, L.|
|Dundee, E.||St. Davids, V.|
|Elles, B.||Saltoun of Abernethy, Ly.|
|Elliot of Harwood, B.||Sanderson of Bowden, L.|
|Elliott of Morpeth, L.||Selkirk, E.|
|Elton, L.||Sempill, Ly.|
|Faithfull, B.||Skelmersdale, L.|
|Fortescue, E.||Stodart of Leaston, L.|
|Fraser of Kilmorack, L.||Strathcona and Mount Royal, L.|
|Gisborough, L.||Swinton, E.|
|Glenarthur, L.||Terrington, L.|
|Gormanston, V.||Teviot, L.|
|Hailsham of Saint Marylebone, L.||Thomas of Swynnerton, L,|
|Hankey, L.||Thurlow, L.|
|Harvington, L.||Tranmire, L.|
|Hayter, L.||Trenchard, V.|
|Hesketh, L.||Trumpington, B.|
|Holderness, L.||Vickers, B.|
|Home of the Hirsel, L.||Ward of Witley, V.|
|Hooper, B.||Westbury, L.|
|Hylton-Foster, B.||Whitelaw, V.|
|Ilchester, E.||Windlesham, L.|
|Kimball, L.||Young, B.|
§ Resolved in the negative, and amendment disagreed to accordingly.
§ [Amendments Nos. 8 to 35 not moved.]354
§ 5.3 p.m.
§ Moved accordingly, and, on Question, Motion agreed to.
§ House resumed.