HL Deb 07 December 1992 vol 541 cc37-70

4.46 p.m.

The Minister of State, Scottish Office (Lord Fraser of Carmyllie)

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 Fraser of Carmyllie.)

On Question, Motion agreed to.

House in Committee accordingly.

[The EARL OF LISTOWEL in the Chair.]

Clause 1 [Accountant in Bankruptcy]:

Lord Macaulay of Bragar moved Amendment No.1: Page 2, line 23 at end insert: ("( ) the provision of advice on the advantages or otherwise to an individual debtor and to his creditors of sequestration proceedings when such advice is sought by a debtor; ( ) the duty to provide advice to debtors about sequestration procedures under this Act in every area of Scotland in so far as is practical and where there is a demand for such advice;").

The noble Lord said: This is one of several amendments to which we look forward to hearing the Government's response between now and the Report stage of this important Bill, which will no doubt take place next year. The purpose of the amendment now before the Committee is to fill the "advice gap", as it has been termed by the citizens advice bureaux, which will be left with the introduction of the summary administration procedure.

The amendment aims to ensure that the debtor can receive advice suited to his or her own personal circumstances and to reduce the possibility of inappropriate bankruptcies. It is anticipated that that kind of advice cannot be gained by reading through a leaflet, no matter how well intentioned or how detailed the leaflet may be. There must always be a place for advice in the scheme of things in relation to bankruptcy. The main object should be to avoid bankruptcy, if possible, while at the same time protecting the interests of the creditor.

The citizens advice bureaux have already set out in detail —I am sure that the Government have been advised of this —the fact that they have dealt with 279,916 inquiries concerning money advice in 1991–92. Of these, 2,223 were referred by the CAB to an insolvency practitioner to discuss the possibility of sequestration. That represents less than 1 per cent. of the overall total. So the great majority of inquiries obviously do not lead necessarily to bankruptcy. Thereafter, advice is given to point the possible bankrupt in the correct direction to obtain expert advice from insolvency practitioners who can provide the evidence in this complex area.

The insolvency practitioners' role seems to be undermined by the terms of the Bill. The fear is that unless, within the statutory framework of the Bill, there is set up an advice scheme—and I do not pretend that the amendment is not capable of being further amended—on terms of principle, the Bill should spell out that there will be advice available to the parties involved.

The citizens advice bureaux maintain that they do not have the professional qualifications or the number of professionally qualified people to deal with this complicated issue. They fear that with the introduction of summary administration and debtor petitions the role of the insolvency practitioner will disappear except in cases where a secondary level of advice is available.

It has been recognised that access to suitable professional advice is necessary so that a considered view can be taken as to what is to happen to any particular individual. In the Government's view the tendency seems to be that a guide to bankruptcy procedures will be enough. I respectfully suggest that the existence of a general guide is not enough because that deals with information and what is of the essence is advice, and good advice.

A further proposal, which I believe was dealt with on Second Reading, is that solicitors should step into the breach. However, experience has already shown that, first of all, solicitors are not particularly trained to step into the breach, nor are they very keen to do so. A person seeking advice may be driven back on to legal aid advice which is becoming more and more restricted for one reason or another. In rural areas of Scotland there may be no access to a solicitor's office. It is therefore the Government's duty —as they are taking the line they are in this Bill in relation to bankruptcies—to build in a good advice scheme in the legislation rather than leave the matter to chance. I beg to move.

Lord Fraser of Carmyllie

This amendment invites the Committee to place a statutory obligation on the Accountant in Bankruptcy to offer specific advice to individual debtors considering sequestration and a duty to provide this advice in every part of Scotland where there is a demand and it is practicable to do so.

While I accept that debtors contemplating sequestration should have access to information on the procedures and consequences of sequestration and should be encouraged to seek advice to enable them to reach a view on the merits of the proposal in their particular circumstances, I do not believe that it would be right to impose this duty on the Accountant in Bankruptcy. The Government do not believe that it would be an appropriate role for a public official who is charged with administering sequestrations on behalf of creditors to have the task of counselling individual debtors on whether to petition for sequestration. Nor do I believe we can justify the substantial resources required to operate such a service, when the accountant would be duplicating advice which is currently available in the voluntary and private sector. I can see real difficulties arising in terms of conflict of interest if the accountant were given such a role. On the one hand he will have a responsibility to ensure that sequestrations are administered efficiently in such a manner as to reduce the overall cost to the taxpayer. At the same time, if this amendment were accepted, he would be required to advise debtors whether sequestration was right for them. One can well imagine the arguments which could arise if the accountant's staff recommends against sequestration. People might ask whether they did so because that was the correct decision for the individual or because it would reduce the volume of sequestrations and therefore the cost to the public purse.

The Government do not believe that the potential for this conflict should exist. The advice which debtors obtain should be independent of any involvement which the adviser might have in the conduct of the sequestration. The involvement of the Accountant in Bankruptcy should begin after the decision to petition is taken, not before. Having said that, the Government do accept that the Accountant in Bankruptcy should take responsibility for preparing a general factual guide to sequestration procedures and the consequences for debtors and creditors. Such guidance material could be made available to consumer and money advice bodies and others advising individual debtors. He may also, in the normal course of business, deal with factual enquiries about procedures from debtors or others. However, that is very different from providing the kind of counselling service which the noble Lord has advanced.

The Government already provide significant resources to money advice centres and the citizens advice bureaux to enable them to provide, among other things, this kind of advice to consumers. Some £1.25 million was provided through the urban programme last year to support money advice projects while DTI provided some £l.4 million to Citizens Advice Scotland as core funding. Such bodies are more used to dealing with individual debtors and are seen by debtors as being more accessible and informal in their approach. In the great majority of cases—indeed the figures given by the noble Lord would bear this out—a debtor will already have approached such a body for advice before he considers sequestration. Those bodies will already be dealing with his case and will be able to provide the information to allow the debtor to reach a decision. They cannot take such a decision for him—no one should—but they can help him to arrive at a conclusion in the full knowledge of the consequences.

If the amendment were accepted, the Accountant in Bankruptcy would have a responsibility to provide advice on sequestration. He could not give advice on other debt related matters or on alternatives to sequestration. The service he provided would therefore be more limited than that which a debtor can receive from such bodies as citizens advice bureaux or money advice centres. Also that would obviously be an expensive service to provide.

For those reasons I do not consider it would be appropriate to place this statutory burden upon the accountant. I believe that more can be achieved through the use of voluntary bodies and others already active in the field. With that explanation, I hope the noble Lord will consider that he can withdraw his amendment.

Lord Macaulay of Bragar

I listened with interest to what the noble and learned Lord said. This amendment probably applies to the wrong part of the Bill as we are discussing the supervisory functions of the Accountant in Bankruptcy. The idea behind the amendment is not to get the Accountant in Bankruptcy or his department involved in giving direct advice but to give him a duty to provide advice; in other words, to set up some body which would give people involved in sequestration independent advice on what steps they should take. However, as I have indicated, I tabled the amendment to see what the Government's response was. I shall read with interest what the Minister has said. In the circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 agreed to.

Clause 2 [Appointment and functions of interim trustee]:

Lord Carmichael of Kelvingrove moved Amendment No. 2 Page 5, line 24, leave out from ("by") 24 to ("deed") in line 25.

The noble Lord said: Like my noble friend Lord Macaulay of Bragar, I, too, must thank some of the active bodies in Scotland who are involved with debt for the great help they have provided on this complicated Bill. To those bodies debt is becoming an everyday occurrence. They are dealing with these problems every day. Therefore I have great respect for the points they have made.

In moving Amendment No. 2 I should like to speak also to Amendment No. 12. This amendment seeks to ensure that a debtor who petitions for sequestration can secure the immediate appointment of an interim trustee prior to award of sequestration to protect and preserve the interests of creditors, in particular to supervise the carrying on of a business of which the debtor is sole proprietor.

At present, as I understand it, a debtor who petitions for sequestration with a concurring creditor could secure on the same day as the petition is presented an award of sequestration and at the same time the appointment of an interim trustee. The Bill proposes that in the event of a petition at the instance of a debtor, award of sequestration cannot be made until not less than eight days after the date of the presentation of the petition. The Bill also allows an interim trustee to be appointed prior to the award of sequestration only in the event of a petition at the instance of a creditor or a trustee acting under a trust deed. That is stated at Clause 2(5).

One can imagine the position of an individual who is a sole trader or a sole proprietor. The examples which come to mind are a public house, a small building business or a farm. Does the legislation really mean that the debtor requires a limbo period of not less than eight days before an interim trustee can he appointed to control his assets and take responsibility for the running of his business?

It appears that the draftsman may not have fully recognised the practical implications of a delay of not less than eight days. The eight days are intended to allow the Accountant in Bankruptcy to ensure that he receives a copy of the petition and that the debtor has provided a copy of his list of assets and liabilities. The amendment does not seek to upset that procedure, which can still be carried out after an interim trustee has been appointed prior to the award of sequestration, but it deals with that specific point of the sole proprietor. I beg to move.

5 p.m.

Lord Fraser of Carmyllie

The amendment seeks to change the provision in Clause 2 of the Bill which allows the court to appoint an interim trustee when granting a warrant to cite the debtor in the case of creditor or trustee petitions.

The Bill simply re-enacts a provision which presently appears in Section 13(1) of the 1985 Act. The early appointment of an interim trustee prior to the award of sequestration is possible only where the debtor consents or where the creditor or trustee shows cause as to why such an appointment should be made. The obvious reason for making such an appointment is where there is a need to safeguard the estate against the possibility that the debtor may try to dispose of or hide assets to prevent them being found by the trustee. Such action is most likely where the debtor is opposed to the sequestration and is trying to thwart his creditors.

If, however, the debtor has himself brought the petition, then I can see no good reason why there is a need to have the interim trustee appointed prior to the award of sequestration. If the debtor wished to dispose of his assets, it is reasonable to assume that he would do so before bringing his petition, not during the short period allowed in the Bill between the presentation of the petition and its being dealt with by the court.

I hope that with that brief explanation the noble Lord will appreciate why that distinction has been maintained within the Bill and will feel able to withdraw his amendment.

Lord Carmichael of Kelvingrove

I am grateful to the Minister for that explanation. That appears a very reasonable answer to the amendment. Other arguments may be put to me before Report stage, but for the time being I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lyell moved Amendment No. 3: Page 5, line 42, at end insert: ("( ) Where the court appoints an interim trustee in terms of subsections (1), (2) or (5) above, the Sheriff Clerk shall send a certified copy of the interlocutor pronounced by the court to the interim trustee forthwith." ").

The noble Lord said: Clause 2 deals with the appointment and functions of the interim trustee. I am grateful to my noble friend for providing me with a child's guide, which was necessary for a mere accountant attempting to work through this somewhat complicated Bill and associate it with the 1985 Act.

The Committee will see that the amendment attempts to add a small paragraph. In so doing I seek guidance on one particular aspect of these sad cases of insolvency and the appointment of an interim trustee. I understand that time is of the essence in such cases, both for the resolution of the debtor's affairs and for the benefit of creditors. I understand that there are informal procedures whereby the Sheriff Clerk can indicate that an interim trustee may start his duties —which are set out in Clause 2 of the Bill—immediately.

Under Section 21 of the original Act, which should be read in conjunction with the Bill, the interim trustee must call a statutory meeting within 28 days. He must give seven days' notice of that meeting to creditors that he can discover. Therefore he has 21 days after the granting of the certificate in which to obtain a list of creditors and call a meeting. Therefore, the quicker the notification the better the chance of any muddle in the debtor's affairs being resolved and of the creditors obtaining the maximum benefit.

I understand that in the case of company liquidations there is a provision in the Act of Sederunt Sheriff Court Company Insolvency Rules 1986 that the clerk of the court will send a certified copy of the interlocutor which appoints the interim liquidator. The amendment sets out to adapt the same procedure to sequestration.

I am given to understand that a committee of the Scottish court Rules Council has already been formed to draft rules to accompany the legislation which we are discussing and which has already been dealt with in another place. It is possible that that council could incorporate procedural instructions within the rules which would meet the intention behind the amendment. The 1985 Act incorporates many instructions regarding the registration of court orders. For example, Section 14 of the 1985 Act refers to the registration of court orders. Therefore, since a similar provision already exists, I wonder whether it would be appropriate to incorporate my small amendment in the main statute. I hope that I have not spoken for too long with this small point. I await the wise words of my noble and learned friend. I beg to move.

Lord Fraser of Carmyllie

I can understand why my noble friend has been moved to bring forward this amendment. Under the 1985 Act an insolvency practitioner may be appointed as interim trustee in a sequestration without any prior knowledge on his part that a case had been brought before the court. By putting forward his name to be added to the list of interim trustees held by the court, the insolvency practitioner accepts that possibility, and he has a duty to administer any sequestration assigned to him by the court. In recompense, he has the reassurance that should the debtor's estate have insufficient assets to meet his remuneration and outlays, the state will meet any shortfall. He is therefore placed at no financial risk.

I appreciate that that is not the point with which my noble friend is particularly concerned, but rather that it means that on some occasions under existing law the insolvency practitioner may not learn of the burden that has been placed on him until some time after the event. However, I hope that I can reassure my noble friend that that situation cannot arise under the new procedures introduced in the Bill. In the future an insolvency practitioner will always know if his name has been put forward to the court in any petition. Indeed, by virtue of subsection (3) of the new Section 2 which is inserted by Clause 2—which is found at the top of page 5 of the Bill—a petition which names an insolvency practitioner must be accompanied by a written undertaking from the practitioner that he is willing to act as interim and permanent trustee in the sequestration.

Consequently, the insolvency practitioner will have been directly involved in the petition and can take steps to ensure that he is informed of the court's decision without there being any need to place an additional duty on the court staff. It is because I consider this amendment to be unnecessary given the changes that are proposed in the Bill, that I invite my noble friend to withdraw it. It is not out of any sense that he has not come across what I would consider in the existing law to be a good point.

Lord Lyell

I am very grateful to my noble and learned friend for tactfully pointing out that perhaps the solution would lie at the top of page 5. He thought that it was terribly unlikely that I would refer to the financial provisions as dealt with by these practitioners. Nothing could be further from my mind, and no doubt from the mind of my noble and learned friend. I have been interested, and certainly for today well satisfied, by what he had to say.

Reflecting on his winding up remarks, I believe he said that he could take steps to make sure that the interim trustee could start his work as interim trustee immediately. If that is the gist of what he said, I think he has met my points. At the outset I mentioned what I called an informal procedure, which is well understood by my noble friends and by the insolvency practitioners. If I heard my noble and learned friend aright and steps can be taken, then I say to him just two words. One begins with "t" and the other begins with "y": thank you. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 agreed to.

Clause 3 [Petitions for sequestration]:

5.15 p.m.

The Deputy Chairman of Committees (The Earl of Listowel)

Before I call the next amendment, I should point out to the Committee that if Amendment No. 4 is agreed to, I cannot call Amendment No. 5.

Lord Macaulay of Bragar moved Amendment No. 4 Page 6, leave out lines 18 to 28, and insert: ("(c) (i) the debtor is apparently insolvent; or (ii) the debtor has granted a trust deed and the trustee has complied with the requirements of sub-sub-paragraphs (a) to (c) of paragraph 5(1) of Schedule 5 to this Act but has received notification as mentioned in sub-sub-paragraph (c) of that paragraph; or (iii) the debtor, or other person acting on his behalf, gives notice in the prescribed form to every creditor known to him, by recorded delivery, of an offer to pay instalments to each creditor and within the period of 21 days beginning with the date of posting of such notice the debtor, or other person acting on his behalf, has not received notification in writing from all creditors of acceptance of such offer. For the purpose of paragraph (c) (i) a debtor shall not be apparently insolvent by reason only that he has granted a trust deed or that he has given notice to his creditors as mentioned in paragraph (b) of section 7(1) of this Act.").

The noble Lord said: In moving this amendment, it may be for the convenience of the Committee if Amendments Nos. 6 and 11 are spoken to at the same time.

The grouping of these three amendments is designed to provide an additional condition which will allow a debtor to petition for sequestration where he can show that a reasonable offer to pay by instalments has been made to creditors, but not accepted by all creditors. Clause 3(2B) of the Bill allows a debtor to petition for his own sequestration without requirements for a concurring creditor provided certain conditions apply. Subsection (2B) (c) as it stands requires the debtor to be "apparently insolvent" (as defined by Section 7 of the 1985 Act), excluding Section 7(1) (b) and other than the granting of a trust deed.

The effect of implementing this subsection is perceived to be a great restriction of the debtor's access to the sequestration process. In practice, the debtor will require to wait until a creditor takes steps to serve a statutory demand for payment or a charge for payment following a court decree. Neither the inability to pay debts as they fall due nor the failure to come to satisfactory repayment proposals with creditors will be sufficient to allow self-sequestration by the debtor.

Many debtors with no realisable assets are pursued forcibly by creditors and may not have the disposable income available to satisfy competing demands. It has to be recognised that some debtors are more resilient than others when under such pressure. Some debtors, however, suffer extreme stress and anxiety even at the early stages of collection. In such a situation there must be a clear public policy argument to allow self-sequestration where the debtor can demonstrate that he is unable to satisfy the demands from his creditors.

The Government have projected the number of sequestration awards to be made in Scotland over the next two years and have made plans accordingly to staff up the Department of the Accountant in Bankruptcy. If the Bill is not amended, the number of awards could reduce by as much as 85 per cent. to 90 per cent. During previous discussions in the other place the Government stated firmly that this legislation is not intended to restrict the access of a debtor to the sequestration procedure. But that, I am afraid, is not what it appears to do on a reading of the Bill as it stands.

This amendment has been tabled in an attempt to balance the interests of the debtor and the creditors. It would provide creditors with information on the debtor's financial situation and allow them to have some influence on the future prospects for repayment of their debts. This would overcome the criticism levelled by creditors that a debtor will often proceed to self-sequestration without any prior communication with his creditors.

Considerable thought has been given to the phrase "all creditors known to him". The debtor will be liable to a fine or imprisonment should he have failed to notify every creditor. These penalties would also apply if the debtor failed to take account of assets not yet received, for example, damages or insurance claims. The position of a creditor who may have been prejudiced as a result of being omitted from the circular letter of offer is protected in terms of Section 17(1) of the 1985 Act in that he can present a petition for recall of the sequestration. I beg to move.

Lord Mackay of Ardbrecknish

If I may intervene briefly on this little group of amendments, and in particular on Amendment No. 4, I listened with care to the comments of the noble Lord, Lord Macaulay of Bragar, when he introduced this amendment. There are one or two rather worrying points to which my noble and learned friend the Minister might address himself when he comes to reply. Perhaps he intends to address them anyway.

If I read Amendment No. 4 correctly, if one creditor does not answer, for whatever reason, then the whole pack of cards could collapse and the debtor could go into self-sequestration. Alternatively, if a ridiculous offer is made to the creditors and they find it impossible to agree, the self-sequestration route could then be pursued, and Amendment No. 4, if it had been put into the Bill, would have been obeyed on the face of it. But in fact it would not have been obeyed because the offer was one which no self-respecting creditor would accept. I accept that Amendment No. 11 is designed to try to stop that, but I am not entirely sure that it would do so.

Having regard to all the circumstances, the reasonable phraseology would be very much up to the quality of the advice being given by the adviser. If one reads some of the material, especially a document by a Mr. Gray, which has been published to advise people, I personally would not have too much confidence as a creditor that the advice being given by the advice bureaux using that document would be evenly balanced between the debtor client and the creditors. I shall be interested to hear what my noble and learned friend has to say on those points.

Lord Fraser of Carmyllie

I am grateful for both contributions to this group of amendments because they go directly to the heart of the sequestration process, being concerned with the ability of a debtor to obtain access to sequestration. Their implementation would affect not only the debtor but also his creditors and their prospect of recovering the debts owed to them. They also have implications for the courts.

Before looking in detail at the specific amendments which the noble Lord has introduced, it is worth reminding ourselves of the purpose of sequestration, of the thinking that lay behind the provisions in the 1985 Act and of the intentions of the Bill. Sequestration exists primarily as a means whereby the estate of a debtor can be realised and distributed to his creditors in an orderly manner in partial recompense for the debts owed to them. It is the ultimate form of diligence and, in the words of the Scottish Law Commission, a support for the system of commercial credit". For the debtor it provides protection from individual diligences and, in due course, it will lead to the discharge of the pre-sequestration debts and the opportunity to make a fresh start.

In its report on bankruptcy law which led to the 1985 Act, the Scottish Law Commission addressed itself to the question of how a debtor might obtain access to sequestration. It concluded that a debtor should have access to sequestration but that the right to petition should be exercised only with the consent of a creditor.

The commission saw the involvement of a qualified creditor as a necessary check to ensure that at least one of the debtor's creditors considered that sequestration was appropriate. It also saw that involvement as a useful safeguard against any tendency by a debtor to seek to exploit sequestration not to secure the reordering of their affairs, but for the ulterior motive of evading the financial responsibilities which the debtor had freely entered into.

In examining the amendments before us it is important to keep these aspects in mind—the need for balance between the interests of debtors and creditors and the need to safeguard against abuse of the law.

It is also important to recall that sequestration is intended to be a summary process. A petition for sequestration should be dealt with expeditiously by the courts to ensure that there is no lingering uncertainty over a debtor's financial status and that steps can quickly be taken to safeguard any assets in the estate. To that end the grounds for seeking an award of sequestration should be clear, straightforward and objective; capable of ready proof without the need for protracted consideration of evidence.

The 1985 Act followed those general principles, as does the present Bill. I am concerned, however, that the amendments put forward by the noble Lords stray away from those principles to a significant degree.

In bringing forward the present Bill the Government were aware that the procedures for bringing a petition for sequestration were not operating in the manner envisaged by the Scottish Law Commission or by Parliament when enacting the 1985 Act without serious disagreement between both sides of either House. Instead of debtor petitions being subject to the consent of creditors, a debtor was effectively able to petition indirectly by signing a trust deed and leaving it to the trustee to apply immediately for sequestration on the debtor's behalf. The use of that device has now become so widespread that even an organisation of the calibre of Citizens Advice Scotland can suggest in its briefing paper for your Lordships that that had been an intention of the 1985 Act. That was, of course, never the case. The present Bill therefore takes steps to place trustee petitions on the basis originally envisaged by the Scottish Law Commission.

At the same time, however, the Government recognise that circumstances have moved on since 1985. We accept that it is no longer sufficient to rely solely on the willingness of a creditor to concur in the petition of a debtor. Therefore, in addition to allowing a petition with a creditor's consent, Clause 3 of the Bill provides that a debtor may petition when he is apparently insolvent (other than when he has granted a trust deed or sent a written notice to his creditors) or if he has granted a trust deed but has been unable to secure the agreement of the creditors.

In putting forward the amendments the noble Lord has tried to set up a balanced structure. However, he is arguing that the grounds available in the Bill are insufficient. He suggests that a debtor needs to be able to bring a petition even if his creditors are not pressing for payment through the courts.

I find that approach puzzling. If the creditors are not pressing for payment by legal action, why does the debtor need to take the drastic step of sequestration? What is there to prevent the debtor from agreeing new arrangements for the payment of his debts with his creditors? If all else fails, why cannot the debtor simply inform his creditors that he is unable to pay his debts and give them the choice of writing off the debts or sequestrating him?

It is important to recall that in the overwhelming majority of sequestrations at present the creditors receive no dividend at all. The sole effect of the sequestration is to write off the debts owed. The advantage lies entirely with the debtor; there is no advantage to the creditor.

As my noble friend Lord Mackay of Ardbrecknish pointed out, if the amendments were introduced a number of extraordinary difficulties would emerge. What would constitute a reasonable offer? The sheriff is required to take account of aliment in reaching a view on the reasonableness of the offer, but for a debtor receiving state benefits would an offer of nothing or £1 or £2 a week be considered reasonable? Are creditors to present arguments to the court as to whether or not the offer is reasonable?

There are significant difficulties in the proposals. I apologise for taking a little time to cover them but they are the centre of the Bill. I do not believe that the amendments before the Committee offer any advantage in procedural terms over the existing provisions of the Bill. As my noble friend has pointed out, significant difficulties would emerge if they were adopted. In those circumstances I invite the noble Lord to withdraw his amendment.

Lord Macaulay of Bragar

I am grateful to the Minister for that detailed reply. I accept the technical difficulties in the interpretation of the clause which were pointed out by the noble Lord, Lord Mackay of Ardbrecknish. At this stage we are dealing with the principle rather than particulars in the clause. It is clear that the objective behind the amendment was to reinstate matters as they were before the Bill was introduced and to try to provide a degree of fairness to the debtor while looking after the interests of the creditor.

I am sorry if I strayed away from the principle; I try not to do so. The principle is that the debtor should be provided with a better approach to the courts than the Bill provides. The Minister summed up the matter in saying that the amendment goes to the centre of the Bill and if it were accepted the purpose of the Bill would be defeated. I understand therefore that he would not be happy to accept any of the amendments in the group. I will read what he said with interest and in the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Macaulay of Bragar moved Amendment No. 5: Page 6, line 24, at end insert: ("( ) the debtor either—

  1. (i) satisfies the Court that the value of his assets is less than the amount of his liabilities, taking into account his contingent and prospective liabilities, providing that he has not granted a trust deed; or
  2. (ii) satisfies the court that he is unable to pay his debts as and when they fall due for payment, provided that he has not granted a trust deed.").

The noble Lord said: Having been effectively kicked out of the park, in footballing terms, perhaps Amendment No. 5 takes another shot at the goal from a different angle. The amendment sets out to allow a debtor to petition for sequestration when he can clearly demonstrate to the court that he can no longer meet his liabilities. That objective would appear to meet some of the points made by the Minister in relation to previous amendments. The creditor's position would be made clear to him. It boils down to the fact that it would be clear to the creditor that to start taking action against the debtor would be a waste of his time and that of everyone else. The creditor might incur an expense which he might not be able to recover.

The amendment will allow a debtor who is in reality insolvent and is unable to meet his or her liabilities, but who does not fit into the definition of apparent insolvency for the purposes of the Act, to take steps to minimise the extent of his or her debts by petitioning for sequestration. That will have the effect of benefiting both the debtor and the creditor by reducing the overall extent of the debt due by the debtor and by averting the necessity of a creditor embarking upon both time-consuming and expensive proceedings to allow the debtor to fit into the narrowly defined category of apparent insolvency. The cost incurred by the creditor in taking those steps are unlikely to be recoverable and, accordingly, the amendment would prevent unnecessary expense to the creditor and would allow the debtor to try to take sensible and reasonable steps to prevent his or her debts from escalating uncontrollably. I beg to move.

5.30 p.m.

Lord Fraser of Carmyllie

The amendment proposes that sequestration should be awarded if the debtor has satisfied the courts that the value of his assets is less than the amount of his liabilities. As the noble Lord will appreciate, that is a test of absolute insolvency which is a notoriously difficult concept to prove conclusively since it depends critically on the assumptions made about the value of assets. Indeed, from time to time some of us may find ourselves being what might be described as technically absolutely insolvent; that is, one may have borrowed extensively for some purpose and if all the existing liabilities were suddenly called in, one could not meet them.

In practice, creditors are principally concerned about whether one has the income to meet the debt repayments. If so, one may well he absolutely insolvent but no one will care at all so long as the payments continue to be made. Therefore, I do not see how one can safely found a ground for sequestration which could include individuals with high income and high borrowing but with low assets.

Similarly, there is a question as to whether it is reasonable to allow the sequestration of a debtor because he is unable to pay his debts as they fall due —a test of practical insolvency. That may well be an indication of serious financial problems but at the same time it may be a short-term cash flow difficulty which prevents the debtor meeting his obligations. In such circumstances, it makes more sense to reschedule debts.

If the noble Lord will consider what I have said, I believe that he will appreciate that the test of apparent insolvency, which is the basis on which this Bill is structured, is indeed the more appropriate test. At first blush it may seem slightly curious that apparent insolvency rather than absolute insolvency is a better basis on which to proceed, but on reflection I am sure that the noble Lord will agree that that is the case.

Lord Macaulay of Bragar

I shall take the advice of the noble and learned Lord and consider what he has said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 6 not moved.]

Lord Mackay of Ardbrecknish moved Amendment No. 7: Page 7, line 9, leave out ("and liabilities") and insert ("liabilities, income and outgoings.").

The noble Lord said: The sentence in the Bill which this amendment seeks to amend is that which states: Where the petitioner is the debtor … he shall lodge with the petition a copy of a list of his assets and liabilities and such other information as may be prescribed in such form as may be prescribed". It sounds rather like a doctor's surgery with all this prescription. My amendment is designed to make it clear on the face of the Bill that the debtor's income and outgoings are factors which will no longer be disregarded in the sequestration process.

The Government gave assurances in another place that the debtor's income and outgoings will be a prescribed item in the list of information to be included by regulation. I ask the Government to go further and to incorporate those words about the income and outgoings on the face of the Bill.

I understand that their inclusion in regulations was conceded in the other place. However, there seems to me to be no reason why, if that concession was made in the other place, we should not see the words on the face of the Bill. Why should assets and liabilities be seen as more significant than income and outgoings when for most people the reverse is true, as my noble and learned friend explained in answer to the previous amendment in the name of the noble Lord, Lord Macaulay?

When the debts in question were undertaken, the person involved would do his calculations on the basis of paying the debt out of income and not out of assets.

It is essential that the Bill should send a clear message to debtors and their advisers on this point. It may be important also that the legislation should send a clear message to the European Community, which is beginning to become involved in these matters and which equally seems to be tempted to look only at assets and liabilities and not to consider income and outgoings.

Since the 1985 Act came into force, the practice of considering income and outgoings has almost been ignored by those accountants who deal in the lucrative business of insolvency. As the Government have conceded in another place that income and outgoings should be taken into account, they should put that on the face of the Bill. I beg to move.

Baroness Carnegy of Lour

I support my noble friend. He is following a point which I made on Second Reading. I believe that it is important. It may well be that the Government have given an assurance that they intend to include this matter in regulations and that they are sympathetic to the point. However, a government of a different complexion in the future may well have different views, and it would he all too easy, should there be less sympathy for creditors and more sympathy for debtors, to change this provision by regulation.

It seems sensible that this matter should be written on the face of the Bill and my noble and learned friend should consider it very seriously. There seems no reason whatever why that should not be done. I hope that the Government will accept the amendment.

Lord Taylor of Gryfe

Having listened to the persuasive submissions of the noble Lord, Lord Mackay, I too give some support to the principle involved. In assessing the value of businesses it is generally agreed that you not only take into consideration the assets and liabilities but you look also at the cash flow. That is essentially what the noble Lord proposes in this case. I regard cash flow as highly relevant in assessing the value and total liabilities of the debtor.

Lord Fraser of Carmyllie

I understand fully the anxieties which have prompted my noble friend to table this amendment and I am not surprised that he has been supported by my noble friend Lady Carnegy and the noble Lord, Lord Taylor. I too have discussed the anxieties which lie behind the amendment with representatives of creditor bodies. However, for the time being I remain unpersuaded of the need to amend the Bill.

It is not a matter of being unpersuaded by the anxieties that have been expressed. The Bill provides already in the subsection to which the amendment is directed that the list of assets and liabilities lodged by the debtor with his petition may include also, such other information as may be prescribed". As my noble friend indicated, my ministerial colleagues in another place have already given an assurance that that power will be used and that in this way the debtor will be asked to provide details both of his income and outgoings. I repeat to the Committee the assurance that was given.

The information which my noble friend seeks to elicit will be provided as a requirement of the statutory regulations prescribing the content and form of the list of assets and liabilities. While I understand my noble friend's argument and that advanced by my noble friend Lady Carnegy that there may be some attraction in those words being placed on the face of the Bill, nevertheless I believe that my noble friend will concede that to achieve the objective it is unnecessary to amend the Bill.

While I agree with my noble friend that such information should be provided, I am not at present persuaded that there will be a greater deterrent effect if the words "income and outgoings" appear on the face of the statute. It is certainly important that they should appear in regulations and on the list which the debtor will he asked to complete in the future. With that assurance to my noble friend as regards the Government's intention, I invite him to withdraw the amendment.

Lord Mackay of Ardbrecknish

I am grateful to my noble friend for underlining the assurance given in another place by the Parliamentary Under-Secretary of State, Scottish Office. While I am still less than convinced that the words could not appear on the face of the Bill, I am at least content that the assurance is on record that in the prescribed form the incomings and outgoings will be clearly stated. I therefore beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 agreed to.

Lord Carmichael of Kelvingrove moved Amendment No. 8: After Clause 3, insert the following new clause:

("Debt arrangement scheme

.—(1) Prior to sequestration a debtor may apply to the Sheriff Court for the granting of an order to prescribe a debt arrangement scheme.

(2) The Secretary of State may make regulations providing—

  1. (a) the prescribed form of application;
  2. (b) the appointment of an administrator to administer the scheme;
  3. (c) the circumstances in which a debt arrangement scheme may be granted;
  4. (d) the powers and duties of an administrator.

(3) Where an order has been granted in terms of subsection (1) above—

  1. (a) it shall not be competent to serve a charge for payment, nor
  2. (b) to commence or execute any of the following diligences—
    1. (i) an arrestment and action of furthcoming or sale;
    2. (ii) a poinding and sale;
    3. (iii) an earnings arrestment;
    4. (iv) an adjudication for debt;
    to enforce payment of the debt concerned; and

(c) any actions for payment in which the debt was admitted and will be sisted.").

The noble Lord said: The purpose of this new clause is to implement the proposals suggested by the Scottish Law Commission in Memorandum No. 50, the fourth memorandum on diligence debt arrangement schemes in October 1980 and to bring the laws of bankruptcy into line with the English system of debt and administration orders.

As the noble and learned Lord will be aware, at present England and Wales have a system which allows clients in multiple debt situations to apply to a court prior to sequestration for the award of an administration order. An administrative order allows a client to make one payment into court each month which is then distributed to the client's creditors on a pro rata basis. All creditors have the right to object to their inclusion in the order. However, the court makes the decision of whether or not they should be bound by the order.

Once the order has been made by the court no further interest in the debt can accrue. The court can decide that the client should only repay a proportion of the total debt and all other actions and diligences are stopped. On 2nd July in another place Mr. Allan Stewart, Parliamentary Under-Secretary of State, Scottish Office, stated that the complexity and likely administrative costs of introducing such a scheme as suggested by the Scottish Law Commission would outweigh the benefits of the few debtors who would be eligible.

The rationale behind the Bill is that the 1985 Act has not worked too well for Scottish debtors in that numbers have opted for sequestration far in excess of those anticipated and far in excess of comparable numbers in England. That has caused great demands to be made on public funds. Undoubtedly one of the reasons is that England and Wales have had a multiple debt scheme in operation since 1959. With no such similar scheme in Scotland for debtors to opt for, the difference between the two countries becomes extremely noticeable. Had such a scheme been introduced at the same time as the 1985 Act then the present Bill may not have been required at all.

The new clause introduces a way to assist citizens' advice bureaux advisers to deal with the 81,000 clients a year, reduce the amount of time spent on those clients and provide a way, short of sequestration, to assist them. The new clause has wide support in Scotland. I hope that the Minister will be able to look at it and consider whether or not he can implement the recommendation of the Law Commission, which is usually sober in its judgment in these matters. I beg to move.

5.45 p.m.

Lord Fraser of Carmyllie

Like the earlier group of amendments moved by the other noble Lord on the Opposition Front Bench, this is an important amendment in the context of the Bill we are considering. However, I remain of the view that any benefits which a debt arrangement scheme might achieve for debtors would be outweighed by the cost and additional workload it would place on the courts to administer. I note that the issue of administration is not addressed in the proposal; it is left for my right honourable friend to prescribe arrangements in regulations.

If one were to use the proposals of the Scottish Law Commission as the basis for the new procedure then the courts would be expected to undertake the task of operating any arrangements prescribed by the Secretary of State. Although that is not explicit, I understand that to be implicit in what the noble Lord said.

The Committee will be aware that in Scotland it has historically not been a role of the courts to act as a collector of debts. That would be a burdensome, additional obligation which would distract the courts and court staff from their other duties. I presume that the noble Lord envisages that it would be possible for the state to levy an administrative charge on debtors using those procedures. But I imagine that in order to protect the rights of access that would need to be small. We must therefore assume that it is the taxpayer who would be required to meet the additional costs such a procedure would produce. In the present public expenditure climate that is clearly not a reasonable option.

Such expense might be justified if it were expected to secure savings in other areas; for example, by reducing the volume of sequestrations. However, the Government would expect it to be a viable alternative to sequestration in only a small number of cases. We regretfully anticipate that the failure rate of individual debt arrangements under those proposals would be high, making the debt arrangement process simply an additional administrative burden which would ultimately offer no long-term comfort to the debtor.

In practice, the cases which are likely to operate successfully under a debt arrangement scheme are those which presently such organisations as the citizens' advice bureaux and others negotiate between creditors and debtors on a voluntary basis. We would simply be substituting a statutory framework for a voluntary one. Knowing some of the work of the citizens' advice bureaux, they arrange a considerable volume of such negotiations on an informal basis successfully. A statutory framework would require greater expense for the taxpayer.

As the noble Lord will appreciate, the cost of a debt arrangement scheme will not be a function in a number of cases where a debtor is presently sequestrated but rather the much larger number of cases presently dealt with by those voluntary citizens' advice and other money advice workers.

One of the reasons behind the Government's original decision not to introduce a debt arrangement scheme was its complexity. The draft Bill contained in the Scottish Law Commission's 1985 report contained no less than 29 clauses on the subject. I am minded to put the proposal to the noble and learned Lord, Lord Simon of Glaisdale. He may be horrified to discover that a single clause accompanied with regulation put forward a proposal consisting of something like 29 clauses in the report originally prepared by the Scottish Law Commission. The Bill avoids the immediate problem of complexity by taking the form of an enabling provision. That should not disguise the fact that the debt arrangement scheme would be extremely complicated and would need a considerable amount of detail fleshed out in regulation.

The noble Lord is effectively arguing that a scheme of this type is required because there is no alternative, short of sequestration, which would provide a debtor with protection from his creditors and an opportunity to reorganise his affairs. If the noble Lord were correct, I could see greater force in the argument that he is advancing. However, I disagree with his analysis. There are other remedies, quite apart from the arrangements to be found in the Debtors (Scotland) Act 1987, where there are time-to-pay orders and conjoined arrestments. There is also the possibility of making greater use of voluntary trust deeds.

The noble Lord said that there was no scheme similar to that which is to be found in England. That seems to me the greatest problem that we have experienced in Scotland since the 1985 Act. That Act sought to encourage, in the same way that this Bill does, the greater use of voluntary arrangements known as "protected trust deeds". Like the proposed debt arrangement scheme, a protected trust deed blocks the creditor's ability to undertake diligence so long as the debtor complies with its terms. If so drafted, trust deeds could provide a means of offering creditors a rescheduling of their debts which took account of the debtor's anticipated future income. It could also contain provisions for the discharge of the debtor possibly sooner than under a sequestration. Moreover, the protected trust deed is a voluntary agreement which does not place the same financial and administrative burden on the courts as would a debt arrangement scheme procedure.

As we discussed at Second Reading, a further important factor may be that, while bankruptcy does not carry with it the same social stigma that once attached to it, I have said —and I repeat—I remain concerned that we should not send people quickly towards bankruptcy if there is another way in which their affairs can be satisfactorily settled without putting them into that position. If there has been any matter of concern over the operation of the 1985 Act, it is because of the device of the trustee going straight towards sequestration and that in the time while the Act has been on the statutory book we have, regrettably, had little exploration of what might be some very constructive opportunities to develop the concept of the protected trust deed in Scotland.

I feel strongly that much more consideration needs to be given by those in the debt advice field as to how the present law on trust deeds and their particular protective status might be made to work for debtors and creditors. I believe that the proposed debt arrangement scheme is an expensive one and that greater emphasis should be placed on the development of voluntary arrangements.

I have again taken a little time to explain this matter. I am aware from discussions that I have had in Scotland that this alternative, which is already there in statute, has not been used at all. There are other provisions in a schedule to the Bill which the noble Lord will be aware of. They allow the establishment of a protected trust deed to be achieved rather more simply than was the case under the 1985 Act. That is what we should be most vigorously examining. It should be examined by those who do some very good work in the debt advice field in Scotland. With that rather longer explanation, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Taylor of Gryfe

Before my noble friend Lord Carmichael replies, perhaps I may say that, like many other noble Lords, I have received a great deal of material in connection with this Bill. Some of it I have failed to understand as I have no legal background. However, I read it through. The most persuasive submissions were from the citizens advice bureaux and there was also some reference to the Scottish Law Commission.

In reading the submissions and the case presented by my noble friend Lord Carmichael, there is some justice in the case. He said that this matter should not be written into statute, but that we should rely on the voluntary arrangements which are made. That is not the view of the Scottish Law Commission as it then was. The citizens advice bureaux advise about 81,220 clients. This is voluntary work. A good deal of the time is taken up with clients in finding a way short of sequestration to assist them.

Unless I am mistaken in this respect, the English law and its provisions have some justification for their application to Scotland. I did not hear the Minister reply to that particular point. We are very fond in Scotland of saying that Scottish law is much superior to English law. However, in this particular case it occurs to me that there is some justification for the claim to apply English law. Accordingly, I support the view that has just been expressed by my noble friend Lord Carmichael.

Lord Carmichael of Kelvingrove

I am very grateful to my noble friend for having gone through the cases that were raised with the citizens advice bureaux. I am also grateful to the Minister for his long explanation. It will be of considerable help. He suggested that no arrangements had been put on the face of the Bill. With his statement, perhaps we may make arrangements to be completed for the Report stage.

One of the difficulties is that the negotiations that take place with the citizens advice bureaux, social work departments and their clients (sometimes for not very large sums) fall down because one individual refuses to accept the arrangement. I believe that this matter comes up at a later stage in this Bill. If one creditor refuses to accept, a great deal of heartache could be saved if there were another way of dealing with the matter.

I know this matter is not in the same class, but I understand that criminal reparations are presently collected by the courts. Therefore, there is a precedent in this regard although it may be small beer compared with the 80,000 cases that we are talking about. The Minister said that it was very costly to use the procedure which is followed in England. We have been given figures by the voluntary organisations, and the scheme is extremely costly and time consuming to them. A volunteer has to work between 7½ to 11½ hours as a minimum. It will be interesting if at a later stage the Minister can find whether an actual comparison has been made between the cost in England and what would apply in Scotland. I am grateful to the Minister for the trouble he has taken. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Macaulay of Bragar moved Amendment No. 9: After Clause 3, insert the following new clause:

("Notices to creditors.

.After section 16(3) of the 1985 Act (petitions for recall of sequestration) there shall be inserted the following subsection— (3A) (a) At the same time as service is made under subsection (2) above, the petitioner shall send by first class post a notice in the prescribed form to all creditors known to the interim trustee or permanent trustee as the case may be and the recipient of the notice may lodge answers to the Petition within 14 days of the service of the notice. (b) A certificate of postage signed by the petitioner or his agent shall be sufficient evidence of compliance with the requirements of paragraph (a) above. (c) Where the petitioner is not the interim trustee or the permanent trustee, the interim trustee or the permanent trustee as the case may be shall forthwith upon a request made to him by the petitioner provide the petitioner with a list of the names and addresses of the creditors known to him." ").

The noble Lord said: I hope that this amendment will find some sympathy on the part of the Government. It relates to the procedure under which a petitioner applies for recall of his sequestration and sets out a requirement to advise all known creditors —that is a phrase which we have already heard referred to—of the presentation of the recall of the sequestration. Putting it briefly, at the moment all that has to be done by a debtor seeking to have his sequestration recalled is to put a notice in a journal known as the Edinburgh Gazette. This publication does not have any significant circulation. It prints statutory announcements and so on. I have never regarded anything in the Edinburgh Gazette as being a notice of any particular value apart from its content. There must be some other way of protecting creditors.

We have heard more than once today, and at Second Reading, that one of the main objectives of the Bill is to protect the creditor. If a debtor is able to recall his sequestration through the courts outwith the knowledge of the creditor, then the creditor will remain unpaid and will never know what the position is. I suggest that that is quite unjust to creditors who might have launched an objection to the recall of the sequestration unless they had been given some guarantee and an assurance of repayment.

It is considered by accountants involved in these matters that one of the major deficiencies of the 1985 Act was that the petition for recall could be granted by the court without a creditor having been notified of the petition unless he was a subscriber to the Edinburgh Gazette. It is to remedy that defect—while acknowledging at the same time that it will cause some expense to write to every creditor—and to assist the creditors that I beg leave to move this amendment.

Lord Fraser of Carmyllie

I have listened with interest to what the noble Lord said as he moves from taking up a position of protector of the debtor's interests. On this occasion he has moved around to look to the interests of a creditor. It is an interesting point that he makes. I am not entirely convinced that the additional procedural requirements that the amendment entails would be justified. When someone presents a petition for the recall of an award of sequestration, he will probably wish to see the matter resolved as quickly as possible. As the noble Lord emphasised, that should not be done without giving interested parties a right also to be heard on the issue.

Section 16 of the 1985 Act already goes to some lengths to protect the interests of all those who are most likely to wish to lodge answers to any petition for recall. In particular, Section 16(2) requires the petitioner to serve a copy of the petition and a notice stating that answers may be lodged within 14 days of such notice on the debtor, on any person who was a petitioner or who concurred in the petition for the sequestration, on the interim or permanent trustee, and on the accountant in bankruptcy. Those persons will already have been involved in the sequestration and are the ones who are most likely to have an interest in lodging answers.

However, as the noble Lord observed, Section 16(3) goes on to require the petitioner to publish a notice in the Edinburgh Gazette which will give information as to the existence of the petition for recall and of the right of any interested party to lodge answers. I accept the noble Lord's observation that that is not the first newspaper that people read every morning over their breakfast, but those who have an interest in matters relating to debt scrutinise it rather more carefully than the noble Lord suggested.

It may be noted that at present Section 16 of the 1985 Act envisages that both individual notices and the gazette notice should be given at the same time. The noble Lord's amendment would also require that additional individual notices to all creditors should be given at the same time as the notices currently required. Speed is important in this and, in practice, those provisions would require a further delay in the whole procedure. If the petitioner were not the interim or permanent trustee in the sequestration he would have to inquire of either such person, as appropriate, as to the names and addresses of all the creditors. An exchange between the petitioner and the trustee could take a week. Moreover, if the award of sequestration had just been made, following the petition of a creditor or trustee acting under a trust deed, the interim trustee would not have received from the debtor the list of his assets and liabilities which contains the names and addresses of his creditors. Under Section 19 of the 1985 Act, the debtor has seven days from the date of his notification of the interim trustee's appointment to provide such information.

It can be seen accordingly that the whole procedure for the recall of an award of sequestration could be held up by the additional notification requirements proposed in the noble Lord's amendment. It would also add to costs. I listened to what the noble Lord said and at some time he might like to elaborate for me on what observations have been made to him by practitioners on what he described as a "defect", but I am not as yet convinced that such procedural delay and additional expenditure can be justified in the circumstances. I invite the noble Lord to withdraw his amendment.

6 p.m.

Lord Macaulay of Bragar

I am grateful to the Minister for that explanation. It may be that the amendment is likely to create a degree of duplication, but those most closely involved with this type of practice will no doubt let us have their observations before Report stage. If there is anything further to be said on the matter, it can be said then. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Macaulay of Bragar moved Amendment No. 10: After Clause 3, insert the following new clause:

("Outstanding applications

.For subsection (1) (d) (ii) of section 7 of the 1985 Act, there shall be substituted the following sub-paragraph—

"(ii) there is no outstanding application to set aside the demand in accordance with the regulations" ").

The noble Lord said: Again, this new clause seeks to help the creditor. It sets out to prevent a debtor from invalidating a statutory demand by returning a denial slip when there may be no grounds for denying the debt. The consequence of that is that the creditor is prevented from taking the subsequent steps in the proceedings, such as presenting a petition for the sequestration of the debtor. The Act as it stands not only protects the debtor, but prejudices the creditor who has a valid unpaid debt. In England and Wales there is a system whereby the debtor may apply to the appropriate court for an order setting aside the statutory demand. The court either holds that that is not applicable and dismisses it or a hearing is fixed before the court to decide whether the denial is a proper one. There is apparently a strong view among creditors that the present procedure in Scotland requires amendment to protect the interests of creditors. It is suggested equally that, as there will have to be regulations to accompany the Bankruptcy (Scotland) Act 1992, these regulations can not only prescribe forms of application to set aside but can regulate the procedures for set-aside applications. I beg to move.

Lord Fraser of Carmyllie

I have to confess that I have some difficulty setting this amendment in the context of Section 7(1) (d) of the 1985 Act which allows a creditor to constitute a debtor's apparent insolvency, in that instance, without first having to establish the debt claimed by means of a court decree. All the creditor has to do is to make personal service on the debtor of a demand for a liquid debt of not less than £750. If the debtor does not comply with the demand or if he fails to reply to the creditor within a period of three weeks from the service of the demand, his apparent insolvency will be constituted.

But given that the creditor's claim need not have been formally established by means of a court decree, it is recognised as nothing more than that—a claim. The debtor should not be constituted apparently insolvent simply by reason of the fact that a creditor has made a demand on him which he disputes. Nor would it be fair to place the onus on the debtor to disprove by any court process the validity of the creditor's claim. That would be to reverse the normal rule that it should be for the creditor to establish formally any debt that is due to him.

Section 7(1) (d) gives creditors an additional facility to establish a debtor's apparent insolvency if the debtor fails to deny a debt claimed of him. But it does nothing more than that and I am bound to say that I am not persuaded that any additional burden should be placed on debtors in these circumstances. With that explanation, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Macaulay of Bragar

I am obliged once again for the Minister's interpretation of the amendment which, as I said, is trying to be helpful. I have looked again at Section 7(1) (d) and, with respect, I am not sure that I agree with the noble and learned Lord's interpretation of it. I shall, however, look at what he said in more detail, and in the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 [Award of sequestration]:

[Amendments Nos. 11 and 12 not moved.]

Clause 4 agreed to.

Lord Carmichael of Kelvingrove moved Amendment No. 13: After Clause 4, insert the following new clause:

("Existing tenancy agreements

.—(1) Subject to subsection (2) below—

  1. (a) the existing tenancy agreement shall terminate and the landlord shall grant a new tenancy to the debtor under the same conditions as existed in the previous tenancy agreement immediately prior to the relevant day;
  2. (b) the landlord shall not make it a condition of the granting of a new tenancy or do anything which has the effect of making it a condition of the granting of a new tenancy, that any outstanding rent in respect of the previous tenancy agreement prior to the relevant day is paid.

(2) Subsection (1) above applies where on any day ("the relevant day") either—

  1. (a) sequestration is awarded in a case where the petition was presented by the debtor; or
  2. (b) a warrant is granted under section 12(2) of the 1985 Act in a case where the petition was presented by a creditor or a trustee acting under a trust deed; or
  3. (c) the debtor grants a trust deed; and
  4. (d) the debtor is a tenant of a public landlord.").

The noble Lord said: This new clause sets out to prevent a sequestrated debtor who is also a tenant becoming homeless due to eviction following non-payment of rent arrears. At present, the law is not clear on the issue of eviction due to non-payment of rent incurred prior to sequestration. With regard to public sector tenancies, rent arrears generally form an irritancy of the lease which permits the landlord to terminate the lease and to seek repossession of the property in terms of Part I of Schedule 3 of the Housing (Scotland) Act 1987. Following sequestration, the local authority cannot recover payment of the past rent arrears incurred. However, the local authority can still proceed with an eviction order on the grounds of non-payment of rent and either evicts the client or uses the order to insist on payment of past rent arrears before granting a new tenancy. These grounds and the question of repossession are discussed by Sheriff I.C. Simpson in the case of Monklands District Council v. Diane McAllister in the Airdrie Sheriff Court on 19th November 1991. Obviously, this denies the sequestrated client the benefit of a fresh start and, indeed, can add homelessness to the client's list of other probably quite horrendous problems.

The circumstances surrounding the sequestration of clients fall roughly into three categories: debt associated with poverty due to the pressure of living on benefit or low wages; debt following a reduction in income as a result of redundancy or the pregnancy of one partner; and acquisition debt, such as over-commitment to loan companies and credit agencies. The citizens advice bureaux deal mainly with the first two categories. For those clients sequestration is a last resort and the strain of living in debt may already have placed undue stress on the family unit.

The fresh start suggested here would allow these clients to enter into a new lease with the local authority with confidence as there will be no ongoing outstanding repayments to meet. Debtors will be able to meet the new rental payment without the added burden of trying to pay past arrears. The aim of the clause is to ensure that these clients and their families do not have to endure the further hardship of homelessness or alternatively have further to reduce their already very limited living expenses by paying back a debt that has already been dealt with by sequestration. The amendment has the support of a very large number of bodies in Scotland, including Age Concern, the Scottish Low Pay Unit and the single homeless in Edinburgh and Glasgow. I beg to move.

Lord Mackay of Ardbrecknish

When I received a note from Citizens Advice Scotland I was quite intrigued by the situation it conjured up. When my noble and learned friend replies I hope he can indicate whether the problem exists and whether Scottish local authorities are declaring people homeless and putting them out on the street after they have been sequestrated. If they are, they would in a way be acting as a preferred creditor in that they would be ignoring the situation in which other creditors find themselves. After the sequestration a creditor is not due any more money, although I assume that he can retrieve the object—whether a television or a video—on which he has given the loan. The hire purchase company can retrieve that piece of equipment.

I would not have expected Scottish local authorities, of all people, to be putting people out on the streets after they have been sequestrated. In particular, I see that Monklands District Council was named as one of the authorities which went to court on the matter. I take it that Mrs. McAllister did not have a green form, which would of been of great benefit to her in this case. Perhaps my noble and learned friend can help me. I cannot believe that Scottish local authorities take this very heartless view of people who have been declared bankrupt.

Lord Fraser of Carmyllie

I listened carefully to the noble Lord's arguments. I agree with him, as indeed I agree with my noble friend Lord Mackay, that it is highly undesirable for a public sector landlord to seek to use the threat of eviction to secure the payment of pre-sequestration rent arrears. However, I do not believe that the Bill is the right vehicle for amending housing law. Nor do I consider it appropriate to remove from public sector landlords their right to recover their property, as the amendment would allow.

Public sector landlords are no more entitled than any other ordinary creditor to receive preferential treatment after sequestration. They are not entitled to claim rent arrears incurred by the debtor before he or she was sequestrated other than by submitting a claim against the debtor's estate. For them to do otherwise runs the risk that the court might find that an unfair preference had been established in terms of Section 36 of the 1985 Act, the provision about which my noble friend Lord Mackay asked.

At the same time, while sequestration may provide debtors with the opportunity to make a fresh start, it does not oblige creditors to do business with the debtor on the same terms as prevailed before the sequestration. A creditor, including a public sector landlord, is entitled to consider whether the debtor is a sufficiently good risk for him to continue to do business. If a landlord has doubts about a tenant's ability to pay rent, it remains open to the landlord to seek to recover possession of the property. The amendment would remove that right.

Public sector landlords are not obliged to evict tenants for rent arrears. They have a discretion to do so if they believe the circumstances warrant it and may choose to write off rent arrears in some cases. In that sense the sequestrated debtor is no different from any other tenant with rent arrears. I see no reason why the sequestrated debtor should be placed in a more favourable position than other tenants who may have difficulty in paying the rent by being able to claim a new lease immediately without any regard to his past financial history.

I understand, nevertheless, the concerns which have prompted the noble Lord to raise the matter. As I have indicated, I do not believe that the amendment is the right way to deal with it. I am, however, happy to give an undertaking that the Scottish Office will bring to the attention of public sector landlords that they should not pursue the payment of pre-sequestration rent arrears other than through a claim in the sequestration. I think that my noble friend Lord Mackay expected that undertaking to be in place already. I repeat that it will be made clear to public sector landlords that they should not act in the way that I have identified.

6.15 p.m.

Lord Mackie of Benshie

I wonder whether the noble and learned Lord will give a view on a certain point which may not be entirely irrelevant. Local authorities are landlords. I sympathise with the point that if one has a bad tenant who has not paid his rent and who is then sequestrated he is hardly the most desirable of tenants to take on. But is it not true that if the local authority puts him out it again assumes responsibility for him as a homeless person and that it may cost the public purse one way or another more than it would if the authority had left him in as a doubtful payer of rent?

Lord Fraser of Carmyllie

The noble Lord may well be right. That is why I think it is appropriate that local authorities should have a discretion to operate in what is the most sensible way. It is not difficult to think of a number of circumstances. An individual tenant might be in a house which was too large for him and might be paying more rent than he needed to for accommodation that would be sufficient for him. That might be a circumstance where one would wish to evict. In the case of a tenant with a large family, to have the family broken up and distributed into residential homes and so on might be ultimately very much more expensive. The appropriate course is that local authorities should continue to have the discretion which is vested in them at the moment but they should be given the indication that they are not to set about using their right to evict as an indirect way of securing pre-sequestration rent.

Lord Carmichael of Kelvingrove

I am again grateful to the Minister for his explanation and also for his undertaking. I was going to make the same point as the noble Lord, Lord Mackie, made. The problems that may be placed on local authorities when people are thrown out of their homes can cause big trouble to social services departments generally. To them and to the citizens advice bureaux, which have been anxious that the new clause should be added to the Bill, a debt is a debt. If the noble Lord, Lord Mackay, had read further into the brief that he was sent he would see that there were two excellent examples. One came from Scottish Homes. I wonder whether it comes under the same category as local authorities. There was also a particularly tragic case of someone in central Scotland.

Until we have another housing Bill, the Minister's promise to inform Scottish local authorities and to bring them up to date on the thinking of the Government is as much as we can get. I am grateful to the noble and learned Lord for that. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 [Calling of statutory meeting]:

Lord Lyell moved Amendment No. 14: Page 8, line 4l after ("affairs") insert ("which will include the names and addresses of creditors and the amounts of their respective debts").

The noble Lord said: In seeking to move this amendment my noble and learned friend may wonder what on earth I am attempting to do getting involved with Clause 5—which seems a fairly simple clause about calling a statutory meeting—and particularly with this short amendment. Including the names and addresses of creditors, let alone the amounts of their respective debts, may seem to be bringing in a needless aspect of Big Brother. I understand that where the existing arrangements are carried out by insolvency practitioners they normally incorporate within their statement a list of the creditors, and against each creditor probably the relevant amount of what the creditor is owed. In addition, where it might be helpful in the overall situation for creditors to try to recover some of their outstanding debts, the address is given as well.

This is not a statutory requirement but I understand that it is common practice, and it has been accepted as such without needless intrusion. But I happen to have been given sight this morning of a guide from the accountant in bankruptcy setting out his views as to what should be the duties of insolvency practitioners where they would be acting as his agent in these matters of insolvency as well as minor sequestration. I understand that in the guide from the accountant in bankruptcy the term "level of assets and liabilities" is used.

I hope that it is not needless semantics to have "level of assets and liabilities" together with "statement of the debtor's affairs". I am given to understand that insolvency practitioners in England and Wales experience some difficulty in obtaining detailed information for the creditors from the Official Receiver, who may have been appointed the trustee in events on this side of the Border in England and Wales.

It is to try to assist these procedures in Scotland that I move this simple amendment. I stress that the names and addresses of creditors can be helpful, first, to the insolvency practitioner, and above all the insolvency practitioner when he is acting as the agent of the accountant in bankruptcy, but it is also of great assistance to other creditors and those interested in the particular state of affairs of the debtor.

May I briefly set out what I understand to be the statement of the debtor's affairs. Let us take, for instance, a builders merchant, which might be quite common in Kirriemuir, Arbroath, Brechin, or Forfar, and indeed the little towns in Angus known to many of the participants in today's debate. I am delighted to see my noble neighbour, Lord Mackie, in his place today and also my noble friend Lady Carnegy. In a builders merchant's assets one would find listed a van, some plant and equipment, perhaps some implements, a saw, and a saw bench. It would be helpful to the creditors to know how much of the assets would have to meet, for instance, income tax under the PAYE scheme, how much might be owed to the Customs and Excise under VAT, and how much might be owed to employees as wages; let alone how much might be available to other trade creditors. Possibly the creditors might want to ask for a meeting, or to press further on how much is owed to other trade creditors in the same line of business. I hope that that is not needless semantics.

I invite my noble friend to turn back to page seven. Subsection (6A) (a) states: as may be prescribed in such form as may be prescribed". I just wonder whether "as may be prescribed" could include a statement of the debtor's affairs, as I have set out. I understand that, as in the guide, a "level of assets and liabilities" would not be entirely helpful, first, to the creditors and others who might be interested, and, secondly, to the insolvency practitioner. With that, I hope brief, explanation of this amendment, I beg to move.

Lord Fraser of Carmyllie

I sympathise with the aims behind this amendment, but I have doubts whether there is any need to amend the Bill to achieve the purpose that my noble friend has so clearly set out. As it presently stands Clause 5 of the Bill introduces a new Section 21A into the 1985 Act. This sets out the procedures which will apply whenever the accountant in bankruptcy is appointed interim trustee and he is considering calling a statutory meeting of creditors.

Under the 1985 Act the interim trustee has no choice and must always call a statutory meeting, even if the debtor's estate has too few assets to provide any prospect of a dividend to creditors. Not surprisingly, in only some 10 per cent. or so of cases do creditors attend the statutory meeting, since they realise that on most occasions it would serve no useful purpose to attend.

Rather than continuing with this waste of time and money the Bill proposes to grant the accountant in bankruptcy the discretion not to call a statutory meeting. He must still circulate a notice to creditors along with his statement of the debtor's affairs so that they have information on how the sequestration is proceeding, but he can dispense with the formality of the statutory meeting where he considers it would serve no useful purpose to call one.

However, in order to safeguard creditor interests, the Bill provides that any creditor may, within seven days of receiving the notice from the accountant, request that a meeting be held. Provided a request or requests are received from not less than one-quarter in value of creditors, then the accountant is obliged to call a creditors' meeting.

The effect of the amendment would be to require the accountant to circulate to all creditors details of the names and addresses of the creditors and the amounts owed to each. This would allow each creditor to contact other creditors to ensure that any request for a creditors' meeting is backed by a sufficient proportion of creditors to force the accountant to act.

I point out to my noble friend that the Bill does not actually require creditors to act together to submit a single request to the accountant. It is sufficient for each creditor individually to request a meeting. Provided the total of such requests meets the prescribed amount then a meeting must be held. Given the limited period allowed to them to act, each creditor who wants a statutory meeting called would be well advised to submit his request straight away rather than seek to elicit support from other creditors. I do not therefore see that it would serve any useful purpose to amend the Bill to require the accountant in bankruptcy to circulate details of all the creditors with a copy of his statement of the debtor's affairs.

I entirely accept, however, that the information required should be available to the accountant in bankruptcy to prepare such a list. I am happy to give my noble friend the reassurance that I will invite the accountant in bankruptcy to include such details of the creditors as is known to him in his statement of affairs. I believe this matter can best be dealt with administratively, allowing the accountant to use his professional judgment to determine what information is of greatest value to creditors, rather than by trying to prescribe the contents of the statement of affairs in the statute. With that explanation, coupled with the reassurance that I have given, I hope that on reflection my noble friend will withdraw his amendment.

Lord Lyell

I thank my noble and learned friend for the reassurance that he has given. It goes almost all the way that I seek. My noble and learned friend hinted that we might look at this on an administrative basis, and perhaps that can be done. Despite the kind reassurance given, I still think that information along the lines that I have set out would be more helpful to the accountant in bankruptcy than just the "level of assets and liabilities".

My noble friend hinted that we were speaking about 10 per cent. of the cases. Those 10 per cent. are important. The thrust of my argument was that the statement that I was seeking would be helpful to the creditors, not to overcome the barrier of 25 per cent. and to leap over the hurdle in order to gain a meeting. It would be helpful for the creditors and possibly the debtor in winding up the affairs.

I am grateful for the assurance given by my noble friend. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 agreed to.

6.30 p.m.

Clause 6 [Summary Administration]:

Lord Lyell moved Amendment No. 15: Page 10, leave out lines 13 to 19 and insert: ("(b) the aggregate amount of the debtor's assets under paragraph (b) of that subsection, no account shall be taken of any property of his which, under section 33(1) of this Act, does not vest in the permanent trustee.").

The noble Lord said: Amendment No. 15 deals with what is known as heritable property—at least, that is what it was called when I studied commercial law 30 years ago. I take the example of a debtor who possesses a house. The house may not be unencumbered or unmortgaged but in some cases a debtor may possess a house which he has not mortgaged or used to gain further security or further financial assistance, and when the permanent trustee looks at the state of affairs of the debtor he will find a reasonable equity. In other words, there will be an asset. It might be more than a house and it might be something else that the debtor has which would, after any outstanding security has been taken into account, leave a reasonable equity to cover the costs of the permanent trustee—not the accountant in bankruptcy —and it would be of significant advantage to the creditors.

The Government's Guide from the Accountant in Bankruptcy states: For the most part any heritable assets are secured to the extent that their disposal would generate little equity for distribution to non-secured creditors"— That refers to most of the creditors that we are discussing and so they are excluded from the calculation. It is anticipated that in any case where there exists significant and unsecured heritable property, then the accountant would not apply for a certificate".

I hope that my noble friend can assure me that the last sentence of that paragraph in the guide would bite and would be effective in relation to the scenario that I have set out.

Amendment No. 15 would maximise the funds available for the creditors and it would ensure that costs are minimised, especially for the accountant in bankruptcy who would in most cases appoint an insolvency practitioner to act as his agent in the more remote areas of Scotland to realise the heritable property. I beg to move.

Lord Fraser of Carmyllie

At the present time some 20 per cent. of all sequestrations involve heritable property which, it will not surprise noble Lords to hear, is usually the debtor's home. One might assume that such sequestrations could proceed without being paid for by the taxpayer because there is clearly enough value in heritable property to cover the costs of both the interim and permanent trustee. However, the reality is that in many sequestrations any heritable property is fully secured. Any proceedings from the sale of the asset go automatically to the secured creditor and only after the sum owed to him has been fully satisfied will there be any remaining value or equity which can be set against the expenses of the sequestration. The taxpayer can therefore be faced with a substantial bill.

We do not believe that the existence of heritable property or the fact that it is subject to a substantial security should prevent the sequestration from being dealt with under a certificate of summary administration.

I understand the concerns that have been expressed by the noble Lord and others outside this House. I can assure him that the exclusion of heritable property from the calculation of a debtor's assets should be made to enable applications for summary administration to be made in practice.

In considering the amendment, your Lordships will wish to bear in mind that the granting of a certificate of summary administration does not reduce in any way the powers that are available to the permanent trustee. He can still take whatever steps he considers necessary to deal with the debtor's estate in the interests of the creditors. I emphasise that it does not affect the position of secured creditors who would still enjoy the rights and privileges accorded in the 1985 Act.

The granting of a certificate allows the permanent trustee a greater discretion in the administration of the sequestration, permitting him to tailor the conduct of the case to its specific circumstances. He must be guided at all times by his view of whether any action would be of financial benefit of the estate and in the interests of the creditors.

I do not believe that to disregard the existence of heritable property in determining whether a case meets the criteria for summary administration would be prejudicial to anyone's interests. I should like to stress that if a creditor believes that his interests are prejudiced, he has the independent right to apply to the court for withdrawal of the certificate. That is a sufficient safeguard.

To the contrary, if the amendment were to be accepted, it might lead to additional costs being met by the taxpayer which could otherwise be avoided.

I hope that with that full explanation the noble Lord will appreciate what lies behind the structure of this part of the Bill and that he will withdraw the amendment.

Lord Lyell

I am more than happy to accept my noble friend's reassurance. I shall read what he says. At this stage, six minutes is quite enough time to take on the amendment. I beg leave to withdraw.

Amendment, by leave, withdrawn.

Lord Lyell moved Amendment No. 16: Page 11, leave out lines 14 to 21 and insert: ("(a) in any case where the application is made by the Accountant in Bankruptcy before the sequestration of the debtor's estate has been awarded and the court has previously appointed under section 2(5) of this Act, or if no such appointment has been made the petition for sequestration nominates by virtue of section 2(1) of this Act, as interim trustee a person who is not the Accountant in Bankruptcy; or").

The noble Lord said: In the case of a petition which is debtor driven it is considered inappropriate for the accountant in bankruptcy to submit an application within seven days for the grant of the certificate of summary administration, where an interim trustee has been nominated in the petition, and has presented to. the court a letter of undertaking agreeing that he will act as interim trustee and possibly as permanent trustee at a later stage.

Clause 9(a) of the Bill allows the accountant in bankruptcy, within seven days of the presentation of the petition from the debtor, to apply for a certificate of summary administration. That situation has the automatic consequence of the court granting such an application. A further consequence is that the accountant in bankruptcy immediately assumes the position of the permanent trustee, inadvertently—or perhaps advertently—by-passing the stage whereby an interim trustee would act in respect of both the debtor and the creditors.

I wonder whether or not clause 9(a) would prevent that situation occurring. It is not entirely clear. The amendment, by a more precise targeting, seeks to prevent that situation. I beg to move.

Lord Fraser of Carmyllie

The effect of the amendment would be that if the petitioner had nominated an interim trustee the court would be precluded from granting an application for summary administration made by the accountant prior to the award of sequestration. That presupposes that in every instance the court would be obliged to appoint the nominated interim trustee. That might be the most likely outcome in most circumstances, but I stress that the court is not necessarily obliged to appoint a nominated interim trustee. If for any good reason the court decides that a nominated interim trustee should not be appointed it is provided that the Accountant in Bankruptcy should be appointed interim trustee. But in such a case where the Accountant in Bankruptcy has also submitted an application for summary administration of the debtor's estate, and the criteria for that are satisfied, there is no reason why the court should not go on to grant the appropriate certificate and appoint the Accountant in Bankruptcy as permanent trustee on the award of sequestration.

Section 23A(9) is drafted in terms that are capable of taking into account that a nominated interim trustee need not necessarily be appointed by the court, albeit that in most cases it will make that appointment.

The point is a slightly complicated and technical one, but I hope that my noble friend, who has taken a great interest in the technical detail of the Bill, follows my explanation and on that basis will withdraw his amendment.

Lord Lyell

I am grateful to my noble friend. I will withdraw it, and beg leave so to do.

Amendment, by leave, withdrawn.

Clause 6 agreed to.

Lord Carmichael of Kelvingrove moved Amendment No. 17: After Clause 6, insert the following new clause:

("Application to the Sheriff

. In section 33 of the 1985 Act (limitations on vesting) after subsection (1) there shall be inserted the following subsections— (1A) If on an application by the debtor made within 14 days after the date of notification to the debtor by the trustee that the property has vested in the trustee, the Sheriff is satisfied that the article is exempt from poinding in terms of section 16 of the Debtors (Scotland) Act 1987, he shall make an order that the article of property shall not vest in the trustee. (1B) The Sheriff may, on an application made within 14 days after the date of notification to the debtor by the trustee, make an order that the article is one which would have been released from a poinding in terms of section 23(1) (release of poinded article on grounds of undue harshness) and that it should be exempt from vesting in the trustee." ").

The noble Lord said: Amendment No. 17 is intended to remind the House of and to get into the Bill something that I suggested at Second Reading. It seeks to ensure that debtors who have undergone sequestration have the same rights as those against whom a poinding has taken place. There is no definition of articles exempt from poinding in Section 33 of the Bankruptcy Act 1985. That predated Section 16 of the Debtors (Scotland) Act 1987, which did define articles that were exempt and gave debtors the right to apply to the Sheriff Court for the release of articles poinded that should have been exempted. There is no equivalent procedure in Section 33 of the Bankruptcy Act to allow for that. I propose a new clause which seeks to remedy that omission and afford to debtors who have been sequestrated the same protection as other debtors enjoy. I beg to move.

Lord Fraser of Carmyllie

I can answer the noble Lord shortly by saying that I consider that subsection (1A) would in reality provide no benefit to debtors. Under Section 33(1) of the 1985 Act, assets which are exempted from a poinding do not vest in the permanent trustee. That provision is not affected by the terms of the Bill. I believe the noble Lord's anxieties are misplaced, but if he wishes to return to the matter on a later occasion obviously I would be willing to deal with it.

Lord Carmichael of Kelvingrove

I am grateful to the Minister for pointing that out. It may have been taken up because of what I said in the Second Reading debate. The Minister may remember the example I gave of a sheriff insisting that things necessary for the family and for the education of children could be released from poinding. One of the questions concerned a television and video recorder. The Scottish Consumer Council is anxious that a quality of tolerance be shown, particularly when there are young children in the house. I will try to find a better place to put this, but I still believe the idea to be a rather important one. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6.45 p.m.

Lord Carmichael of Kelvingrove moved Amendment No. 18: After Clause 6, insert the following new clause:

("Financial circumstances of debtor

. In section 32 of the 1985 Act (vesting of estate, and dealings of debtor, after sequestration) after subsection (2) there shall be inserted— (2A) When determining a suitable amount to allow for aliment for the debtor in terms of subsection (2) above, the sheriff shall consider the particular financial circumstances of the debtor, including his income, outlays, his individual needs and the needs of any dependants." ").

The noble Lord said: The purpose of this amendment is to require a sheriff, in considering the amount that a debtor should pay to the permanent trustee, to consider in detail the debtor's ability to make that level of financial contribution. I understand there have been examples in which sheriffs have overdone repayments and left people in penury, though I have no exact examples. The Scottish Consumer Council would like something on the face of the Bill as a reminder to sheriffs that there are certain basics that people require and that those basics frequently change depending on the circumstances of the individual debtor. I beg to move.

Lord Mackay of Ardbrecknish

As my Amendment No. 19 is bracketed with No. 18, I presume that now may be an appropriate moment for me to speak to it. However, I should be content not to because I do not believe that the two are related. I shall come back to it after my noble friend has answered the points made on Amendment No. 18.

Lord Fraser of Carmyllie

I respectfully agree that the two amendments may be separated out.

I deal with Amendment No. 18 on its own. Subsection (2) of Section 32 already provides that before the sheriff makes any order fixing the amount of a debtor's excess income to be paid to the permanent trustee he may determine a suitable amount to allow for the debtor's aliment and to meet the debtor's relevant obligations. For this purpose "relevant obligations" means any obligation owed by the debtor to his family or any obligation to pay periodic allowances to a former spouse. In determining a suitable amount to allow for aliment, the sheriff is required to have "regard to all the circumstances".

I would expect the sheriff on such occasions to have regard to a debtor's income and outlays and whatever other factors he considered relevant. The existing general requirement to have regard to all the circumstances would seem to me to he more appropriate than specifying the factors which the sheriff must consider, as the amendment seeks to do.

If the noble Lord wishes to require the sheriff to consider certain matters it is important to examine how those matters can be presented to the sheriff and how he is to be satisfied that he has taken them into account. Details of the debtor's income and outlays should be available to the permanent trustee making the application to the sheriff. I accept it would be relatively straightforward for the sheriff to assess these. But how would a permanent trustee provide information to the sheriff on what in the terms of the noble Lord's amendment would be the individual needs of the debtor and the needs of any dependants? Does the noble Lord envisage that the debtor and his family should be summoned to appear before the sheriff to make a case for any aliment to be allowed to them? I do not see how else the sheriff could be satisfied that he was aware of those needs. I do not believe that the amendment improves upon the present drafting of the Bill. I therefore invite the noble Lord to withdraw the amendment.

Lord Carmichael of Kelvingrove

I believe the Minister is absolutely correct. The amendment as drafted may perhaps reduce the scope that the sheriff has. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7 agreed to.

Lord Mackay of Ardbrecknish moved Amendment No. 19: After Clause 7, insert the following new clause: