. In section 32 of the 1985 Act, after subsection (1), there shall be inserted the following subsections—
(1A) The permanent trustee shall on application being made in writing to him to that effect by a person representing not less in value than one quarter of the creditors make an application to the sheriff under subsection (2) below unless subsection (1B) applies.
(1B) This subsection applies when the permanent trustee determines that on the information available to him there is no reasonable prospect that the debtor's income will exceed the total amount likely to be allowed by the sheriff under subsection (2)." ").
§ The noble Lord said: I beg to move Amendment No. 19, standing in my name. After I spoke at Second Reading on the need to balance the rights of the debtor and the rights of the creditor I received a number of communications. I suppose that that is heartening because it means that somebody out there reads the words we speak here. One of the organisations which contacted me was the Consumer Credit Association. That body drew to my attention some amendments that had been tabled in another place and withdrawn after helpful suggestions by the Minister.
§ Amendment No. 19 is a second or third attempt at amendments which were put in the other place, with certain changes made to their appearance. It was the 71 clear intention of Parliament in 1985 that under the 1985 Act if a bankrupt had free income out of which he could make a contribution towards the payment of his debts, then he should be prepared to make such a contribution. That intention was expressed clearly in Section 32 of the 1985 Act. In practice, the section has proved ineffective. In particular, creditors have no way in which they can trigger the operation of Section 32. Curiously, they are able to trigger a request to vary an existing contribution order.
§ Another factor that has operated to render Section 32 unworkable in practice is cost. The task of administering a contribution under the current law falls to the insolvency practitioner who must charge for the work he does. But in practice, the Accountant in Bankruptcy has been unwilling to make funds available for this purpose. It may be questionable whether the Accountant in Bankruptcy has been entitled to adopt that approach. The 1985 Act clearly envisages that an insolvency practitioner is entitled to seek reimbursement of his reasonable expenses from the state. Nowhere in the Act is it suggested that there should be an overall cost-benefit analysis of a particular function of the insolvency practitioner so that that dictates whether or not he should perform that function.
§ Perhaps I may illustrate what I mean by cost-benefit analysis. Let us assume for the sake of discussion that the Accountant in Bankruptcy could collect and distribute a payment from the debtor at an overall cost to the Accountant in Bankruptcy of, say, £10 a week. If an economic test is applied, the Accountant in Bankruptcy would only countenance a contribution from income if the bankrupt had free income in excess of £10 a week. These are not actual figures; they are examples that I am using to illustrate my argument.
§ Experience shows that the £10 a week as a threshold would rapidly become known to money advisers via their sophisticated publications and advice manuals. Money advisers are trained to capitalise on cost-benefit considerations impacting on the decision-making processes of creditor bodies. It would be relatively straightforward for money advisers to apply their discretion in calculating a debtor's income and outgoings so as to ensure that the £40 per month or £10 a week threshold that I have described is not exceeded. Therefore, there would be a severe risk that the process would rapidly be abused.
§ By contrast, the clear ability to require the payment over any free income would send an unequivocal sign to both debtors and money advisers that the process which I have described would not benefit the debtors. Any suggestion of a cost-benefit analysis calls into question the actual process of sequestration itself, since it is clear that no benefit accrues to the state from any publicly funded sequestration.
§ The function of my amendment is to give the creditors a clear right to trigger Section 32. This right is in addition to and not in substitution of the existing right of the permanent trustee to seek a contribution 72 of his own volition. My amendment makes the right unqualified in the sense that there is no requirement for a cost-benefit hurdle first to be overcome.
§ There are two safeguards designed to prevent abuse by creditors. First, I have included a requirement that creditors to the value of 25 per cent. of the debtor's indebtedness must be involved. That would prevent applications under Section 32 being triggered by insignificant creditors.
§ Secondly, I have provided that the Accountant in Bankruptcy need not pursue a Section 32 application if it is clear, on the information that he has, that the debtor has no free income at all. I hope that I have laid out the arguments reasonably in order to ensure that the creditors have some rights in these matters. I look forward to my noble friend's response. I beg to move.
§ Baroness Carnegy of Lour
I have discussed this point as well with the Consumer Credit Association. I mentioned it on Second Reading. In reply to that debate, the Minister reminded the House that it was a misunderstanding to think that people who had been sequestrated and had sufficient free income never found their income under attack. That may well be a misunderstanding, but the point is that it frequently happens.
As my noble friend Lord Mackay said, people often escape making payments from an income that is adequate and others know that it happens. That fact is taken into account when deciding to take the power of sequestration. People decide that the risk is worth taking.
It would be a good idea if a major creditor or group of creditors could have the right to make representations that the debtor's income be used to repay some of his debts on the lines that my noble friend suggests. That would be a signal to all concerned and might well be a deterrent to irresponsible sequestration. I support the amendment.
§ Lord Fraser of Carmyllie
While I have considerable sympathy with the motives of the amendment I find myself unable to accept it. The amendment differs significantly from those on the same subject which were tabled in another place. I am afraid, however, that it appears to introduce a number of practical problems.
I agree with my noble friend that a debtor with sufficient means should make a contribution from his income to his estate to meet the cost of the sequestration and provide a dividend to his creditors. That was clearly the intention of the Scottish Law Commission in putting forward its recommendations which led to the 1985 Act. As both my noble friends Lord Mackay and Lady Carnegy have indiscated, there appears to be an erroneous belief in certain quarters in Scotland that somehow a debtor's income will not be affected by his sequestration. That is clearly not true, and I am glad to have the opportunity to emphasise it.
At the same time, the law should not create an incentive for the debtor not to work to earn his living. For that reason, the debtor's income does not automatically form part of his estate. It requires an application to be made to the sheriff who, before 73 making an order under Section 32, needs to consider what sum the debtor needs to meet the living expenses of himself and his family.
The right of application under Section 32 was deliberately left solely to the permanent trustee because he is the person charged by law with the ingathering of the estate for the benefit of all creditors. It is only he who has sufficient information, with regard to all the circumstances, to judge whether an application could be justified.
Clearly, one would not wish to compel the trustee to make application if there was no reasonable prospect of obtaining anything or if there was no presumption that the debtor's income would exceed the total amount which the sheriff was likely to allow for the aliment of the debtor.
I see practical difficulties in applying the formula suggested to determine in which circumstances the permanent trustee may refuse a request by creditors to apply for a Section 32 order. The permanent trustee must make an assumption as to what amount the sheriff may be prepared to allow the debtor to retain for his own use. In practice, this would require consideration, not just of the debtor's income, but also of such factors as the nature of his income and the level and nature of his commitments. It also requires the permanent trustee to prejudge how the sheriff might exercise the discretion allowed to him by the 1985 Act.
I believe that there is machinery in place already to ensure that contributions from a debtor's income can be secured. I also accept that limited use has been made of this power in the past and during the past two years only 5 per cent. of debtors made any contribution. However, I think that there has now been a reassessment of the situation and, with the greater role played by the Accountant in Bankruptcy, one can anticipate a change.
However, I appreciate the strength of feeling among creditor bodies and in order to encourage greater use of the present law, I have asked my officials to invite the Sheriff Court Rules Council to examine the possibility of introducing rules of procedure for applications under Section 32. Such rules would lead to a greater degree of consistency in procedures between courts and would facilitate the making of applications. I also intend to invite the Accountant in Bankruptcy to examine carefully the potential for securing greater contributions from income than is the case at present.
Overall I believe that in general terms the present Section 32 strikes the right balance between the interests of debtors and creditors. I entirely agree that greater encouragement might be given to its use in the future but I do not see that the present procedures should be amended. However, with the assurances that I have given him following on the instructions of a revision of rules, I hope the noble Lord may now withdraw his amendment.
§ 7 p.m.
§ Lord Mackay of Ardbrecknish
I am grateful to my noble and learned friend for that reply. I shall read the detail of it with great interest tomorrow. I certainly 74 welcome his assurance that the sheriff court rules will be considered for change and also that the Accountant in Bankruptcy may take a more robust view—I am not sure "robust" is the right word—of the circumstances I outlined in my main speech. With the assurances I have received, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ Clause 8 [Fees for the Accountant in Bankruptcy]:
Lord Carmichael of Kelvingrove moved Amendment No. 20:
Page 12, line 44, after ("Bankruptcy") insert ("out of the sequestrated estate").
§ The noble Lord said: This is the final amendment of this Committee stage and I am sure that the Committee will be sad about that. This amendment sets out to confirm that no party who petitions for sequestration, whether creditor, trustee under trust deed or debtor, will be found liable for the fees and outlays of the Accountant in Bankruptcy.
§ At present creditors who petition for sequestration are aware that their costs are limited to those of their law agent for presenting the petition to court. Any costs thereafter for conducting the sequestration are either met out of the debtor's estate or are met from the public purse. This amendment provides that the cost of administering the sequestration should not be an expense which should fall on the creditor, or indeed the trustee under a trust deed. As it stands, Section 69A(a) might suggest that a debtor has to meet the administration costs of a sequestration which might be at the debtor's own instance. This amendment seeks to confirm that this will not be the case. I beg to move.
§ Lord Fraser of Carmyllie
The noble Lord seeks to limit the obligation to pay such fees to the debtor's estate for the reasons he has explained. I do not believe it would be appropriate or practical to impose such a limitation, nor do I consider it necessary to do so. While most of the activities of the Accountant in Bankruptcy relate, as the noble Lord will appreciate, to the conduct of an individual sequestration, not all do. Some, such as maintaining a register of insolvencies and providing access to it, are of a more general nature. Any fee which is charged for these activities should be borne by the individual making the demand and not the estate of a particular debtor.
I suggest it is right and proper that such charges should be levied and paid for and that they should be paid for by others than simply the debtor. However, if the amendment were to be accepted that would be impossible. With that simple example of how the noble Lord's amendment would restrict matters I hope he will feel able to withdraw it.
§ Lord Carmichael of Kelvingrove
I thank the Minister for that reply. Obviously this is a matter I shall want to take advice on, but in the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 8 agreed to.
Remaining clauses and schedules agreed to.
House resumed: Bill reported without amendment.