HL Deb 09 November 1992 vol 540 cc11-35

3.8 p.m.

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

My Lords, I beg to move that this Bill be now read a second time.

The Bill before your Lordships' House is an important one and, as noble Lords who attend the proceedings will discover, a very technical measure, the purpose of which is to improve the administration of the law on bankruptcy in Scotland in a manner that secures greater value for money for the taxpayer.

It is an amending Bill. It proceeds by textual amendment to the Bankruptcy (Scotland) Act 1985. The 1985 Act, based on a report by the Scottish Law Commission, brought about much needed changes in the law of bankruptcy. It established some important principles which the Bill now seeks to build upon. The 1985 Act established for the first time an obligation on the state to finance the administration of sequestra-tions where there were insufficient assets in the sequestrated debtor's estate to cover the cost.

Another important reform introduced in the 1985 Act was the requirement that an interim trustee be appointed in every sequestration to investigate the debtor's affairs and protect his estate until such time as the creditors elect a permanent trustee, or the court appoints one, to realise the assets. These trustees are private sector insolvency practitioners whose services must be paid for. The remuneration and costs of the trustee have first call on the funds realised from the sale of the debtor's assets. However, where there is a shortfall between the costs and income, it is the taxpayer, through the office of the Accountant in Bankruptcy, who foots the bill.

Unfortunately the 1985 Act contained a flaw. It did not provide an adequate means for the control of the public expenditure involved and for ensuring that the service provided was cost effective and represented good value for money. It is an understandable omission when one considers that at the time the Act was passed it was anticipated by all concerned that the number of cases each year which would have to be funded by the state would only amount to some 200 or so.

However, since the 1985 Act was enacted the position has turned out to be substantially different from that originally anticipated. The cost to the taxpayer in paying the fees and outlays of the insolvency practitioners administering sequestrations has risen from £13,000 in 1986 to £18.5 million in 1991. If the historical trends in the volume of sequestrations continued, this cost could rise to £50 million by 1993–94. That is clearly an excessive amount of public money to spend on a system which does not at the end of the day provide creditors with any form of dividend for their debts. I believe it is widely recognised that the present system cannot be allowed to continue.

Lying behind the growth in expenditure has been a substantial growth in the number of sequestrations from 560 in 1986 to some 8,584 in 1991–92; on an annual basis, an average rate of growth of 74 per cent. In the great majority of these sequestrations—some 80 per cent. or so —the debtor has no realisable assets. The petition for the sequestration is not brought by any creditor—why should he when he has so little to gain? Rather it is brought by the trustee appointed under a voluntary trust deed signed by the debtor and entirely on the debtor's behalf. Such petitions accounted for 87 per cent. of all sequestrations last year. Sequestration, rather than being a process by which creditors can obtain access to the debtor's assets to recover the sums owed to them, has developed as a means of relieving debtors from the burden of their debts.

It is quite clear when one examines the report of the Scottish Law Commission and the 1985 Act that there was a clear intention to strike a balance in the law between the interests of creditors and debtors. To that end the procedures in the 1985 Act envisaged a closer involvement by creditors in the process, to the extent that the Act only allows a debtor to bring his own petition for sequestration with the agreement of a qualifying creditor.

There is a very real concern among creditor bodies that, in practice, the balance which the Law Commission sought to achieve has swung entirely over to the debtor. This gives rise to real anxiety and brings the operation of the present procedures into disrepute. The Bill before your Lordships' House attempts to deal with these concerns in a number of ways.

First, it extends the present role of the accountant in bankruptcy from supervising and paying the bills of insolvency practitioners to taking on a more active and direct responsibility for administering sequestra-tions where there is likely to be a call on public funds. Secondly, it introduces new summary procedures to simplify the administration of cases where there are few assets. Thirdly, it revises the rules on who may bring petitions for sequestration to restore some of the balance lost in the present system.

Turning first to the new role of the accountant in bankruptcy, in the future he will be appointed by my right honourable friend the Secretary of State. In addition to his present task of supervising the conduct of sequestrations, he will be appointed interim or permanent trustee in cases where no private sector insolvency practitioner has been nominated by the petitioner. In practice, this is likely to mean that the accountant will act as trustee in cases where there are insufficient assets to finance the administration of the sequestration. Clauses 1 and 2 of the Bill are relevant here. Where there are sufficient assets, then I believe the work should be done by the private sector as now. The Bill provides for this.

Where he is appointed trustee, the accountant in bankruptcy will have the option of either administer-ing the case in-house with his own staff, or by employing agents to undertake the work. Such agents would usually be qualified insolvency practitioners. As my ministerial colleagues have made clear during the debates on the Bill in another place, it is the Government's intention to subject the conduct of sequestrations to a process of market testing. In that way we can determine whether the service can be provided more cost effectively through the public sector or through the private sector.

Market testing will also allow us to introduce a much needed dose of competition into the process to ensure that the service operates efficiently and provides value for money to the taxpayer. The Government are at present engaged in a dialogue with the relevant professional bodies over how the market testing exercise should be organised.

Secondly, it is widely recognised that the present block fee paid to insolvency practitioners, at £2,147 per case, is too high. Even the Institute of Chartered Accountants of Scotland, which represents the majority of insolvency practitioners undertaking this work, acknowledges this fact and has been prepared to work with the Government and the accountant in bankruptcy to find ways to reduce the cost.

One of the most significant ways in which costs can be reduced is to introduce simpler procedures for cases where there are few assets and little likelihood that creditors will receive any dividend. The present 1985 Act in effect treats all sequestrations equally, irrespective of the assets involved. The Bill seeks to amend that by introducing a new summary procedure which provides the permanent trustee with the discretion to tailor the administration of the case to its specific circumstances.

Under the Bill the accountant in bankruptcy, or other interim trustee, may apply to the court for a certificate of what is described as summary administration where the assets involved are less than £2,000 and the liabilities below £20,000. The procedures and effects are set out in Clause 6 of the Bill. When such a certificate has been granted, the permanent trustee need only comply with certain of the requirements in the 1985 Act to the extent that he considers it would be to the financial benefit of the estate and in the interests of creditors. He retains all his powers, but may now choose to exercise them more selectively. This simplification, coupled with other procedural changes, such as allowing the accountant in bankruptcy the possibility of dispensing with the statutory meeting of creditors, will allow the cost of administering summary cases to be sharply reduced.

The accountant in bankruptcy estimates a cost of around £400 for a typical summary case. Following discussions with the Government over the summer, some insolvency practitioners, I understand, believe a summary case might be dealt with for around £550, plus outlays. Obviously more complex cases would cost proportionally more. In any event, these figures represent a great improvement on the present position. Taken together I believe these measures should enable the Government to achieve savings of around 75 per cent. of the costs which would otherwise arise in administering the present regime.

I also referred earlier to the Bill as introducing changes in the rules on who may bring a petition for sequestration. That is the third strand to which I now turn. The key provisions affecting these matters are set out in Clauses 3 and 4. At present, as I have said, the majority of petitions for sequestration of a debtor are brought by a trustee under a trust deed. The Scottish Law Commission saw value in encouraging the greater use of voluntary trust deeds whereby a debtor transfers his assets to a trustee for the benefit of his creditors. Trust deeds are both potentially more flexible and less formal than sequestration. To that end the 1985 Act contained a number of provisions relating to them.

The Commission also recognised that such trust deeds may not always work out in the way originally intended. For that reason the 1985 Act provides a right for the trustee to petition for the sequestration of the debtor's estate. It is clear from its report that the Commission envisaged such a right being exercised where the debtor was refusing to co-operate with the trustee or where there had been a change in circumstances which meant it was in the creditor's interests to move to sequestration.

However, that is not the way the law now operates in practice. Instead the present pattern is that a debtor is referred to an insolvency practitioner and signs a trust deed appointing the practitioner as trustee. The practitioner then moves immediately to petition for the debtor's sequestration and for his own appoint-ment as interim trustee, thus guaranteeing the trustee access to the block fee paid by the accountant in bankruptcy for administering the sequestration.

No attempt at all is made to administer the trust deed. It is merely a device to allow the debtor access to sequestration without the involvement of his creditors. Had it been Parliament's intention to have allowed debtors such access, then it would have been apparent on the face of the 1985 Act. That was clearly never the intention and the use of this device has meant that trust deeds have not developed in the way intended. It introduces a degree of confusion as to whether the trustee is acting in the interest of the creditors or of the debtors. It has also brought the sequestration process into disrepute among creditors.

The Bill deals with that problem by placing restrictions on a trustee's right to petition for sequestration. He now may only do so where the debtor is being unco-operative or where he can satisfy the court that sequestration is in the interest of creditors. At the same time the Government recognise that things have indeed moved on since the passage of the 1985 Act and that it is no longer sufficient to rely on the possibility of a creditor concurring with the debtor before a petition for sequestration may be brought. The Bill therefore provides a debtor with the right to bring his own petition but in certain prescribed circumstances thus providing a degree of protection for the creditors.

Before a debtor can bring his petition, he must have debts in excess of £1,500; he must not have been sequestrated in the past five years and either he must be apparently insolvent or have attempted to establish a protected trust deed which his creditors have rejected. These rules are set out in Clause 3 of the Bill.

Apparent insolvency is a concept well understood in the courts and is an objective and public demonstration of the debtor's financial difficulties. It is defined in Section 7 of the 1985 Act. It is also the basis upon which a creditor may bring a petition for sequestration. For the purpose of a debtor petition we have excluded the grounds that the debtor has signed a trust deed or a trade debtor has sent a notice to his creditors that he has ceased to pay his debts. To have retained these would have meant that a debtor could have simply declared himself insolvent without any requirement to prove his financial position and thereby gain access to sequestration. Thus where a creditor has taken action to enforce the payment of his debt or the debtor has tried to convert a voluntary arrangement into a protected trust deed which has been rejected by his creditors, then the debtor may have access to sequestration. I believe this arrangement strikes the right balance between the interests of debtor and creditors.

The remaining provisions in the Bill largely give effect to those policy requirements. At the same time we have taken the opportunity to introduce a number of technical amendments to the 1985 Act to reflect experience in operating its provisions. Many of these changes which are contained in Schedule 1 reflect suggestions put forward by the professional bodies most involved in this field. Certain of the provisions will come into force on Royal Assent as set out in Clause 12, primarily to allow a smoother transition from the present regime to the new arrangements. However, generally speaking, the provisions of the Bill will not apply to any sequestration where the petition is presented to the court before commencement of those provisions, apart from two technical provisions in paragraphs 22 and 30 of Schedule 1.

The Bill comes before your Lordships after full and detailed examination in another place. During its consideration there it was amended in a number of important ways to reflect the comments which the Government have received since the Bill was first published. The Government have amply demonstrat-ed their willingness to listen to constructive criticism and the Bill is much improved as a result.

The need for change is self-evident. The present bankruptcy regime is incurring costs to the taxpayer of around £2 million each month to operate. Such expenditure cannot be justified particularly at a time when there is a paramount need to control public expenditure. The Government are therefore keen to see the reforms in the Bill brought in at the earliest opportunity. Subject to the approval of your Lordships to the Bill and with the co-operation of the professional bodies most concerned, I would hope that we could begin to see some of the benefits of the Bill flowing through from 1st April 1993. The Bill will achieve a useful and much needed reform of bankruptcy law in Scotland. I commend it to the House. I beg to move.

Moved, That the Bill be now read a second time. —(Lord Fraser of Carmyllie.)

3.25 p.m.

Lord Macaulay of Bragar

My Lords, I happened to read in a well-known organ of Conservative truth yesterday the following pronouncement. In Roman times a bankrupt's body was cut up and distributed in direct proportion to what he owed—the origins of the phrase 'a pound of flesh'. Today's creditors can be almost as unforgiving". Having heard the noble and learned Lord speak today, I wonder whether in attempting to balance an imbalance he has created an imbalance on the other side in favour of creditors.

As the noble and learned Lord has said, this Bill comes before your Lordships' House having received considerable scrutiny and criticism in another place. However, the Bill is still in an unsatisfactory state. On this side of the House it is readily recognised that the working of the Bankruptcy (Scotland) Act 1985 was in need of revision as it had not achieved the aims of those who framed it. It is also recognised that there has to be a balancing act between all those with an interest in the bankruptcy law and proceedings.

It goes without saying that no one in his senses wishes to become involved in such proceedings. From the way that the Minister talked one had the impression that it was almost as if people wanted to get themselves sequestrated. No one wishes to become involved in such proceedings because by definition bankruptcy reflects failure in the financial field whether it be corporate or personal. Bankruptcy is also a miserable state of affairs for the debtor and the creditor. I accept that in most cases the creditor loses out. However, on the other hand, the debtor has the restricting label of "bankrupt" put upon him with the handicaps that flow from that which last for a period of three years.

It is plain that those responsible for the 1985 Act, particularly those responsible for forecasting the effects and costs of that Act, have been proved to be seriously wrong as regards their expectations on the cost to the taxpayer who has had to foot the bill for a very expensive exercise. However, to be fair, that is not necessarily the fault of the forecasters. The economic thunderstorms which have covered this country over a long period of time during this Government's Administration have engulfed people in financial distress. The figures that were produced in support of the 1985 Act have become meaningless.

What has happened is that bankruptcy has become a growth industry for insolvency practitioners. That is not necessarily their fault either. Social and financial conditions must have contributed hugely to the rise in the number of bankruptcy proceedings. The easy acquisition of credit in the Government's so-called happy days of the 1980s, allied to the rising unemployment now being suffered under this Government and the tightening of credit by the banks have all contributed to the rise in sequestrations from 560 in 1986 to 8,584 in 1991–92.

The upward trend shows no sign of declining in the present economic climate in which the Chancellor of the Exchequer's famous green shoots are in danger of disappearing up their own terms of reference. The cost of bankruptcy to the taxpayer has risen with the number of bankruptcies from £13,000 in 1986 to £18.5 million in 1991. As the noble and learned Lord has said, if this trend continues, the cost is forecast to rise to over £80 million in 1994–95. There has, of course, as the noble and learned Lord has outlined, been a rush to appoint a trustee on the part of the debtor. I accept that in so doing in one sense the debtor is beating the creditor to the draw. That fact is reflected in the figures which the noble and learned Lord has given.

The millions of pounds expended at the cost of the taxpayer to date, and forecast for the future, clearly indicate that the Act needs to be reviewed and revised. When it is alleged that one firm in 1991 alone earned £3.427 million, another £2.2 million and yet another £1.9 million from these painful and wretched insolvency proceedings then clearly something has gone badly wrong. It is not in the public interest at times of stringency that such sums should be going from the taxpayer to swell the profits of such practitioners at such a level of remuneration.

As I have said, the blame does not lie entirely with the practitioners because they were awarded a negotiated block fee of £2,147 when it was never anticipated that the number of sequestrations would reach the present level. As I understand it, the Institute of Chartered Accountants has recognised that a reduction in the fees would be appropriate. It has suggested a scheme which would result in a 50 per cent. cut in costs, and for small asset cases has suggested that a fee of £800 might be appropriate.

The Government have been asked in another place what is the position in regard to those suggestions made by the institute. So far as I am aware the response has been negative, and the Bill has gone ahead. The Bill has all the hallmarks of creating a bureaucratic machine which, if it is not itself controlled, may be no better for the Exchequer and the taxpayer. I endorse the suggestion that there should be at least an experiment, with the co-operation of insolvency practitioners, to analyse the effect of applying the proposed fees over a six month period.

A great deal of anxiety has been expressed about the Government's failure to consult with the appropriate parties before the Bill was produced out of the draftsman's hat. I should like the Minister to tell your Lordships' House what consultation took place, for example with the Institute of Chartered Accountants and the Law Society of Scotland, before the Bill was produced. Equally, what consultation has taken place since the Bill has been in another place? On the other hand, is it perhaps the Government's view that in this particular field consultation with interested and concerned parties was and still is inappropriate and that the Bill must go ahead without such consultation? It is recognised that the Government's efforts are designed to make some constructive changes which will, if operated properly, streamline some of the processes in the bankruptcy field. However, it is also asserted that the failure to consult has been a major omission on the part of the Government and that in the absence of such consultation there is no reason to assume that this Bill will be any more cost effective and will save costs any more than the 1985 Bill.

I do not pretend to be an expert, to any significant extent, on the law of bankruptcy, which has become a very specialised field. Nevertheless, I am able to conclude that the Bill has been rushed through, in the main to stop the number of applications being put through the trust deed process, to reduce the cost to the taxpayer and to cut down the profit to the insolvency practitioners. I suggest with respect to the Government that, in view of the constructive attitude which has been adopted by the Institute of Chartered Accountants, the Government should take time to consider whether the present system could not be operated reasonably now that it has been agreed that the old block payment will in effect be reduced.

If the objective of the Bill is to change the present legislation in order to reduce reasonable access to sequestration, does that mean that many people who would wish to be sequestrated will not achieve that objective because the Government are creating a creditor-led Bill? The debtor has a right to apply for his own sequestration, but it is ring fenced with all kinds of conditions and if he cannot get round those conditions he will never be sequestrated and will have to live in the misery which lack of finance produces.

The Government have indicated that the concept of the simple trust deed has now disappeared. One of the important aspects on which the Bill is silent is the question of to whom the person requiring financial advice should go. Once he is in the hands of the accountant in bankruptcy he is in a financial no man's land as it has been made clear in the other place that it is no part of the function of the accountant in bankruptcy to give advice nor is it the function, by definition, of his agents. It has been said on behalf of the Government in another place that the accountant, in employing agents in rural areas, will: appoint practitioners in the more remote rural areas and in many other parts of Scotland as his agent, in order to ensure that a good quality of service is provided to debtors". — [Official Report, Commons, 17/6/92; col. 946.] That completely begs the question. The Minister who made that statement clearly did not understand what he was saying, because the agent is there to do the work of the accountant in bankruptcy and not to provide a good quality of service and advice to the person who is in financial trouble. I ask the Government what service they envisage the agent of the accountant in bankruptcy could give to a debtor who faces potential sequestration. Indeed, in the same debate the Secretary of State for Scotland stated that the accountant in bankruptcy did not have the role of tendering advice and had no right to do so. The burden for that operation falls on money advice centres, citizens' advice bureaux and solicitors, with legal aid.

The Bill is silent on the question of legal aid. Certainly, under the advice and assistance scheme limited access is made available to legal advice. However, the right to full legal aid depends upon a form of means test and will not necessarily be available to all persons contemplating sequestration because they may have substantial assets which are not yet realised. The granting of legal aid is not necessarily a swift process. In sequestrations time is often of the essence so far as concerns both the debtor and the creditor. The Government should look at the issue of structured advice being made available within the context of the Bill before the debtor resorts to the processes under the supervision of the accountant in bankruptcy.

In approaching this difficult field, the Government have said that it will be market tested, with the private sector having an opportunity to undertake the work, when it can be done, in a cost-effective manner. We are to have a stronger dose of competition, a contracting out to insolvency practitioners to ensure that value for money and quality of service are assured. Those words have the echo of the DTI behind them.

That may or may not be wishful thinking. What is to be the test of value for money? Is the contracting out to be a form of tender for individual cases, is it to be for an area or for a period of time? How is the quality of service to be tested? Who will monitor the testers? Is the cheapest offer to be accepted? That indicates that the Government have not paid any attention to the suggestion of the Institute of Chartered Accountants that it can put its house in order and give the same service, without the setting up of a unit of government the size and cost of which cannot be determined because the increase in bankruptcies cannot accurately be gauged on present information and as the 1985 situation has demonstrated. It also indicates once more why the Government should stand back.

The Government promised to publish a guide and to assist advice bureaux on alternatives to sequestra-tion. That is all very well, but why not go to the experts and consult them in a positive way? I do not suggest for one moment that experts always get it right, any more than governments and draftsmen, but it is folly not to take their views into account.

This is a Bill which on the one hand virtually nationalises the area of bankruptcy and on the other then puts it out to privatisation, with the farming out of work to insolvency practitioners who are already doing the work, albeit that they previously did so at a high rate of profit.

Before that step is taken talks should be held with all the agencies which have acquired expertise over the years since 1985. Accountants are not the only ones involved. Many other associations are involved, and my noble friend Lord Carmichael will speak on that aspect in his winding up speech.

Can the Government state whether the Scottish Law Commission and the Law Society of Scotland were ever consulted on the draft Bill, or at any time after it was contemplated that it was to be introduced? Can they say, if legal aid is to be made available, what effect the passing of the Bill will have on a legal aid fund which is already under scrutiny and strain and will increasingly be so as savings are made? The assumption that lawyers will undertake this type of work under the legal aid scheme must be looked at carefully in the light of the fact that more and more firms are no longer doing legal aid work. That is not because of greed or lack of interest but because it is no longer economically viable for them to do so and to run a firm, with all that that involves in terms of staff costs and so on. The burden will fall once more on the voluntary agencies, who will need support.

If saving money is the object of the exercise, along with more efficient procedures, then an attempt should be made to make the process simpler and cheaper for the debtor wishing to present a petition for sequestration. The creditor obviously has rights and is entitled to recover his debt. But that does not mean that he should be able to dictate what happens to the debtor. That is what this Bill does.

I suggest that consideration should be given within the Bill to the formation of debt arrangement schemes which would enable the debtor and the creditor to come to an arrangement, short of bankruptcy, satisfactory to both parties involved in the procedure. That has the advantage that the person is not declared bankrupt, can keep his job and obtain credit. It is not often that I quote twice from the Sunday Express. In an article yesterday it says—I have checked it in Part VIII of the Act: The 1986 Insolvency Act, applying in only England and Wales, redefined bankruptcy and provided a legal framework for voluntary arrangments". The article continues: Creditors and debtors hold 'round table talks' to thrash out a repayment system. An insolvency practitioner—typically an accountant qualified in insolvency—acts as go-between … Individual Voluntary Arrangements (IVAs) provide the chance to reschedule debts, usually over three to five years". They appear to be quite successful, although some people cannot cope with the conditions applied. It is however something worth thinking about.

It is important also to remember that in almost all cases where bankruptcy looms, the debt is already established and probably in most cases accepted. The process should be a supervisory one to encourage the settlement of the debt, assist the avoidance of bankruptcy and look after the interests of the debtor, creditor and taxpayer.

In closing, I emphasise that this is not a purely financial issue. It is a grave social issue involving many people who set out with the best of intentions to make a success of their lives but who have been caught up in the recession. They over-committed themselves in the boom days and for them life in the economic sense has come to a juddering halt. Their misfortune is reflected in the situation of the creditor who was content to grant credit when the financial world seemed secure. The creditor who is chasing the debtor may well become the next debtor if proper arrangements are not made to ensure that he can be paid. The approach in this Bill will not do that.

The provisions in the Bill are completely lacking in a social approach to these difficult problems and have about them a clinical air. They are not conducive to solving the many problems which arise. As I said, the Government must not assume that solicitors and voluntary agencies will be either willing or able to cope with the situation. The Government must, even now, consider whether they have not gone too fast too soon and ignored advice given to them.

This is a difficult and complicated area of the law, which not many people understand. It was perhaps that monopoly of interest and experience of sequestrations on the part of certain firms which led to their being accused of "gravy train" practice. I am not aware of any evidence which suggests that insolvency practitioners in general took the easy way out with the minimum of effort and the maximum of financial return, as seems to be part of the reasoning behind the Bill.

The monitoring of conduct, as opposed to actual cost, is an entirely different matter. Monitoring cost is relatively easy. Anecdotal assassination of a profes-sion is easy to do but does not get to the heart of the problems. It is important that there should be a workable, efficient and cost-effective system of dealing with these matters. This Bill does not guarantee to achieve that aim.

3.45 p.m.

Lord Mackie of Benshie

My Lords, I am not a lawyer and not a bankrupt, although there have been times in my life in the bad years when bankruptcy has loomed over me. This Bill has perturbed that excellent body, the Citizens Advice Scotland, and also the Consumer Council. I should like to say a few words on their behalf.

I was struck by the figures produced by the citizens advice bureaux that in Scotland they dealt with 278,000 inquiries concerning money advice, 81,000 of which involved the negotiation of debt with creditors. The citizens advice bureaux do a tremendous job. They have 1,600 advice workers, only 11 of whom are full-time paid workers. One can imagine the amount of work they do.

Most people who come to them for advice have got themselves into such a mess that they are totally unable to think clearly. The advisers sit down and go through the debts one at a time and try to assess income. They have to deal with people who consider it necessary to spend £25 a week on cigarettes and who have all kinds of extraordinary spending habits. The advisers have to try to do an educational job. The Government might well consider their point of view.

Of the 81,000 cases examined, eventually some 2,000 were sent to insolvency practitioners, who I understand charge a great deal of money. It costs the state, alas, a great deal of money. Of those cases, 75 per cent. were sequestrated. The bureaux are extremely worried that numbers will increase because unemployment is still increasing. The number of cases of personal insolvency will therefore increase. If there is nobody ultimately to judge on those cases they cannot possibly help, it becomes extremely worrying.

The Government could do everything they are setting out to do by the simple act of passing into law Clause 9, which empowers the Secretary of State to make regulations determining the remuneration paid to trustees. The noble and learned Lord has already said that there are indications that the amounts in simple bankruptcies could be reduced enormously and that there is no need for the very large statutory fee to be paid in those simple cases.

I have little more to say on this subject. Those good advisers are worried. I should like to know what the Government think of their complaint and why they should not simply leave matters as they stand and produce Clause 9 which enables them to fix the amount of money that the insolvency practitioners receive. That seems to me to be a solution about which the Government might well think.

3.48 p.m.

Baroness Carnegy of Lour

My Lords, the noble Lord, Lord Mackie, quite rightly drew attention to the point of view expressed by the citizens advice bureaux, which have great personal experience of the problems of individual people who get into debt. I am sure that we shall hear from my noble and learned friend Lord Fraser that he has been in touch with the citizens advice bureaux. I know that he and I attended the annual meeting of our local citizens advice bureau during the summer and this matter was discussed at that meeting. Now that the Bill has come to this House, I shall be interested to see how the bureaux view it.

I must say to the noble Lord, Lord Mackie, that I do not believe that this Bill should be seen simply as brought about by the pressures of recession. As we heard in the debate, the figures show that every year since 1985, when the previous legislation was introduced, when the economy in Scotland was growing and corporate bankruptcies were not increasing, the number of sequestrations as a whole increased rapidly and so did their cost. We have heard the figures. All the evidence indicates that if matters are left as they are that trend will continue into the future. Matters will become more and more out of hand.

Something must be done because of the way that the use of the 1895 legislation has developed. I remember its passage through the House. When it became law, Parliament saw the new sequestration procedures mainly as a way of helping creditors: a threat hanging over the heads of debtors which would help creditors to obtain their money. What has occurred is very different.

The pressures seem to have come from two directions. First, the various agencies, such as the citizens advice bureaux, to which people go for advice when they get into debt have realised that for a growing number of individuals who have no assets, or very few assets apart from earned income, to opt out from bankruptcy can have positive advantages. Because it is often not easy to prove that a person has so-called "free" income that can be spared to pay creditors, and there is no simple cost-effective way for the court to require a reasonable sum to be handed over, the debtor can be, and often is, virtually untouched. No fee is payable to start the sequestration process; and the creditors simply lose out. The debt advice agencies have increasingly been advising that course. That is one reason for the massive increase in the number of sequestrations.

The other pressure is that the insolvency practitioners, the professionals, have found that there is good money to be made from helping people through the process. My noble friend has told us that the fee is over £2,000 a time. Therefore those professionals, not unnaturally, have taken to marketing their services. That too has increased the number of sequestrations.

The way in which the service has been marketed has reduced the sense of stigma attached to bankruptcy. I am not sure whether that is a good or bad thing. However, that has occurred. One advertisement financed by a firm of accountants refers to, Voluntary Bankruptcy. If you are in serious debt, going bankrupt may be the way out of trouble". The noble Lord, Lord Macaulay, complained that it is a creditor-led Bill. However, the people who suffer as a result of the current pressures are the creditors, many of whom are people who run very small businesses and have difficulty in withstanding those pressures. They may well receive little or nothing because of the debtor opting for sequestration. There is no simple, inexpensive way for them to challenge the appropriateness of sequestration in a particular case. As has been mentioned, some debtors may lose out too by being persuaded that voluntary sequestration is the best way for them. They may not appreciate that as a result in future it might be harder for them to obtain credit.

The Bill attempts to streamline the procedure and so reduce the cost. It seeks to redress the balance of advantage somewhat in favour of those to whom money is owed. For that reason, the Consumer Credit Association of the United Kingdom, which represents almost 1,000 independent credit providers, and other similar organisations welcome the Bill. However, they have some anxieties. In another place, my own Member of Parliament, my honourable friend the Member for Tayside North, moved amendments in Committee on the advice of the Consumer Credit Association of the United Kingdom and others. Two matters on which he was unsuccessful are of concern to those associations. I shall be grateful if my noble friend will tell me whether he has given those matters further consideration.

First, with regard to Clause 3(6) of the Bill, when a person opts for sequestration under the Bill, he has to provide a list of his assets and liabilities. Would it not be reasonable also to include on the face of the Bill the debtor's incomings and outgoings, his cash flow, so that some assessment of his so-called "free" income can be made?

Secondly, is it possible for a bankrupt person's creditors to be allowed to make representation to the permanent trustee when the bankrupt's assets other than income are small or non-existent? They might then receive some of the debtor's income. To prevent frivolous use of such a power there could be a condition that representations could be made only by creditors owed not less than perhaps 25 per cent. of the value of the debt. I hope that I shall receive answers to those two questions when my noble friend replies.

I read in today's press of the anxieties of the citizens advice bureaux. I hope that we shall discuss them in Committee because I believe that they are important. The noble Lord, Lord Macaulay, stated that there was no social content to the Bill; I am not sure how he put it. However, anything that seeks to help one person meet his obligation to another must be good for the social fabric of our country. To make it too easy to renege on one's responsibilities is bad for the social fabric and does not help the debtor because of the damage that it does to his creditworthiness.

Having asked those two questions, and having made those few remarks about the parts of the Bill which at this stage I understand, I look forward greatly to discussing those parts that I understand less well. I give broad support to the Bill.

3.56 p.m.

Lord Kirkhill

My Lords, much has already been said in your Lordships' House today about the position of the debtor, in particular the consumer debtor; and properly so. Much comment along those lines was made in another place when the Bill was debated at considerable length. However, we have to keep in mind that a declaration of bankruptcy is either on a voluntary or compulsory basis. The vast majority of individuals who proceed to voluntary bankruptcy are consumer debtors who have taken advantage of easy credit during the past 15 years or so. Those of your Lordships who received, as I did, communication from the Citizens Advice Scotland will have been made aware of the gaps in advice which will result in this area of the Bill if it is enacted in its present form.

I remind noble Lords that insolvency practitioners must also deal with clients in business who are due money from debtors and who from time to time pursue them to bankruptcy. In my view, bankruptcy legislation must balance the interests of the debtors and of the creditors. The Bill does not seem to me to hold such a balance.

Under legislation prior to the 1985 Act, a creditor who petitioned for sequestration could find himself liable for the entire costs (including the trustee's fees) where a debtor had little or no assets. As well as the large increase in consumer debt sequestrations over the past six years, there has been an increase in sequestrations at the instant of the creditors. I believe that that factor is beyond dispute. Because the public purse meets the cost of a trustee in "small assets" cases, creditors' costs are limited to those of serving the petition.

While the measures proposed in the Bill will not alter the cost-exposure to the creditor, they will have a fundamental effect on the willingness of some creditors to petition if the interim trustee is to be the accountant in bankruptcy. Creditors have no knowledge of the accountant in bankruptcy, and for all I know may have little confidence in his ability or experience to handle the administration of the sequestration in an efficient and thorough manner, because I suppose that the practitioner in insolvency at this time would do just that.

Over the years creditors have found certain insolvency practitioners who are more able than others to conduct certain types of insolvencies—this is one of the facts of professional life in this area—or who are more thorough in carrying out initial investigatory work, which often uncovers assets for the general body of the creditors. If an insolvency practitioner is to act, the Bill requires a written undertaking that he will carry the case through to its conclusion. I submit that this undertaking is unlikely to be given if prior to sequestration the asset position of the debtor is unknown, and the trustee's costs may not be met.

The measures proposed in the Bill will deprive creditors from nominating the insolvency practitioner who may be most suited to act as trustee. Bankruptcy is not an area to be tackled by the untrained and the inexperienced. I accept that many sequestrations do not involve matters requiring a high technical knowledge. But I find it difficult to imagine the department of a civil servant based in, say, Leith being able to possess the understanding and sensitivity which is often shown at the present time by many insolvency practitioners throughout Scotland with regard to the social and medical problems that flow from uncontrolled indebtedness. It is not perceived by either the consumer advice bodies or the insolvency profession that the agency or market-testing scheme referred to in Clause 1B(2) will overcome this problem.

In England and Wales the official receivers are members of the insolvency service, an executive agency of the Department of Trade and Industry based at 33 locations. The official receivers are responsible for the administration of personal bankruptcies. I am advised by an accountancy firm which practises here in England and Wales that it is virtually impossible to obtain information from the official receiver on the assets and liabilities of a debtor, let alone the more detailed information that might he deemed to be necessary. I am told that the file is often placed on a shelf and gathers dust for the three years' duration of bankruptcy. I am fearful that this situation could spread into Scotland and that high standards of efficiency and thoroughness in handling bankruptcy work which presently exist will be lost with the overburdening of a poorly-trained and inexperienced department whose main priority will be, no doubt, to cut costs.

Further, I understand that the accountant in bankruptcy has been in dialogue with the insolvency profession over a considerable time. The figure of block fee which was informally agreed in August 1990 has been mentioned once or twice this afternoon. The figure was £2,147. But this agreement was on an informal basis, and there was no reason why continued dialogue could not have produced a similar reduced block fee to take into account the modified duties of the now summary administration process envisaged in the terms of the Bill.

Many of your Lordships will have received the briefing from Citizens Advice Scotland and the Scottish Consumer Council and will have seen the numerous representations made by various consumer bodies while the Bill had its passage through the other place. It is clear that the Bill does little for both debtors and creditors alike, and we should understand that this is not merely a technical piece of legislation. The Government are suggesting to your Lordships this afternoon—and they certainly suggested in the other place—that it is a purely technical piece of legislation. It is nothing of the kind. It will have a serious effect on the man in the street. That was a point which was emphasised by my noble friend Lord Macaulay of Bragar.

The Government therefore should brace themselves for amendments submitted at the appropriate stages of the Bill, particularly at Committee stage, which will seek to rectify some of the points that I outlined in my earlier remarks. I hope that the Government will look at the amendments with a view to making a considerable improvement to a seriously flawed Bill.

4.7 p.m.

Lord Mackay of Ardbrecknish

My Lords, when I saw that we were to debate the Second Reading of this Bill I tried to recall whether I had taken part in any of the discussions on the Bill in 1985, and indeed whether I could remember any of the arguments. I was quite worried that perhaps my memory was beginning to fail me, because I could not recall any of the deliberations in 1985. However, I was relieved when I looked at Hansard to discover that it was taken through the other place by the then Solicitor General for Scotland, so I was, so to speak, starting off with a clean sheet.

As all noble Lords who have already spoken have indicated, this is a difficult field. In fact the whole field of bankruptcy is difficult. I am only sorry perhaps that the Government have not taken the opportunity of this small Bill to look at some of the problems that occur in the wider field of bankruptcy; for example, in the bankruptcy of companies. As many of your Lordships will have heard, small firms in particular complain about companies which have gone bankrupt, following which the creditors have gone to sales of the equipment of the bankrupt company only to discover that there are the people who are being made bankrupt buying the equipment and re-emerging in two or three weeks with a similar name and in exactly the same field of operation as the company that has gone bankrupt. The only person who has lost out is in fact the creditor, who has found himself with either a small dividend or, in some cases, no dividend at all.

When I look at this Bill with your Lordships I want to think about the position of the creditor as well as the position of the debtor. A debt of any kind has two parties, and it would be unfortunate if we framed the law, or allowed the law to be framed, in such a way that the interests of one of the parties was simply subordinated to the interests of the other. I am convinced by all the arguments that I have heard and read in the other place that there is a need for a Bill of the kind that we have in front of us to prevent the abuse that has occurred since the passage of the 1985 Act. The position—and some of your Lordships have already mentioned it—is that in far-off 1986 there were something like 560 cases a year, costing the taxpayer the huge sum of about £13,000. By 1991 that had risen to something like 8,500 cases, costing the taxpayer £18.5 million.

This contrasts markedly with the suggestion of the Law Commission when it proposed these changes, which were eventually embodied in the 1985 Act. In 1982 it suggested that there would be between 120 and 150 new sequestrations at a cost of some £6,000 to £7,500. I am afraid that the Law Commission's crystal ball was a little misty when it looked at the consequences of its proposals. In 1986 three-quarters of all the awards for sequestration were granted on the petition of the creditor. The 1985 Act did not envisage the change which has since taken place. Last year only 13 per cent. were in petition of the creditor, the other 87 per cent. being what could be termed as "self-bankruptcies".

According to the debates, the original intention of the 1985 Act was to allow for a voluntary arrangement between the debtor and his creditors permitting him to order his affairs without recourse to sequestration. "Without recourse to sequestration" has become a pious hope. It was hoped that in time the creditor would receive his money, and the debtor's money problems would be resolved. The device of the debtor using a trust deed has frustrated those arrangements to the disadvantage of the creditor and at a cost to the taxpayer. Am I right that the Bill provides that the debtor, in consultation with the creditors and with their knowledge, is referred to an insolvency practitioner? He is then advised to sign a trust deed appointing the practitioner as trustee. In the case of small assets the petitioner claims his fee, petitions for sequestration and, as 80 per cent. of all sequestrations in 1991–92 had no assets, the creditors receive nothing. That is a fair amount of nothing. Many small companies—and no doubt large companies which people may believe can cope with the debts more easily —find a hole in their income which other customers of those companies must pay. The debtor may clear his liabilities, although not without personal damage. The accountant will collect his fee, the taxpayer will pay out the fee but the creditors will receive nothing.

According to the Bill and 1985 Act, the creditor knows what is happening. I am puzzled about a matter raised by my noble friend Lady Carnegy with regard to Clause 3(6) and wish to put down a marker. Is it right that the creditor and the court can deny an application for sequestration if they believe that the debtor can make repayment arrangements? In the same vein the noble Baroness mentioned that the Member for Tayside North raised another issue in Committee in another place. Can a creditor through the court, and indeed the court itself, ask about the debtor's income, and can the court have that investigated? While a trust deed in a sequestration may seem an "easy" way out of immediate financial problems, do many debtors realise what they are doing for their future? At a future date when their income has improved they may wish to take on credit but will discover that their past history prevents them from doing so.

Lastly I turn to the accountant. The fee is a block fee of £2,147. Many of the debts are small—they had to be not less than £750, but the figure is being raised to £1,500—and so they would be under £2,147. Therefore, the taxpayer will have to pay out £2,147 to an accountant and the creditors will receive nothing. One wonders idly whether it would not be better for the taxpayer to pay the poor creditors and not bother with the accountants in the middle. We must look at the logic of what has happened and make sure that we are not merely putting money into the accountants' pockets to the detriment of the taxpayer and at no advantage to the creditor.

I am a little ambivalent about whether the way to solve such a problem is to add to the public sector. It is certainly not consistent with the Government's general philosophy in other fields. I read in the Explanatory and Financial Memorandum that an additional 85 civil servants will be required next year, and that the figure will rise to 120 in the year after. I hope that the costs I read in the memorandum are correct.

The noble Lord, Lord Macaulay, mentioned the Institute of Chartered Accountants of Scotland. It has offered—and its offer underlines the generosity of the original fee to cut its fees from £2,147 to £800, plus about £200 for other outlays. That represents a considerable saving. I suspect that as £800 is the initial offer, it might be possible to beat it down a little lower. Have the Government considered whether at much lower fees it would be as cheap to proceed with the present situation than to undertake the costs of setting up a small department of the Accountant in Bankruptcy to carry out this work rather than the private sector?

I have spoken for long enough and have illustrated my slight unease with the Bill. I am sure that in his summing up or in Committee my noble friend will be able to assure me that this is the correct and only way to proceed.

4.15 p.m.

Lord Lyell

My Lords, I am sure that I shall please my noble friend and neighbour Lady Carnegy by first declaring an interest. I am a member of the Institute of Chartered Accountants of Scotland, so ably referred to by my noble friend Lord Mackay. It has been kind enough to have me on its records for 25 years. I do not practice. I pay a healthy subscription but I do not pay a practising fee nor do I attempt to pay a further fee as an insolvency practitioner. In the Glasgow branch of the firm with which I undertook my apprenticeship no such words are used; the department is known as corporate reconstruction. As we have heard, many of the problems which arise are small in financial terms but they are serious to the individual, the firms and the partnerships involved.

Your Lordships will not be surprised to hear that I have returned from a weekend in Yorkshire. My host's daughter—a young lady called Matilda—reminded me of a rhyme by Hilaire Belloc. He wrote: Matilda told such Dreadful Lies, It made one Gasp and Stretch one's Eyes". My noble and learned friend Lord Fraser and members of his esteemed profession would never dream of doing such a thing. However, my eyes were stretched and amazed when I consulted the financial and manpower effects of the Bill. The figures given in the paragraphs under that heading are astonishing. I wish to draw your Lordships' attention to the third paragraph. Perhaps my noble and learned friend on the Front Bench will pay particular attention to those words because they bear out what was said by my noble friend Lord Mackay about insolvency practitioners.

After looking at the list of speakers for today's debate, I was startled to see that four are from the county of Angus. Indeed, the county is also represented by my noble friend the Captain of the Yeoman of the Guard who sits on the Front Bench. I hope that that does not indicate that the county of Angus is somewhat more vigilant or interested in these than in any others which concern your Lordships' House.

Where does the worried citizen turn with regard to bankruptcy or financial difficulties? The first place to which any citizen of Kirriemuir might turn is to the citizens advice bureau or a professional adviser. In most cases the debt will be the result of existing low income, the worried person seeking advice having over-estimated his or her ability to cover the debt. Alternatively, the individual might have incurred debts, the reduced income resulting in financial difficulty.

The noble Lord, Lord Mackie of Benshie, referred to the figures provided by the citizens advice bureaux. I think that the final figure for referrals to insolvency practitioners was something over 2,200; and in a high percentage of those cases, insolvency practitioners thought it to be in the best interests of the debtor as well as, I suspect, the creditor, for the matter to proceed to sequestration. Also, insolvency practition-ers indicated that 50 per cent. of their cases came from referrals by the citizens advice bureaux. Therefore, over 2,000 cases had to be dealt with by the insolvency practitioners; but of those, only 60 per cent. proceeded to sequestration and the other 40 per cent. were dealt with in some other way. As was mentioned by my noble friend Lord Mackay, most of the cases coming from solicitors or other advisers would have been those in which insolvency practitioners were consider-ing an average block fee of something in the region of £2,000.

Under the provisions of the Bill I hope that the debtor will be able to petition for sequestration. The word "insolvent" is used in Clause 3. I was rather at a loss to discover where that was defined but that information was quickly pointed out to me by my noble and learned friend and is now reasonably clear to me, a mere accountant rather than a lawyer. Clause 6, which deals with summary administration, goes some way towards defining the limits of sequestration and difficulties.

Clause 9 deals with the detailed remuneration of the permanent trustee. Some difficulties have been mentioned to me by chartered accountants, all of whom were not necessarily insolvency practitioners. Perhaps the Minister will consider whether Clause 9(3) (b) and (c) provides for some arm's length and reasonable discussions between the Scottish Office and the insolvency practitioners and any other bodies involved in the giving of advice so that the fees could be reduced, perhaps along the lines suggested by my noble friend Lord Mackay. Those paragraphs provide a basis for some ongoing discussions.

I am somewhat at a loss to understand why Clause 9 cannot achieve the objectives which are set out under the paragraphs headed "Financial and Manpower Effects of the Bill".

It will not surprise my noble and learned friend to learn, since he wrote the original letter to the insolvency practitioners, that I shall be raising the problem as regards conflict of interest. Clients of the citizens advice bureaux would only be too pleased to have the very best advice from the bureaux. However, as the noble Lord, Lord Mackie of Benshie, pointed out, there are only 11 specialists throughout Scotland. Therefore, is it not reasonable that in the first instance the advice should be given by the citizens advice bureaux? That may be in a small town like Kirriemuir. Is it not reasonable that in the first instance the citizens advice bureaux or the lawyers should have access to an insolvency practitioner? I hope that Clause 9, and further discussions on the Bill, will pave the way for a reasonable compromise so that the problems raised by my noble friend Lord Mackay to the Minister can be resolved.

I have been encouraged by much of what I have heard from my noble and learned friend, and I look forward to hearing more later this evening and during the passage of the Bill.

4.25 p.m.

Lord Carmichael of Kelvingrove

My Lords, first, I thank the noble and learned Lord, Lord Fraser of Carmyllie, for introducing the Bill as it was amended in another place. He helped the House this afternoon and that will be of assistance when we frame amendments to be discussed in Committee.

The Committee stage in another place was extremely long for such a Bill. However, the noble and learned Lord and other Members of your Lordships' House who have experience of the other place will know that if there is a vacuum in Scottish business, the Scots will always find a way to fill that vacuum; namely, by using the time in Committee. That may have been one reason.

The other reason is that many Members in the other place—and I experienced this when I was there —have drawn to their attention problems which are extremely distressing and cause a great deal of unhappiness for individuals. Therefore, there was a great deal of annoyance expressed on all sides of the Committee because it was felt that the Government had not consulted as widely as they should have done not only with the professional bodies but—and this is even more important—also with the voluntary bodies. Those voluntary bodies play a vital role in many ways but particularly as regards solving the problems of small debts which cause shame and anxiety to many people. It is not easy to discern that shame and anxiety, as it was referred to by the noble Lord, Lord Mackay of Ardbrecknish. He implied that there is less shame on the part of large companies, which do not seem to be quite as worried, as there is on the part of individuals who become terribly ashamed and worried about such matters. The local voluntary organisations do a wonderful job in that respect.

I wonder whether the noble and learned Lord, Lord Fraser of Carmyllie, has any idea of the average debt which is owed in all these cases. Perhaps it would be better if the figures were broken down so that we could see how many of the debts were at a relatively low and manageable level before somebody decided to be awkward and apply for sequestration.

An example has been given to me of someone who owed about £8,500 in credit card debts and various other debts. An arrangement was made whereby, with control and with a certain amount of discipline he could pay back the debt within two years. However, because one of the credit card companies decided that it did not want that to happen, the matter was referred to sequestration.

The money advice centre in Drumchapel, which is one of the voluntary bodies which has contacted me, is particularly annoyed by one of the omissions in the Bill. This matter has been raised by a number of noble Lords either specifically or in general; that is, that the Scottish Bill contains no debt arrangement scheme. That was not included in the Bill nor was it included in the Debtors (Scotland) Act 1987. I am informed that such a scheme has operated successfully in England since 1959 and has been of great help.

The lawyers know better than I do, but I understand that in Scotland several actions for debt can be raised against a debtor. He would thus be forced to make several applications for directions as to time to pay or for orders under the Debtors (Scotland) Act. In other cases, the inability to reach realistic informal debt arrangement schemes with creditors may result in bankruptcy. The absence of such a scheme available to the Scottish courts may result in bankruptcies, unlike the situation south of the Border.

Another matter that should be examined at Committee stage is the list of articles that are exempt from poinding in Section 16 of the Debtors (Scotland) Act 1987. The Minister may remember that the noble and learned Lord, Lord Morton of Shuna, expressed strong views on that matter when sitting on this side of the House. In view of the recent judgment in a sheriff's court in Glasgow, we feel that a list of exempt articles should be included. Section 16(2) (f) of the 1987 Act states that exempt articles are, articles reasonably required for the care and upbringing of a child". The Glasgow sheriff's court decision has exempted from poinding a TV and video recorder owned by a lone parent on that ground. That may be thought to be a shocking situation but the sheriff took the definition, reasonably required for the care and upbringing of a child". In the modern world that is something that is fairly important to a child. Can it be confirmed that the decision of the sheriff, which has not been appealed, will stand in the future?

I have received a suggestion from the Glasgow district council housing department. Obviously all local authority housing departments and housing associations have a great deal of experience in the problems of debt. It suggests that there could be a new clause, the object of which would be to relieve a district council housing department from being forced to take eviction proceedings before a tenant with arrears could become bankrupt. Local councils and housing associations in the vast majority of cases work out an arrangement between the tenant and the landlord and have a fairly good rate of success in resolving those problems. If the tenant is made bankrupt, all the other social services become involved, perhaps at great expense, in order to relieve the problem.

We have received help over many years from voluntary organisations, not only in relation to the Bill—for example, from Citizens Advice Scotland, consumer councils and some of the local authorities. They have experience in this field that has been invaluable to us. When one looks at the financial and manpower effects of the Bill one realises that something must be done.

One wonders how many sequestrations have been avoided by voluntary organisations, plus the not inconsiderable savings in personal humiliation and shame that people undoubtedly feel. If there was an assessment of the range of debts, perhaps part of the £18.5 million saving could be given to those organisations to set up small organisations of their own. Professional people could then give personal advice to those concerned before sequestration was considered.

I hope that the Minister will think about such matters. They will all be raised at the Committee stage of the Bill. I hope that it will be profitable and will not take anything like as long as it did in another place.

4.35 p.m.

Lord Fraser of Carmyllie

My Lords, with that reassurance from the noble Lord on the Opposition Front Bench, I shall be as brief as I can. This is a highly technical Bill in an area in which not everyone has a great deal of expertise, but it nevertheless reveals, as we have explored the issues, that very important social problems underlie the difficulties that have emerged.

The noble Lord, Lord Kirkhill, indicated quite correctly that where there are interests of both debtor and creditor there should be a balance. I entirely agree with the noble Lord. The point of balance may require adjustment from time to time. If one thing is absolutely clear, it is that the balance that was sought to be struck in the 1985 Act has been seriously disturbed—and, as the noble Lord, Lord Mackay, unhelpfully recalled, I was the Minister who took the Bill through in another place.

One provision in the Act was an excellent one and a constructive social one—that opportunities should be given to a debtor to enter into arrangements for securing a trustee. It also allowed for further provisions to give a kind of protection to that trustee. I should have thought that both sides of the House would consider such arrangements to be desirable. They would allow for payment to be made and for the debtor to get back on a sensible path without attracting the stigma of a bankruptcy that I believe still attaches to that status.

However, that is not the situation. The trustee has simply been used as a device whereby a trustee is appointed and that trustee then applies for sequestration where there are no assets at all. That situation is of no interest to the creditor because no creditor will receive any money at all. The sequestration goes forward and the taxpayer picks up the bill. It was originally envisaged that the number would be very small, but it has been growing at the rate of approximately 75 per cent. per annum.

If, as I anticipate, it would cost anything up to £50 million in the next financial year, without adjustment, in some circumstances £50 million might be a price worth paying. However, there are very serious questions to be asked. Is it desirable or worth while that those who have no assets should rush into sequestration without the most careful regard to the possible consequences? Whether or not a social stigma still attaches to sequestration is an interesting question, but of this I have no doubt: if those who go to sequestration and obtain the status of a bankrupt, with no assets and with the creditors getting nothing, in the kind of circumstances adverted to by the noble Lord, Lord Mackie, subsequently find themselves back on the rails, there is a very real concern that in the future their opportunity of securing any degree of credit will be very restricted. For that reason, it is worth while to consider whether the balance that was disturbed in the 1985 Act ought to be brought back into a more sensible equilibrium by way of arrangements that have been introduced here.

I accept without hesitation that initially the Bill was introduced without a great degree of consultation. Subsequent to that time there has been consultation, not only with the Scottish Law Commission, which was consulted prior to introduction, but also with the Law Society of Scotland and the Institute of Chartered Accountants. They may not like all that we have introduced, but to my personal knowledge there has been considerable discussion with them.

I have been asked a number of very interesting but technical questions. I do not propose to attempt to answer them all in winding up this debate. However, the noble Lord, Lord Mackie of Benshie, raised with me the briefing paper he has received from Citizens Advice Scotland. Perhaps I may make this point again in the context of what it has to say. In that briefing the CAB indicated that the Bankruptcy (Scotland) Act 1985 introduced three new main provisions, including, (b) the ability for a debtor to petition for his or her own sequestration indirectly, by granting a trust deed for creditors. The trustee appointed could then petition for the debtor's sequestration". That may be in direct consequence of the introduction of the trust deed for creditors and the way in which it was spelt out in that Act. But it was never the intention of this House that it should be used as a device in that way. I am a little concerned that the CAB should now, in 1992, consider that that was indeed one of our original objectives.

The noble Lord, Lord Kirkhill, was concerned that sometimes the creditors did not get a look in. One of the difficulties about that device is that, where a debtor applies for a trust deed and gets a trustee appointed and he then applies for sequestration, the creditor may know nothing about what the trustee is doing.

Lord Kirkhill

My Lords, perhaps the noble and learned Lord would give way for one moment. I was very concerned about the Leith civil servant.

Lord Fraser of Carmyllie

My Lords, I was about to come to that. There is a different set of circumstances. I have been addressing myself specifically to the 80 per cent. of cases where there are no assets whatever.

Lord Kirkhill

My Lords, I can see that.

Lord Fraser of Carmyllie

My Lords, there has been a properly expressed concern which I recognise. We should not have the trustee accountable in bankruptcy intervening where there are those with expertise in the private sector on insolvency matters. He should not take over that work. I recognise that. A great deal of sequestration work is extremely technical. Where there are assets where individuals and trading have gone under it can be a very elaborate task sorting everything out.

In those circumstances, if the creditor has any reservations about the Accountant in Bankruptcy undertaking the work, then, as the Bill will provide, he has the right to nominate his own choice of interim trustee. However, if his view is that he would like X to take on the work because there are assets to be gathered in and distributed among the creditors and that is his assessment of the matter, we consider it right that he should be prepared to pay for the choice by underwriting the trustee's costs. These are technical points. I do not believe it right that he should expect the taxpayer to foot the bill if his calculation is wrong.

My noble friend Lord Lyell, the noble Lord, Lord Mackie, and the Opposition Front Bench were concerned as to why we did not just rely on Clause 9 alone to produce some savings from the figure of £2,147. Such a provision allows for a reduction in costs but it does not address the central problem which I have repeatedly mentioned. The use of a trustee on a trust deed applying for sequestration is a device which we consider inappropriate. Simply going to Clause 9 does not address that problem.

I wish to make it clear that, while greater powers are given to the Accountant in Bankruptcy, I certainly intend that there should be market testing of the services delivered by the Accountant of Court and independent agents. I can see very easily that in a country the size of Scotland, and with its geographical spread, there may well be circumstances where he will wish to have agents carrying out the work on his behalf, be it in Aberdeen, the South West or in any one of the far-flung corners of Scotland.

A number of technical points have been raised with me. I hope that we can address these at Committee stage. My noble friend Lady Carnegy raised a number of issues which have been addressed by the Consumer Credit Association. I believe that those observations which have been made to me personally by the association are perfectly valid observations to be addressed. I am still considering them. As yet, I am not persuaded that they require to be addressed by amendment to the Bill itself, although both points are important ones. This matter requires to be emphasised —there is some misunderstanding of it in Scotland—that because someone has been sequestrated, it does not mean that, if they have sufficient income, that income should never be available to make some payment to creditors who have been left with considerable sums unpaid. I regret there is some misunderstanding at present that, once sequestrated, any income, however significant it may be, is never under attack.

I am grateful to all who have contributed to this debate. I wish to emphasise that, while I understand the concerns of such organisations as the citizens advice bureaux—I join the noble Lord, Lord Mackie, and others in paying tribute to them—what we require to establish is a proper basis for making sure that these matters, which are often very unhappy for those concerned, are resolved quickly and cleanly. We have to be careful that stigma should not be ignored. While the noble Lord, Lord Carmichael, is concerned that there should possibly be better arrangements for giving advice prior to sequestration, this Bill is essentially concerned with those circumstances which flow once the step to go forward to sequestration has occurred. I repeat my gratitude to those who have contributed. I hope that we shall have a fruitful and constructive discussion of this matter in Committee. I commend the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.