The Scottish Moratorium on Diligence: A Quick Recap

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 came into force on 4 May 2021. As the title suggests, this new Breathing Space scheme only applies in England and Wales to individuals living or usually resident there. As creditors navigate their way through the provisions of the new scheme south of the border, the nearest equivalent provisions applicable in Scotland and some of the similarities and differences with the position in the rest of the UK are worth a quick re-cap.

England and Wales: Debt Respite Scheme (Breathing Space)

In brief broad terms, the Debt Respite Scheme (Breathing Space) in England and Wales is a government scheme requiring creditors to allow a period of time for a person to deal with their debts, free from creditor contact and enforcement action. It provides two types of breathing space, a standard breathing space and a mental health crisis breathing space. A standard breathing space is available to anyone with problem debt. It gives them legal protections from creditor action for up to 60 days. The protections include pausing most enforcement action and creditor contact and freezing most interest and charges on their debts. There is a requirement to seek advice from a debt advisor. A mental health crisis breathing space is only available to someone who is receiving mental health crisis treatment and it has enhanced protections. It lasts as long as the person's mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts). There is provision for creditors to be notified of a breathing space. The specific details of the scheme are out with the scope of this piece but can be found in the Regulations  and further information in government guidance for creditors 

What about Scotland: Moratorium on Diligence

In Scotland it has been possible since 2015 for individuals and certain other entities (partnerships and some other types of business) to seek what is known as a "Moratorium on Diligence". Diligence is just another word for enforcement in Scotland and the current moratorium provisions are set out in sections 195-198 of the Bankruptcy (Scotland) Act 2016. In summary:

• if a moratorium is granted it will last for a period of 6 weeks (42 days) during which applicants are protected from creditor enforcement of debt. The six week/42 day period is currently temporarily extended to 6 months as a result of Covid-19.

• the moratorium is a period during which the statutory debt solutions of sequestration (bankruptcy), trust deed (similar to an IVA) or a Debt Payment Programme (DPP) under the Debt arrangement Scheme (DAS) can be explored and considered by the individual or eligible entity.

• ordinarily a moratorium can only be granted once in any twelve-month period. As a result of Covid-19 this restriction has been temporarily removed.

• an individual or eligible entity can make an application for a moratorium to the Accountant in Bankruptcy (AIB) or the application can be made on their behalf via a Money Advisor. There is however no requirement to seek prior debt advice or to engage assistance from a Money Advisor in connection with the moratorium process in Scotland.

• if the AIB grants the moratorium details of it will appear on the Register of Insolvencies and on the Debt Arrangement Scheme (DAS) Register.  These registers are public and free to access. There is no provision for creditors to be notified of a moratorium under the Scottish provisions. Creditors, solicitors and sheriff officers are able to check the registers before proceeding to instruct enforcement action

• during the moratorium period creditors are prevented from serving Charges for Payment, carrying out enforcement activity (such as bank arrestment, earnings arrestment, attachment of goods etc.) or proceeding with sequestration (bankruptcy) petitions. In the event funds have been arrested before the granting of the moratorium these funds cannot be released. However, a moratorium does not stop interest and charges being added to the debt.

• a moratorium does not prevent a creditor raising court action and taking decree (judgment) if they wish to do so but they will be prevented from enforcing the decree/judgment whilst the moratorium remains in place.

• where an individual or eligible entity proceeds with a DAS application, enters a trust deed or applies for sequestration/ bankruptcy, this should be done within the moratorium period which is then extended until the DAS application is decided, or the trust deed is protected or rejected, or the bankruptcy petition is decided.

As can be seen from the above, the regime in Scotland affords a shorter period of protection from enforcement action (only 42 days compared to 60 days in England and Wales) and there is no similar provision to the mental health crisis breathing space under the Scottish moratorium system. On the other hand, the Scottish scheme is easy to access without the necessity of securing the services of a debt advisor to do so and the administrative burden for creditors is much reduced. However, following a consultation the Scottish Government is considering introducing some of the provisions available in the rest of the UK such as the freezing of interest/charges, a longer moratorium period and specific provision for those in mental health crisis care so we can perhaps expect to see some of the provisions now available in the rest of the UK adopted in Scotland in due course.