It is perhaps not as well-known as it should be that the Bankruptcy (Scotland) Act 2016 sections 195 – 198 provides a six-week moratorium – effectively a postponement or period of protection from action to recover debts - to individuals, partnerships and trusts facing financial distress or liquidity issues.
The moratorium provides breathing space to allow parties to be protected from their creditors while they take advice and consider what debt relief options might be available to them.
A party can normally apply for the moratorium once in any 12-month period.
Those rules have now been updated to recognise an anticipated spike in the number of personal insolvencies triggered by the impact of COVID-19.
The Coronavirus (Scotland) Act 2020 has introduced two significant changes:
- The moratorium is being increased from six weeks to six months; and
- the limitation on multiple applications during any 12-month period will be suspended.
To benefit from the moratorium, a party must make a simple application via the Accountant in Bankruptcy's Register of Insolvencies' homepage using either Form 33 (if they are an individual or the executor of a deceased's estate), or Form 34 (for partnerships and trusts).
In our experience few people are aware of the personal moratorium and take advantage of the protection it can offer.
The intention is that where a party is under pressure from their creditors, they can apply for the moratorium to allow them to take money advice, to determine what form of debt relief might be best suited to them.
The moratorium prevents any diligence being done against them, or from their sequestration being awarded while it is in force.
It's important to note that the protection the moratorium offers is extensive, but specific. In particular, it prevents a creditor from:
- serving a charge for payment
- commencing or executing any diligence; or
- sequestrating the debtor.
However, it is still permissible for the creditor to:
- auction attached articles, if appropriate notice has already been given;
- implement a decree of forthcoming;
- implement a decree or order for sale of a ship (or of a share of a ship) or cargo; and
- execute an earnings arrestment, a current maintenance arrestment, or a conjoined arrestment order, so long as it came into effect before the moratorium began.
These changes to Scotland's bankruptcy laws will bring welcome relief to many individuals, partnerships and trusts who are experiencing serious financial worries as a result of the COVID-19 crisis.
There is, however, a concern that the moratorium could be abused by unscrupulous parties who are simply seeking to delay the inevitable and do not have any real intention of taking advice and implementing one of the debt solutions envisaged by the Bankruptcy (Scotland) Act 2016.
Our restructuring and advisory team continues to monitor developments closely and will keep you informed on any further discussion or relevant updates.