Scottish Insolvency Statistics 2015-16: Quarter 3 Release

An Official Statistics Publication for Scotland27 January 2016

1. Introduction 2

2. Key Points 2

3. Key Trends 3

4. Personal Insolvencies 4

4.1 Personal Insolvencies Trends 4

4.2 Summary bankruptcies awarded and number of PTDs registered 5

4.3 Bankruptcies 6

4.4 Protected Trust Deed - PTDs 7

5. Debt Arrangement Scheme - DAS 8

5.1 Summary 8

5.2 Applications Approved 8

5.3 Applications Completed 9

5.4 Variations 9

5.5 Revocations 9

5.6 Amount Repaid 10

6. Distribution of Statutory Debt Solutions 11

7. Company Liquidations and Receiverships 12

8. Background 13

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Scottish Insolvency Statistics 2015-16: Quarter 3 Release

An Official Statistics Publication for Scotland27 January 2016

1. Introduction

This release provides Scottish insolvency statistics compiled by Accountant in Bankruptcy (AiB) for the third quarter of 2015-16. Statistics relating to the Debt Arrangement Scheme (DAS) are also reported. The figures are collated to 31 December 2015.

2. Key Points

Total personal insolvencies for this quarter, which include both bankruptcies and protected trust deeds (PTDs) totalled 2,345, this is consistent with the prevailing trend following the introduction of the Bankruptcy and Debt Advice (Scotland) Act 2014 (BADA(S)).

There were 989 bankruptcies awarded this quarter, a 2.5 per cent increase on the previous quarter.

After the increase in the previous quarter, the number of PTDs saw another increase this quarter. The number of PTDs rose 7.2 per cent from the previous quarter to 1,356. This increase may have arisen by the latest changes in bankruptcy legislation which aligned bankruptcy and PTDs’ minimum contribution periods.

The number of new debt payment programmes (DPPs) approved under DAS increased 13.4 per cent to 517 this quarter, which may indicate a return to a more stable lower level after recent market and legislation changes.

A total of £9.4 million was repaid through DAS this quarter. As a result of a decreasing number of live cases, this is 2.0 per cent lower than previous quarter.

Following a bedding-in period of the BADA(S); the combined number of bankruptcies awarded, PTDs recorded and DAS approved increased by 6.6 per cent. This is the second successive quarter than the number of people accessing statutory debt solutions in Scotland increased this year; however, those are 23.3 per cent lower than the same quarter last year.

The number of Scottish registered companies becoming insolvent or entering receivership increased in the third quarter of 2015-16, with 254 companies becoming insolvent.

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3. Key Trends

Chart 1: Statutory debt solutions in Scotland – Longer-term Trend

Chart 1 depicts a long-term trend in the number of statutory debt solutions, which include personal insolvencies and DAS DPPs, in Scotland from 2006-07.

The number of personal insolvencies in Scotland shows a long-term downward trend, shortly impacted by the introduction of new regulations.

The most significant regulation amendment was the introduction of the Low Income Low Asset (LILA) route in the third quarter of 2008-09 which widened the access to bankruptcy.

Similarly, the introduction of the BADA(S)1 resulted in a temporary drop in personal insolvencies; however figures have returned to previous trend.

After a steady rise and then a period of relative stability, the number of DAS DPPs approved has been recently decreasing in previous quarters. However, this quarter, the total has increased for the first time since April 2014.

1 BADA(S) http://www.aib.gov.uk/guidance/bankruptcy/legislation

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Personal Insolvencies – This is the total of bankruptcies awarded and trust deeds protected

Bankruptcies - Bankruptcy is a formal method of dealing with debts if other options have failed or aren’t suitable for your circumstances. Being declared bankrupt means you have to hand over your estate, which includes your home, to your trustee. More+

PTDs - Voluntary arrangements, where the debtor passes his estate to an insolvency practitioner who arranges to repay part of the debt to creditors on the debtor’s behalf. More+

DAS DPPs – Debt Arrangement Scheme (DAS) is a Scottish Government debt management tool which allows someone to repay their debts through a debt payment programme (DPP). More+

LILA - LILA is the route into bankruptcy for people who have Low Income and Low Assets. More+

4. Personal Insolvencies

This section covers the statutory debt relief solutions available in Scotland which citizens can turn to when they can no longer meet their financial obligations. Personal insolvencies in Scotland consist of both bankruptcy and PTDs.

4.1 Personal Insolvencies Trends

The following chart shows the quarterly volume of bankruptcies awarded and PTDs recorded since 2005-06.

Chart 2: Personal Insolvencies in Scotland

The number of bankruptcies awarded has been declining since the third quarter of 2008-09, with the exception of the first quarter of 2012-13. A spike in bankruptcy awards occurred during this period as applications increased significantly prior to changes in the bankruptcy fee structure which were subsequently introduced on 1 June 2012.

After a period of stability in the previous financial years, the number of bankruptcies fell after the introduction of the BADA(S). This quarter has seen a slight increase of 2.5 per cent in the number of bankruptcies awarded. This is the second consecutive increase since the BADA(S) regulation changes and could reflect continuity of the long-term trend.

The trend of PTDs awarded each quarter has been more flat between 2008-09 and 2012-13. Since the second quarter of 2013-14, there has been a decrease, and the

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legislative changes2 introduced in November 2013 may have contributed to the recent decline. However the latest two quarters’ figures show an increase. This quarter, the number of PTDs awarded increased a 28.7 per cent from the same quarter in the previous year.

4.2 Summary bankruptcies awarded and number of PTDs registered

There was a total of 2,345 personal insolvencies in Scotland in the third quarter of 2015-16 which represents a 5.2 per cent increase on the previous quarter.

However, the current quarter’s figures are 11.0 per cent lower than the same quarter in the previous year.

Table 1: Personal Insolvencies by Quarter

Q3 Q4 Q1 Q2 Q3 2015-16 Q2 2014-15 Q3

Awards of Bankruptcy 1,580 1,740 757 965 989 2.5% -37.4%

Creditor Petitions 322 408 298 268 273 1.9% -15.2%Trust Deed Petitions 2 1 1 0 0 - * - *

Debtor Applications 1,256 1,331 458 697 716 2.7% -43.0%

of which MAP - - 146 355 404 13.8% -

of which LILA 589 530 74 - - - -

of which Full Administration 667 801 238 342 312 -8.8% -53.2%

Protected Trust Deeds 1,054 834 849 1,265 1,356 7.2% 28.7%

Total Personal Insolvencies 2,634 2,574 1,606 2,230 2,345 5.2% -11.0%

2015-16 (p) Percentage change 2015-16 Q3 on:

2014-15 (r)

r - Figures for 2014-15 have been revised following validation at the end of the previous financial year.p - Figures for 2015-16 will remain provisional until validation following the end of the financial year.

*As the number of Trust Deed Petitions each quarter is generally small, any changes in the number of cases between quarters can result in large percentage changes. Therefore, this figure will not be reported in the table.

4.3 Bankruptcies

2 http://www.legislation.gov.uk/ssi/2013/318/contents/made

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Following a bedding-in period of the BADA(S)3, AiB has worked with stakeholders to ensure that bankruptcy remains accessible to those in need of financial assistance, and this has been reflected in the recent number of bankruptcies awarded. Applications received

AiB received 695 debtor applications for bankruptcy in the third quarter of 2015-16. This is 8.6 per cent lower than the previous quarter and 45.3 per cent lower than the corresponding quarter of the previous year.

Not all the applications for bankruptcy result in an award being made; at the end of the third quarter, 60 applications were still being processed, 22 applications were rejected as the criteria for bankruptcy had not been demonstrated and 8 applications were returned due to application errors.

Applications awarded

This quarter, 989 bankruptcies were awarded, an increase of 2.5 per cent on the previous quarter. This is the second consecutive increase in the number of bankruptcies awarded following the introduction of the new legislation. However compared with the same quarter in the previous year, bankruptcies have fallen 37.4 per cent which is aligned with the decreasing long-term trend of personal insolvencies.

There are different routes to submit an application for bankruptcy. A debtor may apply to AiB for their own bankruptcy or a creditor can present a petition at a sheriff court to sequestrate - meaning, make someone bankrupt. A deceased individual’s estate can be made bankrupt by an executor. The 989 individual awards of bankruptcy this quarter can be broken down as follows:

o 716 awards were made as a result of debtor applications to AiB, an increase of 2.7 per cent on the previous quarter and 43.0 per cent lower than the same quarter last year. Of these, 404 were awarded bankruptcy through the Minimal Asset Process (MAP) route. This accounts for 56.4 per cent of the total debtor applications.

3 March 2015 was the last month during which debtors could apply to enter bankruptcy under the previous legislation. From April 2015, where applicable, debtors have to pay an extra year of contributions to their bankruptcy under the new legislation. This means there was an incentive for some individuals to ensure their bankruptcy was awarded under the pre-April 2015 legislation.

April 2015 also saw the introduction of mandatory money advice prior to a debtor application for bankruptcy and MAP (Minimal Asset Process) which replaces the LILA (Low Income Low Asset) route in to bankruptcy. It is expected that there will be a period of time, during which money advisors and debtors become more familiar with the requirements of this new route into bankruptcy and the application process, when there will be a drop in the number of debtor applications made and/or the number of applications that are returned.

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a route into bankruptcy for people with few assets. MAP replaces the LILA route in to bankruptcy. More +

o 273 awards resulted from petitions to the courts by creditors. This is a 1.9 per cent increase compared to the previous quarter and 15.2 per cent lower than the same quarter last year.

o No awards were made as a result of petitions to the court by trustees in a trust deed. There was also 0 in the previous quarter and 2 awards in the same quarter last year.

Case administration

In Scotland, a trustee is appointed to administer each bankruptcy. The Accountant (in Bankruptcy) will be the trustee unless an insolvency practitioner in nominated to act. In a MAP case, The Accountant must act as trustee. In the third quarter of 2015-16, The Accountant was appointed trustee in 715 cases awarded, representing 72.3 per cent of bankruptcies for the quarter.

4.4 Protected Trust Deed - PTDs

The number of PTDs increased with a total of 1,356 recorded in the third quarter of 2015-16. This is an increase of 7.2 per cent from the previous quarter.

Legislative changes in bankruptcies means that PTDs and bankruptcies now have the same contribution duration (4 years) meaning a debtor choosing a PTD would no longer pay an extra year’s contribution. This could lead to more debtors choosing PTDs instead of bankruptcies, and drive up the number of PTDs registered.

This quarter’s figures are 28.7 per cent higher than the total recorded in the corresponding quarter of the previous year. This is the third consecutive quarter that the number of PTDs recorded is larger than number of bankruptcies awarded. Further information can be found in Table 1.

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5. Debt Arrangement Scheme - DAS

The Debt Arrangement Scheme (DAS) is a statutory debt management solution run by the Scottish Government. Under DAS, a debtor commits to a Debt Payment Programme (DPP) which allows them to repay their debts based on their disposable income while they are protected from creditors taking any action against them to recover their debt. For more information on DAS please see the DAS website

5.1 Summary

There were fewer than 14,000 live cases at the end of this quarter. The decrease is a result of volumes of new approved DAS being lower than the combined number of completions and revocations.

This quarter, the total amount paid through DAS decreased slightly. A total of £9.4 million was paid back, a decrease of 2.0 per cent on the previous quarter. This reduction is due to the decreasing number of live cases, however the total amount paid in this quarter signifies an increase of 0.9 per cent from the equivalent quarter last year.

5.2 Applications Approved During the third quarter of 2015-16 there were 517 DPPs approved under DAS. This is a 13.4 per cent increase on the previous quarter and 53.0 per cent lower than the same quarter in the previous year.

Chart 3: DAS DPPs approved

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Chart 3 shows the quarterly total number of approved DPPs under DAS since the first quarter of 2010-11 and illustrates the increase in volume of DPPs approved, particularly from 2011-12 onwards. This upturn was a result of changes to the legislation4 and improvements to its IT system.

This quarter saw 517 applications for a DPP approved, this is an increase of 13.4 per cent, this increase follows a period of decline since the first quarter of 2014-15. The number of number of approved DPPs under DAS has increased for the first time since April 2014. This quarter’s figures could represent a return to more stable volumes, albeit at a lower level than seen previously.

5.3 DAS DPPs Completed

A total of 312 DAS DPPs were completed in the third quarter of 2015-16 which is 12.6 per cent lower than the total completed in the previous quarter. However this is also a 46.5 per cent increase compared to the same quarter of the previous year.

969 DAS DPPs cases have already been completed in the first three quarter of 2015-16; 73 more DAS DPPs cases than the whole of 2014-15 (896). Since the average length of a DAS DPP is around 7 years, we can expect a steady rate of increase until 2018, followed by a lower but steady volume of completions in line with current applications approved.

5.4 Variations

If a debtor's circumstances change and they can no longer afford the agreed payments, or if they want to increase the level of payment, they can apply for a variation to their DAS DPP.

In the third quarter of 2015-16, 594 applications to vary a DPP under DAS were approved while 33 were rejected. The number of approved applications is down 13.2 per cent compared to the previous quarter and 44.7 per cent lower than the number approved in the same quarter of the previous year. The number of approved variations is equal to 4.3 per cent of live cases

5.5 Revocations5

A DPP is automatically revoked if the debtor is made bankrupt or enters a trust deed which becomes protected. There are also a number of grounds where the debtor, a

4 http://www.legislation.gov.uk/ssi/2011/141/contents/made5 There are a number of grounds where the debtor, a money adviser acting on behalf of the debtor, or a creditor in the DAS DPP can apply to revoke a DAS DPP, including where a debtor has failed to satisfy the conditions of the DPP or if two payments have been missed and a third is due

A DAS DPP is automatically revoked if the debtor applies and is awarded bankruptcy or signs a trust deed which becomes protected.

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money adviser acting on behalf of the debtor or a creditor in the DPP can apply to revoke a DPP. If the DPP is revoked, the debtor will be liable for all interest, fees, penalties and other charges that would have been payable had the DPP not been approved.

A total of 413 applications to revoke a DAS DPP were approved in the third quarter of 2015-16 and 232 were rejected. This is an approval rate of 64.0 per cent. The number of approved applications is 15.9 per cent lower than the previous quarter and 18.5 per cent lower than the number approved in the corresponding quarter of 2014-15. The number of approved revocations is equal to 3.0 per cent of live cases.

5.6 Amount Repaid

A total of £9.4 million was repaid through DAS in the third quarter of 2015-16. While this is a 2.0 per cent decrease on the amount repaid during the previous quarter, this figure represents an increase of 0.9 per cent on the corresponding quarter of the previous year

Table 2: Amount Repaid Through DAS by Quarter

Note: The published amounts have been rounded however the percentage changes have been calculated using the unrounded figures.

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6. Distribution of Statutory Debt Solutions

Statutory debt solutions in Scotland consist of bankruptcies and PTDs, which are debt relief solutions, and DAS which is a debt management solution. Non-statutory debt solutions such as Debt Management Plans or private agreements between creditors and debtors also exist, but they are not administrated by AiB.

Chart 4 shows the proportion of statutory debt solutions recorded for each quarter. This illustrates the change in distribution of bankruptcies, PTDs and DAS DPPs since 2009-10. It is important to note that the overall demand for statutory debt solutions in Scotland continues to decline.

Chart 4: Total Bankruptcies, PTDS and DAS DPPs – Distribution Breakdown

The proportion in bankruptcy has been generally declining since 2009-10. The proportion of individuals entering DAS, after a steady period of increase, has been declining in recent quarters. Following a long period of decline, the proportion of PTDs has increased in the last two quarters; this increase may have been driven by the latest changes in bankruptcy legislation. These changes in bankruptcy legislation aligned Bankruptcy and PTD's minimum contribution periods.

When the above figures are considered for the third quarter of 2015-16, bankruptcies accounted for 34.6 per cent of the total statutory debt solutions. This compares with 35.9 per cent in the previous quarter. The equivalent proportion for PTDs increased during the third quarter of 2015-16 from 47.1 per cent to 47.4 per cent. DAS, as a proportion of all statutory debt solutions, increased from 17.0 per cent to 18.1 per cent.

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7. Company Liquidations and Receiverships

This section covers receiverships and liquidations of those companies which the Court of Session has jurisdiction to wind up, and are recorded in the Register of Insolvencies (RoI).

AiB reports on the number of corporate insolvencies and member voluntary liquidations logged on the AiB's system. There is a time lag between the date when a corporate insolvency is awarded or a member voluntary liquidations is registered and when AiB receives notice. Therefore, the figures reported by AiB may not exactly reflect the number of corporate insolvencies awarded or member voluntary liquidations registered in a quarter.

Chart 5: Corporate insolvencies

The corporate insolvency statistical time series, which includes receiverships appointments, compulsory liquidations and creditors’ voluntary liquidations, shows a general upward trend between 2009-10 and the first quarter of 2012-13 followed by a significant decrease for the remainder of that year. This was followed by an upward trend at the beginning of 2013-14. The quarterly total has been declining recently, though this quarter has seen a considerable increase.

This chart also shows the total number of members’ voluntary liquidations recorded each quarter. This

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Receivership appointments - Creditor with a floating credit appoints a licensed insolvency practitioner to recover the money it is owed.

Compulsory liquidation – A winding-up order obtained from the court by a creditor, shareholder or director. Creditors’ voluntary liquidation– Shareholders of a company can themselves pass a resolution that the company be wound up voluntarily.

Member's Voluntary Liquidations - It does not involve insolvency – all creditors’ debts are paid in full.

series shows a general upward trend since the middle of 2012-13. This quarter’s figures were more than double the previous quarter with an increase of 113.5 per cent, this also represents a 62.4 per cent increase on the corresponding quarter of the previous year.

AiB received 254 notices of Scottish registered companies becoming insolvent or entering receivership in the third quarter of 2015-16. This is 41.1 per cent more than the number registered last quarter and 31.6 per cent higher than the same quarter of the previous year.

The quarterly figure consists of 172 compulsory liquidations, and 80 creditors’ voluntary liquidations. There were only 2 receiverships recorded this quarter. There were also 190 members’ voluntary liquidations, which is considerably larger compared to previous quarters. Further information is shown in table 3 below.

Table 3: Company Liquidations and Receiverships

Q3 Q4 Q1 Q2 Q3 2015-16 Q2 2014-15 Q3

Receiverships 3 2 1 0 2 -* -*

Compulsory Liquidations 135 139 126 129 172 33.3% 27.4%

Creditors' Voluntary Liquidations 55 56 70 51 80 56.9% 45.5%

Total Corporate Insolvencies 193 197 197 180 254 41.1% 31.6%

Members' Voluntary Liquidations 117 147 147 89 190 113.5% 62.4%

Percentage change 2015-16 Q3 on:2014-15 2015-16

*As the number of corporate receiverships each quarter is generally small, any changes in the number of cases between quarters can result in large percentage changes. This figure will not be reported in the table. Note: the RoI does not contain information on corporate administrations in Scotland as they are a reserved matter. This means they are not included in the corporate insolvency statistics produced by AiB. However the UK Insolvency Service do report these statistics on a quarterly basis and further information can be found on their website at https://www.gov.uk/government/collections/insolvency-service-official-statistics (Table 5 on the UK Insolvency Service statistics release contains information on Receiverships, Administrations and Company Voluntary Arrangements in Scotland).

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8. Background

Accountant in Bankruptcy (AiB) supervises all personal insolvencies in Scotland and administers those bankruptcies where appointed. Insolvent individuals in Scotland are subject to bankruptcy (sequestration) or enter PTDs under the Bankruptcy (Scotland) Act 1985. The 1985 Act was amended by the Bankruptcy (Scotland) Act 1993 and on 1 April 2008, part 1 of the Bankruptcy and Diligence etc. (Scotland) Act 2007 came into force making changes to some aspects of bankruptcy in Scotland. Changes included the introduction of LILA, a route into bankruptcy for people with low income and low assets. The changes also took a number of processes out of the Scottish Court system, reducing costs and freeing up court time.

There were a number of changes to bankruptcy, debt relief and money advice in Scotland introduced by the Bankruptcy and Debt Advice (Scotland) Act 2014 which come into force from 1 April 2015, and amended the Bankruptcy Scotland (Act) 1985. A new route into bankruptcy was introduced through the BADA(S) for people on low income who do not own property and have very little in savings or other assets. This is known as Minimal Asset Process (MAP), and it replaces LILA.

PTDs are voluntary arrangements, where the debtor passes his estate to an insolvency practitioner who arranges to repay part of the debt to creditors on the debtor’s behalf. This is similar to Individual Voluntary Agreements (IVAs) in England and Wales, although there are important differences in the way they are set up and administered.

The Debt Arrangement Scheme (DAS) is administered by AiB. Debt payment programmes approved under DAS allow individuals to repay their debts in full over an extended period of time whilst providing protection from enforcement by their creditors and safeguarding their home as long as mortgage payments are maintained. The legislation relating to DAS is contained in the Debt Arrangement and Attachment (Scotland) Act 2002 and subsequent regulations.

AiB is also responsible for receiving, extracting and recording information from certain forms relating to company liquidations and receiverships. The legislation appropriate to liquidations and receiverships is contained in the Insolvency Act 1986 and the Insolvency (Scotland) Rules 1986.

Further information on DAS, including a register of debt payment programmes, is available at http://www.dasscotland.gov.uk

Further information regarding insolvency in Scotland, including legislation, can be found on the AiB's website at www.aib.gov.uk

Official statistics are produced by professionally independent statistical staff. Further information on the standards of official statistics in Scotland can be accessed at http://www.scotland.gov.uk/Topics/Statistics/About

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AN OFFICIAL STATISTICS PUBLICATION FOR SCOTLAND

Official and National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. Both undergo regular quality assurance reviews to ensure that they meet customer needs and are produced free from any political interference. Correspondence and enquiriesFor enquiries about this publication please contact:Francisco Forner Borras,Accountant in Bankruptcy,Telephone: 0300 200 2927 (Kilwinning) 01414 278 7406 (Glasgow)e-mail: Francisco.Forner@scotland.gsi.gov.uk

For general enquiries about Scottish Government statistics please contact:Office of the Chief Statistician, Telephone: 0131 244 0442,e-mail: statistics.enquiries@scotland.gsi.gov.uk

How to access background or source data

The data collected for this statistical bulletin:☐ are available in more detail through Scottish Neighbourhood Statistics

☒ are available on the AiB Statistics webpages at:

http://www.aib.gov.uk/About/annualtargets/quarterlyreports

Details of bankruptcies, PTDs, liquidations and receiverships can be found on the Register of Insolvencies, which is maintained by Accountant in Bankruptcy and can be accessed at https://roi.aib.gov.uk/roi/

The DAS register is an online public register which holds information about those who have a DPP under DAS (https://services.aib.gov.uk/dasregister/)

☐ may be made available on request, subject to consideration of legal and ethical factors.

☐ cannot be made available by Scottish Government for further analysis as Scottish Government is not the data controller.

Complaints and suggestionsIf you are not satisfied with our service or have any comments or suggestions, please write to the Chief Statistician, 3WR, St Andrews House, Edinburgh, EH1 3DG, Telephone: (0131) 244 0302, e-mail statistics.enquiries@scotland.gsi.gov.uk. If you would like to be consulted about statistical collections or receive notification of publications, please register your interest at www.scotland.gov.uk/scotstatDetails of forthcoming publications can be found at www.scotland.gov.uk/statistics

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