Scottish Debt Arrangement Scheme Extended to Partnerships and SMEs

The Debt Arrangement Scheme (the Scheme) allows debtors to propose a debt repayment programme to their creditors (known as a Debt Payment Programme, or DPP). If approved, no additional interest or charges can be added to the debt and creditors are prevented from taking enforcement action against the debtor whilst payments are being made under the DPP. The Scheme was initially available only to individuals and sole traders resident in Scotland. However, in December 2014 it was widened to include:

• partnerships;
• trusts; and
• small to medium sized unincorporated businesses

where the entity has a place of business in Scotland, or was formed under Scots law.
There is currently no limit on the amount of debt that can be repaid via a DPP proposed by an individual and also no limit on the amount of time over which the debt can be repaid. However, under the new provisions, when one of the entities noted above makes an application for a DPP, that application must include a statement from the debtor’s money advisor that he believes that the debtor can make the payments set out in the DPP within a period of 5 years from the date of the application.

Creditors have 21 days to approve or reject the terms of the DPP. If no response is received from a creditor within that timeframe, that creditor is deemed to have approved the terms of the DPP. The Accountant in Bankruptcy, as the Scheme administrator, has the power to approve a DPP in the event that it considers the DPP fair and reasonable, regardless of the response from the creditors.

Comment

The Scheme has proved very popular with individual debtors – in the quarter to 30 September 2014, 1,156 DPPs were approved and a total of £9.4 million of debt was repaid, which corresponds with the lowest level of sequestrations in 6 years, recorded in the same quarter. The intention of extending the application of the Scheme is to avoid the unnecessary insolvencies of these entities; by allowing some extra ‘breathing space’ it is hoped that these entities will continue to trade whilst at the same time dealing with their debt problems.

From a creditor’s point of view, it’s important to be aware of the likely increase in DPPs as a result of the extension. Care should be taken to respond within the 21 day notice period to avoid losing the opportunity to object.