Debt and Insolvency Services Stakeholder Forum

MINUTES OF MEETING

30 November 2016, 14:00 – 15:30

Atlantic Quay, Glasgow (James Watt B)

Present:

Richard Dennis (Chair)Accountant in Bankruptcy (AiB)

John CookAiB

David MenziesICAS

Andrew DouglasHMRC

Yvonne MacDermidMAS

Alex IrvineSociety of Messengers-at-Arms and Sheriff Officers

Antoinette EatonLloyds / British Banking Association

Mike NorrisJP Morgan / Bulk creditor representative

In Attendance:

Gavin Cameron (Secretary) AiB

Amanda DowseAiB

Item 1 – Welcome, introduction, apologies and acceptance of previous minutes and matters arising from previous minutes.

  1. The Chair welcomed all members and the observers to the meeting and invited round table introductions. Apologies were received from Pauline Allan, Graeme Dalgleish, Colin Soulsby, Maureen Leslie, Melanie Taylor, Fiona Coyle and Alex Reid.
  1. While discussing the minutes of the August meeting, RD said there was a strong case for one uniform tool to be adopted to record income and expenditure and establish whether surplus income is available. He restated AiB’s position, which was that Scottish stakeholders would be consulted before any final decisions to switch over were made, and that would depend in part on the impact the new tool had on the surplus income calculated. He also said he would need to be able to explain why any changes relative to the current tool were appropriate to the appropriate committee of the Scottish Parliament as regulations were progressed.
  1. In reference to paragraph 28 of the minutes, YM said MAS had held a round table discussion and the Money Advice Liaison Group had met to draw up a set of guidelines around the interaction between pensions and debt advice. These draft guidelines were to be sent to the Money Advice Service in the near future.
  1. The minutes were then accepted as a true record.

Item 2 – DISSF Brief Paper: DISSF (16-17)04

  1. RD introduced the brief paper and invited JC to discuss recent insolvency trends. JC said the last year had been an outlier in terms of the numbers and comparing the current figures with last year did not offer a true reflection of the actual long term trend. He said numbers had risen over the past year but are still down on the year before that. He also said MAP had proven popular and that overall numbers of insolvencies are expected to show a rise by the end of the year, but only from a historically low level.
  1. AE asked whether there was a risk any DAS payment distributors would be refused authorisation by the FCA. JC conceded it was a risk but said he was hopeful it wouldn’t occur and even if it did, he was confident the other payment distributors would be able to pick up the slack.
  1. YM asked whether any of those awarded bankruptcy under MAP were subsequently converted to full administration. JC said he didn’t have the precise figures to hand but said conversions were very low and were much lower than was the case under LILA. He added the evidence suggested a proportion of people decided to withdraw their application for bankruptcy altogether rather than convert from MAP to full administration.
  1. DM raised the issue of the insolvency services procurement contract and said the feedback received from insolvency practitioners was that they weren’t happy with the way the procurement exercise had gone and there was a degree of uncertainty caused by the delay, particularly in light of the recent HMRC tendering exercise which was withdrawn after bids had been received. He also noted that time and energy had been expended to submit tenders and there was a sense of frustration around the process. JC replied that this was one of the first procurement exercises carried out under new legislation and a number of technical issues came to light after tender responses had been received, prompting AiB to halt the exercise and start again. He also said much of the material interested parties had submitted as part of the first, aborted exercise could be used again, and that there were no plans to pull the whole project. An announcement was due to be made on the revised timetable shortly.

Item 3 – Legislative and consultation updates

  1. ADraised the issue Form 6.2, which creditors have to fill in to certify a debtor has not given notice for a moratorium and asked how creditors could certify such a thing if the debtor’s details had fallen off the register. RD pledged to respond with an answer in due course. It was subsequently confirmed the Register of Insolvencies retains moratorium records for one year, so from the information available, creditors would be able to complete the Form 6.2appropriately.
  1. RD said the 38 responses to the diligence consultation received to date was slightly disappointing. He went on to say AiB had not responded on how it will take forward the outcomes of the DAS and PTD reviews yet and said it would be wrong to look at the issue of equity rich trust deeds in isolation without taking other products into account. However, he said this work was almost completed and a response would be issued early in the new year.
  1. On the issue of the corporate insolvency work, RD said the working group was shortly to meet and the first draft of the rules on receivership would be considered at that meeting. This work remained on schedule to be implemented in September 2017.

Item 4 – Fees review Paper DISSF(16-17)05

  1. RD introduced the paper outlining the proposal to increase statutory fees and said AiB would need to meet the shortfall in income through this package of increases. He asked the forum whether AiB had achieved that without disincentivising the market.
  1. AE asked for opinions on why bankruptcies were going down and whether it was due to people being moved into other solutions. JC responded that there was a feeling there had been a pent up demand before the Bankruptcy and Diligence etc (Scotland) Act 2007, as it had been difficult to go bankrupt prior to this in Scotland. Afterwards, numbers did jump and he said, to a certain extent, there were no longer large numbers of people with longstanding concerns who needed to enter these solutions.
  1. RD added that creditor forbearance was also playing a part and that the overall economy was not doing too badly, with high levels of employment being one factor, for example.
  1. YM said more creditor organisations were offering clients breathing space without forcing them to go into statutory solutions. They were also being encouraged by the FCA to treat their customers fairly. MN agreed the FCA is having a significant impact on creditor behaviour and was one of the main drivers around being not entering formal bankruptcy.
  1. YM said she could not see a huge change unless there is a major shift in the overall economy. A discussion was then held around the impact of Brexit and whether that could have an impact on creditor forbearance, particularly those creditors headquartered outwith the UK. A further discussion took place around levels of personal debt and the potential impact of changes to benefits.
  1. DM raised the issue of the audit fee and felt the capped fee of £5,000 was still too high, while welcoming the move in the right direction. On the topic of the audit fee, Andrew Douglas said HMRC may consider not appointing AiB as trustee in so many cases and may look at appointing private trustees.
  1. DM went on to say that limiting a fee which was excessive in the first place was not a significant benefit. He added there may be a need for a fundamental review of how fees were charged, rather than a tweak to the existing system.
  1. AE asked whether there would be a formal consultation on the fees review. RD answered thatthe value in doing so would be limited, though AiB is keen to take stakeholder views into account in a more informal way. AE also asked whether the new fees would apply solely to new cases or would be applied retrospectively. RD responded it would only be to new cases. AE said she would like to run the proposals past some of her internal colleagues and would respond before Christmas if possible.
  1. RD said it was hoped the new fee structure would be in place by April 2017, with any changes to DAS likely to follow in July.

Item 5- Regulatory issues: updates from ICAS

  1. DM gave a short update on SIP 13, which is intended to bring clarity to the sale of assets from a bankrupt estate to a related party, and which was due to come into effect on 1 December.
  1. He also mentioned the consultation and call for evidence around bonding and the review of successive appointments. The consultation on the Code of Ethics was also discussed, in light of a shift in the attitude to referral fees by the Insolvency Service.

Item 6 – ICAS Insolvency and Restructuring conference round-up

  1. DMupdated the forum on the recent ICAS Insolvency and Restructuring conference at Gleneagles. He said it appeared to have been warmly received and feedback had been good from delegates. He singled out the presentations from Trevor Williams from Lloyds on Brexit and Ed Britten of JLT Group on the Insurance Act 2015 as being especially interesting and thought-provoking. He also said there were lively debates in the break-out groups, particularly around equity rich trust deeds.

Item 7 – Equity rich trust deeds

  1. JC led the discussion around equity rich trust deeds, which has seen some firms appearing to apply practices from the IVA process in England and Wales, whereby an additional one or two years contributions were sought instead of trying to realise equity from these properties. He said there was a concern that some potential DAS clients were being directed towards trust deeds inappropriately.
  1. He said the Form 3 specifically asked trustees to explain if equity is not being realised and that a Dear Trustee letter has been issued to require trustees to explain why a trust deed is being extended and to specify the percentage of equity being realised. This was to ensure creditors knew what they were approving. But this would not necessarily be the end of the action AiB needed to take to respond to the issue, and a consultation on the next steps would be held in the new year.
  1. AE raised the issue about the difficulty people have in actually realising equity.
  1. DM said, apart from those firms offering these services, the view of the industry was that this practice is wrong. He also said IPs took the view that AiB had a supervisory duty to uphold the law and said he didn’t think it was acceptable for a public body to ignore that duty. He was clear that this practice was about nothing other than commercial gain for the firms offering this service and was not about protecting the interests of creditors or debtors. DM also reiterated this was an abuse of the process and that non-compliance with the regulations should be reported to the RPBs.
  2. RD responded that it wasn’t clear whether this was an abuse of the process, as trust deeds were voluntary and it was incumbent upon creditors to object if they felt a trust deed was being proposed that was against their interests. He said AiB’s approach to date had been to make sure creditors were aware of what they were agreeing to.
  1. MN said creditors were increasingly of the opinion this cannot continue and that they had found RPBs ineffectual in the past, which resulted in them having to speak to IPs directly.
  1. RD said a change in the rules would be required to address the issue. DM said the industry would be disappointed if the rules were to be changed without listening to what is required. RD said AiB would consult in the new year on what further action was being proposed.

Item 8 - AoB

  1. AI alerted the forum to the introduction of the new court process for recovering small debts, which had just come into force and said there would likely be some impact of this on the insolvency sector. He said the changes had been made to make the process paperless and that sheriffs could make decisions without holding hearings. He speculated this could lead to more Time to Pay Orders and possibly fewer people applying to go onto DAS.
  1. The Chair thanked all members for attending and closed the meeting. The date of the next meeting is22 March 2017 at Atlantic Quay.

Gavin Cameron

Secretary

12December 2016