Home Owner and Debtor Protection (Scotland) Act 2010

Richard GardinerInsolvency Practitioner

Thomson Cooper

Background

• Economic climate – global banking crisis• Rise in repossessions• Housing market conditions

Repossessions Working Group• Set up January 2009 – concluded in May 2009

(reconvened Spring 2010)• To look specifically at legal measures and other

forms of help for struggling home-owners • 28 recommendations covering: legal changes, advice,

financial support, joint working, data collection, court processes and legal aid.

• Reconvened to look at tenants of defaulting owners.• Some work continues in Repossessions Advice Group

• Legislate to strengthen protection for home-owners• Address gaps in advice provision• Lenders to exercise forbearance• Lenders and courts to use plain English• Eligibility for legal aid to be kept under review• Better Scottish-specific data on mortgage arrears

and repossessions

Some key recommendations

Home Owner and Debtor Protection (Scotland) Act 2010

• Passed 11th February 2010; gained Royal Consent 18th March 2010; main commencements 30th September 2010.

• Part 1 deals with repossessions; part 2 with sequestration and trust deeds.

Part 1 amends the following Acts• Conveyancing and Feudal Reform (Scotland) Act 1970• Heritable Securities (Scotland) Act 1894 • Mortgage Rights (Scotland) Act 2001 (Includes repeal of Section 2)

Overview of HODP Act• Requires all repossession cases to call in court (except

voluntary surrenders)• Establishes a set of minimum steps to be taken before a

creditor can commence legal action: “Pre Action Requirements”.

• Opens up scope for lay representation• Allows for recall of decree.• Certain transitional arrangements

Pre Action Requirements• Modelled on Pre Action Protocol in England and

Wales (Nov 2008)• Consistent with MCOB 13• Lenders submit a PARs checklist to Court.• Clear information about arrears and other expenses• Reasonable efforts made to make arrangements to

clear debt• Desist from action if alternative arrangements are

being made

Part 2- Sequestration and Trust Deeds

Section 9 - Certificate for SequestrationSection 10 - Trust DeedSection 11 - Power in relation to debtors

family homeSection 12 – Abolition of requirement to

advertise in Edinburgh GazetteComes into force 15th November 2010

S9 Certificate for SequestrationCurrent routes into Bankruptcy• Apparent insolvency• Trust deed which did not become protected or

has failed• Meet low income low asset (LILA) criteria• Concurrence of a qualified creditor

S9 Certificate for Sequestration

• S9 of the 2010 Act amends The Bankruptcy (Scotland) Act 1985, abolishing the concurrence of a qualified creditor route into sequestration.

• and introduces a new route: “Certificate for sequestration”

S9 Certificate for Sequestration

• The new certificated route into sequestration is a route that is available:

– When a certificate is granted by an authorised person; and

– It certifies that, based on the information given to the adviser, the debtor is unable to pay debts as and when they fall due

S9 Certificate for Sequestration• An authorised person will be:

– Persons qualified to act as insolvency practitioners in accordance with the Insolvency Act 1985 or work for IP and have been given authority by that IP to act on their behalf

– Money advisers working for an agency which has been accredited at Type II of the National Standards for Information and Advice Providers

– Approved Money Adviser for the DAS– CABx money advisers– Local authority money advisers

• Authorised persons cannot be associates of the debtor as defined in S74 of the 1985 Act

S9 Certificate for Sequestration

• Printed on the headed notepaper of the organisation to which the authorised person belongs

Form contains:– debtor details– authorised person details, signature and date– debtor declaration, signature and date

S9 Certificate for Sequestration

• No fee is chargeable for granting a certificate for sequestration

• The Certificate for Sequestration is valid for thirty days from the date signed by the authorised person

• Applications made after the 30 day period will be rejected by the AiB and debtor will lose their £100 fee

S9 Certificate for SequestrationEligibility criteria• Must owe £1,500• Must be living in Scotland, or;• Have lived in Scotland during last year• Must have not been made bankrupt in last five

years• Must pay fee of £100 (up front!)

S10 Trust Deeds

• Creates a new type of trust deed “Section 10 TD” where the debtors principal home will not be included– Providing a secured creditor holds a security over it;

and– The secured creditor agrees before the trust deed is

granted not to make a claim for any of the debt in respect of which the security is held

• Trust Deed will become protected in normal way

S10 Trust Deeds• If the secured debt is excluded from the Trust Deed

– The terms of repayment are not affected– The secured lender will not vote in the trust deed, nor receive a

dividend– The debtor will not be discharged from their secured debts

• The secured creditor will not be entitled to– Make a claim in respect of the secured debt– Do diligence against assets covered by the trust deed– Or petition for the debtor’s sequestration

• Unless the debtor does not comply with their obligations owed to the secured creditor in relation to the secured debt.

S10 Trust DeedsExclusion of a secured lender• Only likely to be agreed when very low equity in

property• If creditors refuse to protect the trust deed client may

have to amend trust deed to allow property to vest in trustee

• Introduced to bring peace of mind to clients at outset of trust deed that home will not be at risk

• If creditors agree to protect trust deed then property will not vest in trustee

S11 Powers in Relation to the Debtors Family Home

• Currently sheriff’s on application by a trustee (in bankruptcy) to sell a family home, can:– refuse to grant the application; or – postpone granting the application for up to 12 months

• Section 11 of the 2010 Act amends this power to allow the sheriff to postpone granting the application for up to 3 years.

• Before applying to the Sheriff, the trustee must give notice of the proceedings to the local authority in whose area the debtor’s home is situated.

S11 Powers in Relation to the Debtors Family Home

• Where home has vested in trustee in protected trust deed the sheriff will also be able to

– refuse to grant the application; or – postpone granting the application for up to 3 years

– Before applying to the Sheriff, the trustee must give notice of the proceedings to the local authority in whose area the debtor’s home is situated.

S12 Abolition of requirement to advertise in Edinburgh Gazette

• A biweekly newspaper published by Stationery Office• It is not necessary for a trustee to send a notice

advertising the awarding of sequestration to the Edinburgh Gazette

• Proposal to amend PTD Regulations 2008 to bring trust deeds into line with sequestrations

• Creditors have free access to the register of Insolvencies

Amendment of the Debt Arrangement and Attachment (Scotland) Act 2002

• Section 11(1)(b) of the 2002 Act• Articles exempt from attachment • Vehicle which is reasonably required by the

debtor• Value not to exceed £3,000

(Raised from previous value of £1,000)

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