Stage Three Review – Final Report

All recommendations arising from this review are set out below. However, please find broader context and the rationale for each recommendation in the Feedback and Recommendations document, published alongside this report.

From recommendation three onwards, we have noted which principle(s) the recommendation is most closely aligned with and when the expected lead for taking forward the recommendation is a body other than AiB we have noted that too.

Purpose of the Insolvency Regime

Recommendation 1

The following aim should be introduced for the insolvency regime:

To deliver an equitable insolvency system that balances the needs of those struggling with unsustainable debts with the interests of their creditors and other borrowers.

Recommendation 2

The following principles should be introduced for the insolvency regime:

Justice

Ensure that fair and effective debt advice, debt relief and debt management is accessible to the people of Scotland.

Responsibility

Balance the interests of people in debt and their creditors and businesses by facilitating repayment of debts by those who are able and in doing so help ensure that all those who need to borrow can do so as economically as possible.

Future-focus

Provide a safe route out of current debt problems that supports people to build a stable financial situation for the future.

Incremental Improvements to the Current Solutions

Recommendation 3

A moratorium period which is triggered when a solution fails, or is about to fail, should be introduced. The moratorium should be no longer than 60 - 90 days. (Justice)

Recommendation 4

 A moratorium should be available when one party dies while in a jointly held Debt Arrangement Scheme (DAS) Debt Payment Programme (DPP) and this should be considered by AiB at the same time as recommendation 3. (Justice)

Recommendation 5

AiB should amend its rules to allow for easier transfer between existing solutions, including more seamless data transfer between eDEN, ASTRA and BASYS. (Justice)

Recommendation 6

AiB should continue to engage closely with the ongoing work of the Personal Insolvency Review being led by the Insolvency Service in England and Wales. (Justice)

Recommendation 7

The upper debt limit allowed in MAP should be increased to £50,000, and the time limit for secondary applications should be set at 6 years. (Justice)

Recommendation 8

The proposed changes to moratorium set out in recommendations 3 and 4 should include DAS clients who experience a change in circumstances which means their DPP is no longer viable and where the client has a reasonable intent to enter an alternative solution. As a further protection for this moratorium period, backdated and ongoing interest and charges should not be allowed to be immediately reapplied. They should only be reapplied if the person in debt reaches the end of the moratorium without another recognised solution in place. (Justice and Responsibility)

Recommendation 9

The basis of the Common Financial Tool should be the Standard Financial Statement, but the Scottish Government should consider setting Scotland specific ‘guardrails’ around the spending guidelines when used in the assessment of all Scottish statutory solutions, due to the particularly high prevalence of rural and island communities in Scotland. (Justice) (SG to lead)

Recommendation 10

The split of any increased income received by the client during a statutory debt solution should be divided 50/50 between the person in debt and their creditors. However, AiB should calculate a de minimis figure which is put in place before this 50/50 split comes into play. Alongside this, no barrier should be put in place to stop a person in debt contributing some or all of their additional disposable income to repaying debt through their statutory solution if they so choose. (Responsibility)

Recommendation 11

Income received by way of damages for personal injury or distress while in a statutory solution should be excluded in full from funds available to creditors. (Justice)

Recommendation 12

Where equity from a primary residence is liable to be included in funds made available to creditors within an insolvency procedure, a minimum figure should be put in place below which equity in the primary residence would be disregarded. AiB should carry out its own due process in setting an appropriate minimum figure. As with our other relevant recommendations, this figure should subsequently be uprated annually in line with inflation. (Justice and Responsibility)

Recommendation 13

AiB should develop and consult on a standard method for calculating the value of equity in a property. (Justice and Responsibility)

Recommendation 14

Scottish Government should follow-up on its previous commitment to commission independent research into used car prices and use that data to inform an appropriate new allowable limit for the value of a vehicle in various insolvency procedures. While that work is ongoing, the limit should be raised to £5,000 as a stop gap, to minimise the detriment that may be arising from the vehicle limit being unrealistically low. (Justice) (SG to lead)

Recommendation 15

Mobility scooters should be exempted from consideration as an asset in insolvency. (Justice)

Recommendation 16

The allowed level of funds in a current account at the point of applying for bankruptcy should be up to the client’s agreed monthly total expenditure amount set in the Common Financial Tool. (Justice and Responsibility)

Recommendation 17

AiB’s quarterly review meetings should continue with a view to monitoring the system on an ongoing basis, to ensure it is meeting its aims, the rules and processes remain relevant and to pro-actively identify emerging risks and issues. Fuller strategic reviews of the system should take place in three-to-five-year cycles. (Justice)

Insolvency in a Wider Context

Recommendation 18

AiB should uprate all limits and allowances stated in pound sterling within the insolvency legislation and guidance by the CPI inflation measure each April. (Justice)

Recommendation 19

The Scottish Government should consider and address the provision of consistent income maximisation as part of the broader exercise we are recommending to assess, and address, the level of need for debt advice in Scotland. (Future-focus) (SG to lead)

Recommendation 20

AiB should develop a notice that money advisers and insolvency practitioners can send to creditors when they approach them for details of claims, setting out creditor responsibilities in relation to DAS DPPs. (Responsibility)

Recommendation 21

A memorandum of understanding between AiB and the FCA should be put in place to facilitate closer working and greater information sharing about poor creditor practice. The Scottish Government should also work closely with AiB, FCA and the Insolvency Service to agree an approach to Credit Reference Agencies to improve reporting of DPPs, and other debt solutions, on credit files. (Justice, Responsibility and Future-focus) (SG to lead)

Recommendation 22

AiB should systematically collect information from advisers and insolvency practitioners about creditors that repeatedly fail to fulfil their responsibilities and share it with the regulators of those creditors. (Justice and Responsibility)

Recommendation 23

AiB, building on its existing work on language and accessibility, should collaborate with stakeholders to evolve language linked to debt, insolvency and related matters with a view to making it more positive and person-centred across creditor, IP, advice sector and AiB communications. This language should then be embedded into relevant literature and used in future legislation. (Justice)

Recommendation 24

The Debt Advice and Information Package should be revised so that it not only covers what is expected of the consumer, but also that they should in turn expect to be treated with dignity and respect by AiB and others involved in providing debt advice and administering insolvency. (Justice, Responsibility and Future-focus)

Recommendation 25

Every standard setter should review existing rules, guidance and principles to ensure they embody broad alignment with the FCA Consumer Duty, as well as including a recognition that all stakeholders in the system should be treated with dignity and respect. (Justice, Responsibility and Future-focus) (Standards Bodies to lead)

Recommendation 26

While retaining public insolvency registers, AiB should identify and implement any additional safeguards that may benefit more vulnerable people in debt who may appear on the registers. AiB should take steps to assure themselves the registers are accessible to smaller creditors and continue to learn from good practice elsewhere. (Justice)

Recommendation 27

Local authorities, housing providers and the advice sector across Scotland should take inspiration from the examples we have shared demonstrating good practice in joining up services (see our response to question 3.14 in the Feedback and Recommendations document. Advice commissioners in local and central government should also learn from the examples shared and ensure that their specifications and funding not only enable, but actively encourage, such approaches in future. (Justice and Future-focus) (COSLA to lead)

Recommendation 28

Scottish Government should widely disseminate learnings from the pilots it has funded to better join up services – including through existing AiB engagement structures. It should also collaborate with other funders to scale effective models across the country. Funding focused on connectivity should be ring-fenced for that purpose as part of our wider recommendation for innovation funding for the sector. (Justice and Future-focus) (SG to lead)

Recommendation 29

Learnings should be gathered from successful cancer navigation services – such as those provided by Macmillan at the Beatson in Glasgow – to inform approaches to implement structurally similar services that have the potential to improve the accessibility of the insolvency regime. (Justice and Future-focus)

Recommendation 30

Scottish Government and COSLA should work together to learn from the approach being taken in Fife in at least two ways – how local authorities can better utilise their own internal data to better serve their residents directly and how that data can be used to foster more effective collaboration with their local advice sector. (Justice and Future-focus) (SG and COSLA to lead)

Recommendation 31

Through the structure of its funding across social justice domains, Scottish Government should encourage a ‘no wrong door’ approach across the advice sector. (Justice and Future-focus) (SG to lead)

Recommendation 32

A ‘no wrong door’ register should be developed and introduced. The model should be co-designed with potential beneficiaries, draw on existing good practice and be in place across the country within a year of this report’s publication. (Justice and Future-focus)

Recommendation 33

Once a ‘no wrong door’ register has been established, an appropriately focused awareness-raising campaign, supported by relevant training, should take place with particular emphasis on ensuring that partners in healthcare and employability sectors are aware of how best to support patients and clients to access debt advice. (Justice and Future-focus)

Recommendation 34

Scottish Government should commission a feasibility study to consider design, engagement approach, technological requirements, legal structure and implementation strategy of a ‘tell us once’ initiative as a priority following the publication of this report. (Justice) (SG to lead)

Recommendation 35

Best practice in budgeting support should become the norm for IPs and across the advice sector. This will only need to be provided to clients however if a particular concern with budgeting has been identified through client engagement. (Justice and Future-focus) (RPBs and advice providers to lead)

Recommendation 36

Scottish Government should mandate that people have received independent debt advice prior to being able to enter any formal debt solution, including moratorium. This should be advice provided by an FCA authorised provider, or one otherwise exempt from FCA regulation by law. The Scottish Government should require that the advice provided has all available solutions in scope, so people in debt are fully informed on the best possible solution(s) available to them. (Justice, Responsibility and Future-focus) (SG to lead)

Recommendation 37

Protected Trust Deed (PTD) providers should review their client journey models to consider how they could be leveraged during the period a client is in a PTD to provide support, if necessary, on money management and budgeting. All PTD providers should have clear means to identify any money management and budgeting needs amongst their client group. DPP providers should make similar reviews of their client journeys. (Justice and Future-focus) (IPs and advice providers to lead)

Recommendation 38

When the Statement of Insolvency Practice (SIP) 3.3 is next reviewed, a focused paragraph on how and when to provide money management and budgeting advice during the period in which the IP is acting as an adviser should be added. (Justice and Future-focus) (RPBs to lead)

The ‘Market’ for Delivering Advice and Solutions in Scotland

Recommendation 39

Increased partnership working between the ‘free’ and commercial sectors should be enabled, including more forums for the two sectors to liaise, identify partnership opportunities and share good practice. Specifically, Scottish Government should introduce an initiative to support new IPs being trained within the charitable sector, with support and mentorship from the commercial sector. (Justice and Future-focus) (SG to lead)

Recommendation 40

AiB should commission research into the PTD market that takes a similar approach to recent research from the Insolvency Service into Individual Voluntary Arrangements. While the broad methodology set out by the Insolvency Service provides a helpful template, we recommend that the following enhancements are made:

• Sample to additionally include PTDs that are ongoing, with results stratified by duration
• Sample to additionally include PTDs that have been successfully completed
• The period from which sample is drawn to be expanded to at least five years

In preparing for the proposed research, AiB should briefly consult on a draft scope with sector stakeholders to build confidence in the exercise and its results. (Justice and Responsibility)

Recommendation 41

AiB should maintain its focus on market intelligence and develop contingency plans should it need to take a greater operational role in the market. AiB should prepare plans for rapidly coordinating the advice sector, should it need to manage a transfer of clients to the free sector in the event of market exit by ‘for profit’ providers. (Justice)

Recommendation 42

The Scottish Government should establish an independently led expert cross-sector working group, including representation from MaPS, to take forward a comprehensive study into the need for debt advice across Scotland. Its terms of reference should include establishing both the need and demand for debt advice across Scotland. (Justice and Future-focus) (SG to lead)

Recommendation 43

The Scottish Government should raise the need for a review of the existing debt advice levy with HM Treasury with the aim of conducting such a review together. The goal of such a review should be to find a workable approach to expanding the scope of contributors to the debt advice levy. If discussions are not fruitful in the short term, then the Scottish Government should commission its own review and publish the results. (Justice and Future-focus) (SG to lead)

Recommendation 44

The Scottish Government should establish a working group, including technology companies and representatives of FinTech Scotland, to advise them on areas for technological investment with an initial focus on investments to support smoother integration of income maximisation tools, increased client engagement and more sophisticated case management approaches. (Justice and Responsibility) (SG to lead)

Recommendation 45

AiB should convene a group of advice sector representatives so they can confidentially share the concerns that were raised in their responses to this review about inappropriately completed income and expenditure assessments and inappropriately recommended solutions. (Justice)

Recommendation 46

All solutions providers should review their discharge processes and ensure that appropriate support on transition is provided to clients. (Justice and Future-focus)

Recommendation 47

For money guidance provision being made available to people during and as they exit insolvency solutions, MaPS should work with AiB and solutions providers to explore both how to incorporate its existing resources and develop new, tailored approaches. (Justice and Future-focus) (MaPS to lead)

The Role of AiB

Recommendation 48

AiB should continue to be mindful of managing the risks of conflicts of interest occurring across its varied roles as well as considering the potential for perceived conflicts of interest when it is communicating about its work. (Justice)

Access to Insolvency for Self-Employed People and Small Business Owners

Recommendation 49

The Scottish Government should discuss widening the purpose of the debt advice levy with HM Treasury and the FCA, to include additional funds dedicated to providing advice to small businesses in financial difficulties. (Justice and Future-focus) (SG to lead)

Recommendation 50

As an interim measure, owing to significant unmet demand, additional funding should be provided by the Scottish Government to services that offer free independent debt advice to small businesses, with incentives to ensure advice is available across all relevant channels. (Justice and Future-focus) (SG to lead)

Recommendation 51

A new or amended solution to more effectively support self-employed small business owners in Scotland should be developed and introduced. This process should be collaborative and led by AiB. (Justice, Responsibility and Future-focus)

Recommendation 52

The features highlighted in the Feedback and Recommendations document should serve as a starting point for the co-design process we propose for a new or amended solution. (Justice, Responsibility and Future-focus)