Scottish Insolvency Statistics 2015-16: Quarter 1 Release

Introduction

This release provides Scottish insolvency statistics compiled by Accountant in Bankruptcy (AiB) for the first quarter of 2015-16.  Statistics relating to the Debt Arrangement Scheme (DAS) are also reported.  The figures are collated to 30 June  2015. The release includes both quarterly and annual statistics.

Key Points

The key points from this release are:

  • Total personal insolvencies, which include both bankruptcies and protected trust deeds (PTDs) totalled 1,606, which is the lowest level in over 14 years.
     
  • The number of bankruptcies awarded this quarter decreased by 56.5 per cent as 757 were awarded.
     
  • The number of PTDs saw a slight increase this quarter. The number of trust deeds protected rose 1.8 per cent from the previous quarter to 849.
     
  • The number of new debt payment programmes (DPPs) approved under DAS continues to decrease, this quarters total fell 16.3 per cent to 530. This represents the lowest quarterly total in over four years.
     
  • A total of £9.5 million was repaid through DAS in the first quarter of 2015-16, an increase of 0.8 per cent on the previous quarter.
     
  • The number of people accessing statutory debt solutions in Scotland continues to decline, and at an increasing rate. The total number of bankruptcies, PTDs and DAS for the first quarter of 2015-16 fell by just over a third.
     
  • The number of Scottish registered companies becoming insolvent or entering receivership remained level for the first quarter of 2015-16, with 197 companies becoming insolvent.

Key Trends

The longer-term trend of personal insolvencies in Scotland is represented in chart 1 below, with historic quarterly data shown from 2006-07. This illustrates the significant increase in bankruptcies awarded in the third quarter of 2008-09 following the introduction of the Low Income Low Asset (LILA) route, which widened access to bankruptcy and the general downward trend since then. A sharp decrease in this quarter has seen bankruptcy figures fall to levels below those prior to the introduction of LILA.

Personal insolvencies, which include both bankruptcies and PTDs have decreased, due to a sharp decrease in the number of bankruptcies, which are now at their lowest since the fourth quarter of 2000-01. The chart also shows the overall downward trend in PTDs, despite a small increase this quarter.

After a steady rise and then a period of relative stability, the number of new DAS DPPs has been decreasing, particularly recently. The number  of DAS DPPs approved this quarter is now at its lowest quarterly total since the fourth quarter of 2010-11.

Chart 1: Total Bankruptcies, PTDS and DAS DPPs – Longer-term Trend

Personal Insolvencies

Personal insolvency figures consist of the number of bankruptcies awarded and the number of PTDs registered. There was a total of 1,606 personal insolvencies in Scotland in the first quarter of 2015-16 which is the lowest combined total since the fourth quarter of 2000-01 – over 14 years ago. This represents a 37.6 per cent decrease on the previous quarter and is also a 45.9 per cent decrease from the total recorded in the same quarter of the previous year.

Bankruptcies

In total there were 757 awards of bankruptcy in the first quarter of 2015-16 which is a 56.5 per cent decrease on the previous quarter. This also represents a drop of 56.9 per cent awarded compared to the equivalent quarter of the previous year.

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.

AiB is committed to working with stakeholders to streamline these new processes and has already made operational changes to the way in which certain applications can be made, in order to ensure that debt relief remains accessible to all. AiB’s  Insolvency Registrations Team are conducting, on average, 2–3 training sessions per week for money advisers and insolvency practitioners to assist them in using the new system and processes. AiB will continue to work with stakeholders, to deliver further improvements, where there is evidence to support the need to make changes.

This ‘bedding-in’ period coupled with the rise in applications received in the previous quarter due to the impending legislative changes are both factors which will have contributed to the fall in the number of bankruptcies awarded. Other factors may also be in play, which may not be identified until further data is available.

The 757 individual awards of bankruptcy this quarter can be broken down as follows:

  • 458 awards were made as a result of debtor applications to AiB, a decrease of 65.6 per cent on the previous quarter and 68.0 per cent lower than the same quarter last year. Of these, 146 were awarded bankruptcy through the MAP route. This is 31.9 per cent of the total debtor applications.
  • 298 awards resulted from petitions to the courts by creditors. This is a 27.0 per cent decrease compared to the previous quarter although 6.0 per cent lower than the same quarter last year.
  • 1 award was made as a result of petitions to the court by trustees in a trust deed. This is the same number as the previous quarter and a decrease from 9 awards on the same quarter last year.

PTDs

The number of PTDs increased with a total of 849 recorded in the first quarter of 2015-16. This is an increase of 1.8 per cent from the previous quarter, however this also represents a decrease of 30.0 per cent from the total recorded in the corresponding quarter of the previous year. Further information is shown in table 1 below.

Regulation changes in November 2013 increased the contribution period for a PTD from three years to four years. This means that a debtor opting for a PTD over bankruptcy would pay contributions over a longer period (an extra year) and this may have contributed to the decline in PTDs since then. However from April 2015, under the new bankruptcy legislation, the contribution period under bankruptcy has increased to the same number of years, which means both of these statutory debt relief solutions now have the same contribution period.

Table 1: Personal Insolvencies by Quarter

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.

*table amended 22 July 2015 after first release to amend calculation error

 

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

Chart 2: Personal Insolvencies in Scotland

 

The general trend is that the number of bankruptcies awarded each quarter has been declining since the third quarter of 2008-09, with the exception of the first quarter of 2012-13 when changes to the bankruptcy fee structure resulted in a substantial increase in the number of applications received. In more recent quarters, the number of bankruptcies has been more stable, however the most recent quarter has seen a sharp fall in the number of bankruptcies. As mentioned above, it is likely that the substantial increase in the volume of applications received in March 2015 in order for those debtors to have their bankruptcy awarded under the previous legislation, along with the ‘bedding in’ of recent changes to the legislation, including the introduction of MAP to replace LILA will have contributed to this fall.

The trend of PTDs awarded each quarter has been more flat between 2008-09 and 2012-13. Since the second quarter of 2013-14, however, there has been a significant decrease,  and the legislative changes introduced in November 2013 may have contributed to the recent decline.

Table 2 below shows the number of personal insolvencies recorded each year from 2005-2006 to 2015-16 to date. This shows that the total revised personal insolvencies figure for 2014-15 was 11,169 which is a decrease of 19.0 per cent from the previous year. This is the lowest annual number of personal insolvencies recorded since 2004-05. The number of bankruptcies awarded declined by 5.4 per cent in 2014-15 while the number of PTDs recorded was down by 33.6  per cent

Table 2: Personal Insolvencies by Financial Year

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.

*table amended 22 July 2015 after first release to amend calculation error

Note: LILA route to bankruptcy introduced at start of 2008-09 which widened access to bankruptcy resulting in a significant increase in the number of bankruptcies awarded.

Debtor Applications

AiB received 367 debtor applications for bankruptcy in the first quarter of 2015-16.  This is a 74.9 per cent decrease on the previous quarter and 73.9 per cent lower than the corresponding quarter of the previous year. As highlighted, it is likely that the rise in applications received in March 2015 in order for those debtors to have their bankruptcy awarded under the previous legislation, along with the ‘bedding in’ of recent changes to the legislation will have contributed to this decrease.

At the end of the first quarter, 93 applications were still being processed. At the end of this quarter, 17 applications were rejected as the criteria for bankruptcy had not been demonstrated and 2 applications were returned due to application errors.

Case Administration

In Scotland, a trustee is appointed to administer each bankruptcy.  A nominated insolvency practitioner may be appointed as trustee or the Accountant in Bankruptcy may be appointed.  In the first quarter of 2015-16, the Accountant in Bankruptcy was appointed trustee in 575 cases awarded, representing 76.0 per cent of bankruptcies for the quarter. This is a lower proportion than in previous quarters.

Company Liquidations and Receiverships

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

AiB received 197 notices of Scottish registered companies becoming insolvent or entering receivership in the first quarter of 2015-16.  This is the same number as the last quarter although the total is 21.2 per cent lower than the same quarter of the previous year.

The quarterly total figure consists of  1 receivership, 126 compulsory liquidations, and 70 creditors’ voluntary liquidations. There were also 147 members’ voluntary liquidations. Further information is shown in table 3 below.

Table 3: Company Liquidations and Receiverships

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).

Chart 3: Corporate Insolvencies in Scotland

Chart 3 above shows the quarterly volume of Scottish corporate insolvencies recorded on the RoI since 2009-10. This series, which includes receiverships, compulsory liquidations and creditors’ voluntary liquidations, shows a general upward trend between 2009-10 and the first quarter of 2012-13 followed by a sharp decrease for the remainder of that year. Following an upward trend at the beginning of 2013-14, the quarterly total has been declining in more recent quarters.

This chart also shows the total number of members’ voluntary liquidations recorded each quarter and this series is showing a general upward trend since the middle of 2012-13.

Debt Arrangement Scheme

Applications Approved

During the first quarter of 2015-16 there were 530 DPPs approved under DAS. This is a 16.3 per cent decrease on the previous quarter and 58.0 per cent lower than the same quarter in the previous year. This is the lowest quarterly total in over four years (since the fourth quarter of 2010-11). Further information is in table 4 below.

Table 4: Approved Debt Payment Programmes by Quarter

Chart 4 below 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, followed by a more downward trend, particularly in recent quarters.

Chart 4: DAS DPPs Approved

Applications Completed

A total of 300 DAS DPPs were completed in the first quarter of 2015-16 which is 13.6 per cent higher than the total completed in the previous quarter. This is also a 57.9 per cent increase compared to the same quarter of the previous year. Further information is in table 5 below.

Table 5: Completed Debt Payment Programmes by Quarter

The uptake in DAS was initially slow until changes to the legislation and improvements to its IT system led to a substantial upturn in applications from 2011 onwards. Since the average length of a DPP is around 7 years, we can expect a steady rate of increase until 2018 when it is likely completion numbers will increase significantly in line with this more recent growth in approved applications.

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 DPP.

In the first quarter of 2015-16, a total of 542 applications to vary a DPP were approved while 27 were rejected. The number of approved applications is 56.2 per cent lower than the previous quarter and 6.9 per cent higher than the number approved in the same quarter of the previous year.  The number of approved variations is equal to 3.8 per cent of live cases. Further details are in table 6 below.

Table 6: Applications to Vary a Debt Payment Programme by Quarter

r - Figures for 2014-15 were 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.

Revocations

A DPP is automatically revoked if the debtor applies and is awarded bankruptcy or signs a trust deed which becomes protected. There are also a number of grounds where the debtor, a money adviser acting on behalf of the debtor, or a creditor in the DPP can apply to revoke a 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 total of 510 applications to revoke a DPP were approved in the first quarter of 2015-16 and 279 were rejected. This is an approval rate of 64.6 per. The number of approved applications is an 29.8 per cent increase on the previous quarter and 10.4 per cent higher than the number approved in the corresponding quarter of 2014-15. 

The number of approved revocations is equal to 3.5 per cent of live cases. Table 7 below provides further information.

Table 7: Applications to Revoke a Debt Payment Programme by Quarter

Amount Repaid

A total of £9.5 million was repaid through DAS in the first quarter of 2015-16. This is a 0.8 per cent increase on the amount repaid during the previous quarter. This is also 11.0 per cent higher than the amount repaid during the corresponding quarter of the previous year. Further details are in table 8 below.

Table 8: Amount Repaid Through DAS by Quarter

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

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 5 below 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.

Chart 5: Total Bankruptcies, PTDS and DAS DPPs – Distribution Breakdown

This chart shows the proportion in bankruptcy has been generally declining since 2009-10, although increased this quarter. The proportion of individuals entering DAS, after a steady increase, has been more stable in recent quarters, although this has decreased in the latest quarter. The proportion of individuals with a PTD has been declining, particularly in more recent quarters. As mentioned earlier in this report, this may be down to the changes in regulations introduced in November 2013.

When the above figures are considered for the first quarter of 2015-16, bankruptcies accounted for 35.4 per cent of the total statutory debt solutions.  This compares with 53.6 per cent in the previous quarter. The equivalent proportion for PTDs increased in the first quarter of 2015-16 from 26.9 per cent to 39.8 per cent. DAS, as a proportion of all statutory debt solutions, increased from 19.5 per cent to 24.8 per cent.

When considering the above chart, it is important to note that the overall demand for statutory debt solutions in Scotland continues to decline, and at an increasing rate. In 2012-13, the number of individuals entering bankruptcy, a PTD or DAS decreased by 8.2 per cent, while in 2013-14, the rate of decline increased to 15.1 per cent. In 2014-15, this rate of decline was 16.7 per cent.

Background Notes

Accountant in Bankruptcy 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 significant 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.

A new route into bankruptcy has been introduced 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). Debtor’s will receive discharge after 6 months, if they if they continue to meet the MAP criteria, (cases will be converted to full administration where it is found that debtor’s do not meet MAP criteria);

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 Accountant in Bankruptcy.  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.

Accountant in Bankruptcy 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 Accountant in Bankruptcy’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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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 enquiries

For 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 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/)

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