Scottish Insolvency Statistics 2015-16: Quarter 2 Release

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

The key points from this release are:

  • Total personal insolvencies for this quarter, which include both bankruptcies and protected trust deeds (PTDs) totalled 2,230 which, despite being 38.9 per cent higher than the previous quarter, it is 25.4 per cent lower than the same quarter last year.

  • There were 965 bankruptcies awarded this quarter, a 27.5 per cent increase on the previous quarter.

  • The number of PTDs saw a sharp increase this quarter. The number of protected trust deeds rose 49.0 per cent from the previous quarter to 1,265.

  • The number of new debt payment programmes (DPPs) approved under DAS decreased 14.0 per cent to 456 this quarter.

  • The total repaid through DAS continues to increase, a total of £9.6 million was repaid through the second quarter of 2015-16, an increase of 1.5 per cent on the previous quarter.

  • The number of people accessing statutory debt solutions in Scotland increased for the first time in over a year. The total number of bankruptcies, PTDs and DAS for the second quarter of 2015-16 increased by 25.7 per cent.

  • The number of Scottish registered companies becoming insolvent or entering receivership decreased for the second quarter of 2015-16, with 180 companies becoming insolvent, down 8.6 per cent on the previous quarter.

    3.Key Trends

    Total Personal Insolvencies – This is the total of bankruptcies awarded and trust deeds protected

    Bankruptcies -  Bankruptcy is a formal method of dealing with debts if other options have failed or aren’t suitable for your circumstances. Being declared bankrupt means you have to hand over your estate, which includes your home, to your trustee. More+

    PTDs - 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. More+

    DAS DPPs – Debt Arrangement Scheme (DAS) is a Scottish Government debt management tool which allows someone to repay their debts through a debt payment programme (DPP). More+

    LILA - LILA is the route into bankruptcy for people who have Low Income and Low Assets. More+
     

    The longer-term trend of personal insolvencies in Scotland, which include both bankruptcies and PTDs, is represented in chart 1. Chart 1 shows historic quarterly data from 2006-07, and depicts a long-term downward trend in the number of personal insolvencies in Scotland.

    Chart 1 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. Due to a significant decrease in the previous quarter, bankruptcy figures have fallen to levels below those prior to the introduction of LILA.

    The chart also shows the overall downward trend in PTDs particularly after the 2013 regulation changes. Despite the downward trend, this quarter figures have seen a large percentage increase.

    After a steady rise and then a period of relative stability, the number of new DAS DPPs have been decreasing, particularly recently. The number  of DAS DPPs approved this quarter is now at its lowest quarterly total since 2011.

    4. Personal Insolvencies

    This section covers the statutory debt relief solutions available in Scotland which citizens can turn to when they can no longer meet their financial obligations.  Personal insolvencies in Scotland consist of both bankruptcy and protected trust deed (PTD).

    4.1  Personal Insolvencies Trends             

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

    Chart 2: Personal Insolvencies in Scotland

     

    MAP - Minimal Asset Procedure,  is a route into bankruptcy for people with few assets. MAP replaces the LILA route in to bankruptcy. More +

    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. After a period of stability in the previous financial years, the number of bankruptcies fell after the introduction of a new set of regulation changes on 1 April 2015.

    This quarter has seen an increase of 27.5 per cent in the number of bankruptcies awarded, though this is likely due to figures returning to a normal level following recent legislative changes.

    The trend of PTDs awarded each quarter has been more flat between 2008-09 and 2012-13. Since the second quarter of 2013-14, there has been a significant decrease, and the legislative changes[1] introduced in November 2013 may have contributed to the recent decline. However the latest quarter’s figures show a substantial increase, the largest increase in the number of PTDs granted in over 4 years.

    4.2  Summary bankruptcies awarded and number of PTDs registered

    There was a total of 2,230 personal insolvencies in Scotland in the second quarter of 2015-16 which represents a 38.9 per cent increase on the previous quarter, the biggest percentage increase in personal insolvencies in over seven years.

    However, the current quarter’s figures are still considerably lower (25.4 per cent) than the same quarter in the previous year.           

    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.

    *As the number of Trust Deed Petitions each quarter is generally small, any changes in the number of cases between quarters can result in large percentage changes. Therefore, this figure will not be reported in the table.

     

    4.3  Bankruptcies

    This quarter 965 bankruptcies were awarded, an increase of 27.5 per cent on the previous quarter. Following a bedding-in period of new legislation[2], AiB has worked with stakeholders to ensure that bankruptcy remains accessible to those in need of financial assistance. This increase in bankruptcies awarded could represent a normalisation of  the level of bankruptcies awarded after recent legislation changes. However compared with the same quarter in the previous year, bankruptcies have fallen 41.7 per cent which follows the long-term trend of decreasing numbers of personal insolvencies.      

    The 965 individual awards of bankruptcy this quarter can be broken down as follows:

    697 awards were made as a result of debtor applications to AiB, an increase of 52.2 per cent on the previous quarter and 47.0 per cent lower than the same quarter last year. Of these, 355 were awarded bankruptcy through the MAP route. This accounts for50.9 per cent of the total debtor applications.

    268 awards resulted from petitions to the courts by creditors. This is a 10.1 per cent decrease compared to the previous quarter and 20.7 per cent lower than the same quarter last year.

    No awards were made as a result of petitions to the court by trustees in a trust deed. There was only 1 in the previous quarter and 2 awards in the same quarter last year.

    Applications received

    There are different routes to submit an application for bankruptcy. A debtor may apply to AiB for their own bankruptcy or a creditor can present a petition at a sheriff court to sequestrate - meaning, make someone bankrupt. A deceased individual’s estate can be made bankrupt by an executor. Not all the applications for bankruptcy result in an award being made.  

    AiB received 760 debtor applications for bankruptcy in the second quarter of 2015-16. This is 33.6 per cent higher than the previous quarter and 42.9 per cent lower than the corresponding quarter of the previous year. As highlighted, it is likely that the number of applications are rising back to previous levels following  a ‘bedding-in’ following a change in legislation.

    At the end of the second quarter, 111 applications were still being processed. At the end of this quarter, 22 applications were rejected as the criteria for bankruptcy had not been demonstrated and 22 applications were returned due to application errors.

    Case administration

    In Scotland, a trustee is appointed to administer each bankruptcy. The Accountant (in Bankruptcy) will be the trustee unless an insolvency practitioner is nominated to act. In a Minimal Asset Process case, The Accountant must act as trustee. In the second quarter of 2015-16, The Accountant was appointed trustee in 735 cases awarded, representing 76.2 per cent of bankruptcies for the quarter.

    4.4  Protected Trust Deed - PTDs

    The number of PTDs increased sharply with a total of 1,265 recorded in the second quarter of 2015-16. This is an increase of 49.0 per cent from the previous quarter.

    Legislative changes in bankruptcies means that PTDs and bankruptcies now have the same contribution duration (4 years) meaning a debtor choosing a PTD would no longer pay an extra years contribution. This could lead to more debtors choosing PTDs instead of bankruptcies, and drive up the number of PTDs registered.

    Following the long-term trend of decreasing personal insolvencies and despite this quarter 49.0 per cent growth, this quarters figures are 5.4 per cent lower than the total recorded in the corresponding quarter of the previous year. Further information can be found in Table 1.

    5. Debt Arrangement Scheme - DAS

    The Debt Arrangement Scheme (DAS) is a statutory debt management solution run by the Scottish Government. Under DAS, a debtor commits to a Debt Payment Programme (DPP) which allows them to repay their debts based on their disposable income while they are protected from creditors taking any action against them to recover their debt. For more information on DAS please see the DAS website

    5.1 Summary

    There were over 14,000 live-cases at the end of Q2 2014-15; this is a 2.4 per cent decrease on the previous quarter. The decrease in the number of live cases results from a combination of a 14 per cent decrease in the number of applications approved and a 19 per cent increase in the number of applications completed.

    However the total amount paid through DAS continues to increase. A total of £9.6 million was paid back this quarter, an increase of 1.5 per cent.

    5.2 Applications Approved                              

    During the second quarter of 2015-16 there were 456 DPPs approved under DAS. This is a 14 per cent decrease on the previous quarter and 60.8 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).

    Chart 3: DAS DPPs approved

    Chart 3 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. This substantial upturn was a result of changes to the legislation [3] and improvements to its IT system.

    In recent quarters, the total number of approved DPPs under DAS has been declining. Investigations conducted by AIB highlighted several factors as the possible causes of the drop in approved DAS DPPs.

    Some money advisers that were contacted believe that creditors are now more inclined to agree to an informal non-statutory Debt Management Plan (DMP). These products may freeze interest and charges, but offer less protection than a DAS DPP.

    In addition, DAS has also been subject to recent legislative and operational change which may have affected the volume of DAS DPPs approved.

    Finally, money advisers also think that the decline in the number of DAS approved could also reflect a decrease in the need of debt management products.

    5.3 Applications Completed

    A total of 357 DAS DPPs were completed in the second quarter of 2015-16 which is 19.0 per cent higher than the total completed in the previous quarter. This is also a 55.9 per cent increase compared to the same quarter of the previous year.                                                       

    Since the average length of a DAS DPP is around 7 years, we can expect a steady rate of increase until 2018, followed by a lower but steady volume of completions in line with current applications approved.

    5.4 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 DAS DPP.

    In the second quarter of 2015-16, a total of 684 applications to vary a DPP under DAS were approved while 20 were rejected. The number of approved applications is 26.2 per cent higher than the previous quarter and 15.9 per cent lower than the number approved in the same quarter of the previous year.  The number of approved variations is equal to 4.9 per cent of live cases

    5.5 Revocations[4]


    A total of 491 applications to revoke a DAS DPP were approved in the second quarter of 2015-16 and 255 were rejected. This is an approval rate of 65.8 per cent.

    The number of approved applications is 3.7 per cent lower than the previous quarter and 3.7 per cent lower 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.

     


     

    5.6 Amount Repaid

    A total of £9.6 million was repaid through DAS in the second quarter of 2015-16. This is a 1.5 per cent increase on the amount repaid during the previous quarter. This is also 2.1 per cent higher than the amount repaid during the corresponding quarter of the previous year. Further details are in table 2 below.

    Table 2: Amount Repaid Through DAS by Quarter

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

    6. 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 4 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. It is important to note that the overall demand for statutory debt solutions in Scotland continues to decline, and at an increasing rate.

    Chart 4: Total Bankruptcies, PTDS and DAS DPPs – Distribution Breakdown

    The proportion in bankruptcy has been generally declining since 2009-10. The proportion of individuals entering DAS, after a steady period of increase, has been more stable in recent quarters. However, the relative volume of DAS cases has shown a decline last quarter. Following a long period of decline, the proportion of PTDs has increased in the last two quarters; this increase may have been driven by the latest changes in bankruptcy legislation. These changes in bankruptcy legislation  aligned Bankruptcy and PTD's  minimum contribution periods. 

    When the above figures are considered for the second quarter of 2015-16, bankruptcies accounted for 35.9 per cent of the total statutory debt solutions.  This compares with 35.4 per cent in the previous quarter. The equivalent proportion for PTDs increased in the second quarter of 2015-16 from 39.7 per cent to 47.1 per cent. DAS, as a proportion of all statutory debt solutions, decreased from 24.8 per cent to 17.0 per cent.

    7. Company Liquidations and Receiverships                  

    This section covers receiverships and liquidations of those companies which the Court of Session has jurisdiction to wind up, and are recorded in the Register of Insolvencies (RoI).
    Chart 5: Corporate insolvencies  

    Receivership appointments - Creditor with a floating credit  appoints a licensed insolvency practitioner to recover the money it is owed.

    Compulsory liquidation – A winding-up order obtained from the court by a creditor, shareholder or director.

    Creditors’ voluntary liquidation– Shareholders of a company can themselves pass a resolution that the company be wound up voluntarily.

    Member's Voluntary Liquidations -  It  does not involve insolvency – all creditors’ debts are paid in full.

    Total Corporate Insolvency time series, which includes receiverships appointments, compulsory liquidations and creditors’ voluntary liquidations, shows a general upward trend between 2009-10 and the first quarter of 2012-13 followed by a significant decrease for the remainder of that year. This was followed by an upward trend at the beginning of 2013-14. The quarterly total has been declining recently.

    This chart also shows the total number of members’ voluntary liquidations recorded each quarter. This series shows a general upward trend since the middle of 2012-13; followed by a fall this quarter.

    AiB received 180 notices of Scottish registered companies becoming insolvent or entering receivership in the second quarter of 2015-16. This is 8.6 per cent lower than the number registered last quarter and 13.9 per cent lower than the same quarter of the previous year.

    The quarterly figure consists of  129 compulsory liquidations, and 51 creditors’ voluntary liquidations. There were no receiverships recorded this quarter. There were also 89 members’ voluntary liquidations, which is considerably lower compared to previous quarters. Further information is shown in table 3 below.

    Table 3: Company Liquidations and Receiverships

    *As the number of corporate receiverships each quarter is generally small, any changes in the number of cases between quarters can result in large percentage changes. This figure will not be reported in the table.

    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).

    Accountant in Bankruptcy (AiB) 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), and it replaces LILA. Debtors will receive discharge after 6 months, 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 AiB. 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.

    AiB 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 AiB'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 in more detail through Scottish Neighbourhood Statistics    

    ☒ 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/)

    ☐ may be made available on request, subject to consideration of legal and ethical factors.

    ☐ cannot be made available by Scottish Government for further analysis as Scottish Government is not the data controller.    

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    [1] http://www.legislation.gov.uk/ssi/2013/318/contents/made

    [2] 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. 

    [3] http://www.legislation.gov.uk/ssi/2011/141/contents/made

    [4] There are a number of  grounds where the debtor, a money adviser acting on behalf of the debtor, or a creditor in the DAS DPP can apply to revoke a DAS 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 DAS DPP is automatically revoked if the debtor applies and is awarded bankruptcy or signs a trust deed which becomes protected.

    A total of 491 applications to revoke a DAS DPP were approved in the second quarter of 2015-16 and 255 were rejected. This is an approval rate of 65.8 per cent.

    The number of approved applications is 3.7 per cent lower than the previous quarter and 3.7 per cent lower 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.