Mike Dailly offers the view that the insolvency industry in Scotland often preys on the misery of the vulnerable.
Not every business does badly in a recession. Some do very well indeed. The following case is fairly typical. It illustrates something worryingly wrong and unfair at the heart of the insolvency industry in Scotland.
John (not his real name) was referred to Govan Law Centre (GLC) by a psychiatric hospital as his home was being sold to pay off his debts.
John lives with a severe mental illness. His present episode has been ongoing for the best part of 10 years. He has long periods where he is withdrawn, he disengages, struggles to care for himself, and suffers acute paranoia.
The medical report we obtained confirmed both his social and cognitive functioning are significantly impaired. As a consequence, he struggles to organise his finances.
John, supposedly, had a debt of £13,000 council tax arrears. His council made him bankrupt and an insolvency practitioner was appointed to realise his assets. The insolvency firm put his house up for sale to pay off his debts and slapped on costs of over £10,000.
John’s debt was now almost £25,000. His home which he had paid off over the years was being sold to pay his two biggest debtors the council and insolvency practitioner.
GLC not only proved he didn’t owe any council tax arrears, but that he was actually owed state benefits he hadn’t claimed. The council tax debt and costs were dropped, however the £10,000 debt to the insolvency practitioner still stands and they are claiming it.
John is not our only case. When Janice (not her real name) split up with her husband he had business debts of over £20,000. He was made bankrupt and the Accountant in Bankruptcy sought to force the sale of her jointly owned family home, making her and her children homeless. The bankruptcy fees and charges exceeded £20,000.
When people find themselves in financial distress they are vulnerable. If they own an asset with some capital equity – like their home – they may feel that money which has taken many years to accrue is being instantly syphoned off in a massive fees and charges grab. It is. That’s the gravy train of the insolvency industry in Scotland.
And creditors ride that train too. In bankruptcy cases they enjoy 8 per cent interest per annum until they get paid – while most savers would be lucky to get 1 per cent interest on an ISA.
We have created an industry that all too often prays on the misery of the vulnerable, taking money from people who can’t do anything about it. It’s wrong.
Of course we all need paid, and I am not suggesting insolvency practitioners don’t merit the middle class lifestyle they enjoy. But they might want to ask themselves this; is this really why you went to accountancy school? To earn such a lucrative living from Scottish homeowners in severe financial crisis?
So we need to do something about it, and this one falls under the responsibility of the Scottish Government. The system is out of kilter, it is unjustifiably expensive especially in relation to the size of debts, in short it’s a cash cow and insolvency firms need to stop milking people when they hit rock bottom.
GLC has a track record of taking on vested interests. We helped take on property factors forcing the government to regulate them and we took on sheriff officers to end poindings and warrant sales. Insolvency practitioners need to be better regulated in the consumer interest.
I am asking the Scottish Government to undertake research so we can assess the extent of the problem, and the debate what the Scottish Parliament can do about it.
- Mike Dailly is the principal solicitor of Govan Law Centre.