David Menzies (pictured) responds to allegations that the insolvency profession in Scotland preys on the vulnerable.
I read with interest the views expressed by Mike Dailly of Govan Law Centre in his blog published inScottish Legal News on 24 February 2015. The blog raises valid concerns about debt, mental health issues and vulnerable persons, the legal system surrounding collection of council tax debt, and the statutory interest regime. The conclusion that the insolvency profession “preys on the misery of the vulnerable” is however far from reality.
The insolvency profession is one of the most highly regulated professions in the UK and is recognised as being one of the best performing in the world, ranking 13th in a recent World Bank survey. Reports published by theAccountant in Bankruptcy demonstrate a trend of increasing returns to creditors in Scottish insolvency processes and costs of insolvency processes being reduced.
While it would clearly be inappropriate to comment on the two specific case examples provided by Mr Dailly there are some general comments which can be made:
- The insolvency profession recognises that debt and debtor vulnerability go hand in hand. We take that responsibility extremely seriously. TheCampaign for Awareness of Mental Illness Among Debtors(CAMIAD) presented at a recent conference for the insolvency profession in Scotland to highlight the issue and provide training on how to deal with and support debtors in that situation.
- It is almost impossible for an insolvency practitioner to distinguish between a debtor who does not engage with the trustee as a result of a mental health issue and a debtor who is simply ignoring the trustee in a deliberate attempt to be uncooperative.
- The insolvency practitioner is often appointed by the Court and with no prior knowledge of the debtor’s circumstances or the debt collection attempts which have failed. The insolvency practitioner then faces the unenviable task of balancing the rights and interests of the debtor and their creditors.
- Insolvency practitioners are acutely aware of the personal trauma debtors may suffer as a result of insolvency. However, in many cases a skilled insolvency practitioner can assist a debtor to be alleviated from the distress that debt can cause. Using the words from the current debt awareness campaign, an insolvency practitioner can ‘lighten the load’ of debt.
- The debtor’s situation is not the result of an insolvency practitioner’s actions. The insolvency practitioner, like solicitors, has to deal with facts and the law. Realising assets for the benefit of creditors is what legislation requires. The insolvency practitioner will only take steps to sell a home where no other option exists and does so only with the consent of the Scottish Government’s agency, the Accountant in Bankruptcy.
- A significant amount of the ‘insolvency practitioner’s costs’ do not result in a benefit for the insolvency practitioner. The costs will include 37.5 per cent payable to the government (VAT at 20 per cent and Accountant in Bankruptcy fees at 17.5 per cent) as well as other costs which are required to be incurred by statute such as bonding, advertising and postage. The actual amount payable to the insolvency practitioner themselves is only an element of the costs perceived as being paid to the insolvency practitioner.
- Debtors also have a responsibility to society. There is a duty for debtors to pay council tax that is due and it is right that where such payment is willfully neglected that there are appropriate mechanisms for that debt to be recovered. Insolvency plays an important role in ensuring that debtors who can pay but won’t pay contribute to the essential services local authorities provide.
The conclusions reached by Mr Dailly that the insolvency system is a “cash cow” and that “insolvency firms [are] milking people when they reach rock bottom” are not substantiated by the evidence available. We do however support more being done to reduce the costs associated with insolvency, especially the costs imposed by Government on the insolvency process. Beyond that, we agree that the costs of statutory interest are out of sync with the commercial economy – an issue we have been raising for some years now. Perhaps more can be done with checks and balances to ensure that debtors are only declared insolvent when they have a definite and agreed liability to council tax. One thing is for sure – the insolvency profession is one which works for all stakeholders and not for themselves alone!
- David Menzies is ICAS director of insolvency.