It
seems curious that the positive economic conditions experienced
in recent years have created an increase in the number of
insolvencies. Some commentators suggest that there will
always be a natural level of attrition of those who cannot
manage their debts. Whilst that may be part of the explanation,
a more popular view is that increasing levels of profits
and confident business forecasts mean that banks, creditors
and other stakeholder groups have ample opportunity to make
a profit on successful business opportunities and hence,
can afford to be harder on those who do not/cannot pay.
As overall confidence increases, there tends to be a higher
level of acceptance regarding business failure and thus
the paradox continues.
The
number of formal insolvencies in England has mushroomed
in the last 12 months but one has to look at the figure
with caution, because the new one year bankruptcy regime
came into effect in April 2004 and has seen a large increase
in personal bankruptcies. The one year bankruptcy regime
is a matter under review by the Scottish Executive in terms
of the proposed new bankruptcy bill for Scotland . If it
is enacted, the accountant in bankruptcy will have to be
sure that adequate systems are in place to deal with a rapid
rise in personal bankruptcies should the three year bankruptcy
period be shortened to one.
ANNUAL
REPORT FROM ACCOUNTANT IN BANKRUPTCY
Personal
Insolvency: A popular choice in Scotland
The
accountant in bankruptcy's annual report for the year ended
31 March 2004 was issued at the end of December 2004. As
at 31 March 2004 there were 13,713 ongoing sequestrations
and 17,354 trust deeds, which means there are slightly more
than 31,000 people subject to formal insolvency proceedings
in Scotland : an increase of almost 2,500 on the previous
year. The biggest increase is in trust deeds which may be
because a trust deed tends to be more readily accessible
and easier/quicker to instigate. The popularity of trust
deeds continues to grow: the number has increased by nearly
70% in the last two years alone. The popularity of these
debt relief mechanisms shows no sign of abating, with both
sequestrations and trust deeds continuing at a high level
during the balance of the calendar year 2004.
It
remains to be seen if the new debt administration scheme
which was launched in Scotland on 1 December 2004 will have
any impact on the procedure adopted by those who require
to address unmanageable debts.
Claim
your dividend whilst you can
The
report includes the startling fact that unclaimed dividends
have more than tripled compared with the previous year.
As at 31 March 2004 the accountant in bankruptcy was holding
total unclaimed dividends of £2,445,24. Perhaps creditors
are losing interest too quickly and not keeping in touch
with the trustee but clearly, it makes sense to advise the
trustee as well as all other business customers/suppliers
of a change of address: at least until it is known that
there is no possibility of a dividend.
The
report reveals that more than £990,000 was added to
the unclaimed dividend account in 2004. If creditors do
not uplift monies from the treasury within seven years of
the final division of a debtor's estate, the monies are
surrendered to the treasury. If any creditor believes that
the accountant in bankruptcy may be holding unclaimed dividends
belonging to them, they should contact the accountant in
bankruptcy at info@aib.gov.uk
or write to the accountant at George House, 126 George
Street , Edinburgh , EH2 4HH .
It
costs money to go bust!
Whilst
private practitioners act as trustees, particularly with
respect to trust deeds, the accountant in bankruptcy handles
the majority of sequestrations. This is because if there
are no assets to pay a trustee and other costs of the process,
the state is the fall-back nomination when preparing a sequestration
petition. The accountant in bankruptcy's main operating
office is in Edinburgh but will be moving to Ayrshire in
early 2005. The accountant in bankruptcy's office is an
agency of the Scottish Executive Justice Department and
has a full time equivalent staff total of 95 and the 2004
report indicates that the accountant in bankruptcy's office
has a net annual cost of about £3.4 million (2003
- £3.2 million): funded by the taxpayer. Thus, if
an individual cannot pay his debts and chooses sequestration
as a means of debt relief, the state will pay for the process
which is perhaps unsurprising on the basis that individuals
who consider sequestration have insufficient assets in the
first place.
Perhaps
disappointingly, the 2004 report says that in 81% of sequestrations
finalised in 2004 no dividend was paid to creditors and
where a dividend was paid, more than one half of such cases
produced a dividend to creditors of less than 25p in the
£. The low dividend rate suggests that there are many
people whose liabilities far exceed their assets and they
can benefit from formal insolvency by regularising their
financial position: i.e. wipe the slate clean, and move
on.
Common
Sense: a relic of the past!
It
seems that our world is spinning faster than ever before
and the proliferation of legislation, guidelines, rules
and compensation claims leaves one wondering what happened
to our trusted friend common sense. As all types of political
correctness take root in our society we offer our thoughts
on the loss of an old friend who has been with us for many
years.
Common
sense's birth records were lost a long time ago in bureaucratic
red tape and the freedom of information act is unable to
assist. Common sense will be remembered as having shown
us when to speak and when to listen, why the early bird
gets the worm and why life is not always fair. Common sense
lived by simple sound policies such as do not spend more
than you earn, and offered reliable parenting strategies
such as adults being in charge rather than unruly children.
Regrettably,
common sense's health began to deteriorate when well intentioned
but overbearing regulations began to proliferate. Reports
of a six year old boy charged with sexual harassment for
kissing a classmate, a policeman reprimanded for tripping
a burglar as he made his escape from a house in the early
hours, served to worsen his condition. Common sense lost
the will to live when courts were threatened with closure
on the basis of being elitist and detrimental to human rights.
The final straw for common sense was when a woman failed
to realise that a steaming cup of coffee was hot, spilled
it on her lap, and was awarded a huge settlement.
As
common sense passed over, his friends truth, trust, discretion,
responsibility and authority also lost the will to live
and it is sad to report that he is survived only by his
evil stepsisters: My Rights and Ima Whinger. The funeral
of common sense was attended by few people because his cousin
apathy did not tell anyone!
Conclusion
This
insolvency update is provided for general information purposes
and does not purport to offer definitive advice on the topics
covered.
Further
information can be obtained by contacting either Michael
Reid (Insolvency Practitioner) e-mail reidm@mestonreid.com
or Michelle Byrne (Insolvency Manager) e-mail byrnem@mestonreid.com
who will be pleased to meet with you for a no obligation
consultation.
Thank you for taking
the time to read this update.
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