Wednesday, January 07, 2015

New Scottish Law Allows a BRO from a BADAS(S)

The new Scottish bankruptcy law which will take effect in April contains some great acronyms, including BADAS and BRO.    Unfortunately, the Bankruptcy and Debt Advice (Scotland) Act 2014 ("BADAS") is missing the second "s" which would make it a truly badass law.   From my brief review of an article by Rob Aberdein, the new Scottish law is a hybrid of Chapters 7 and  13 under BAPCPA.   However, it seems to cut out lawyers altogether, relying on a creature known as the Accountant in Bankruptcy ("AiB").

Like BAPCPA, a Debtor must obtain a credit counseling briefing before having his estate sequestrated, which is the Scottish version of bankruptcy.   This must be obtained from an "approved money advisor."    Additionally, the Debtor must later take a "financial education course."

One unique feature of BADAS is that much of the initial decisionmaking is delegated to the AiB, who may or may not be the same person as the Trustee.    According to Mr. Aberdein, 
The effect of the BADAS Act in this context is that the sheriff has been ‘pushed out’ of the sequestration process to the role of an appeal body where debtors or trustees seek review of a decision by the AiB.
(Note:  According to Wikipedia, in Scotland a sheriff is analogous to a judge and sits in a second-tier court called the Sheriff Court.   As best I can tell, the Sheriff is a bit like a County Court at Law Judge in Texas).   
The powers of the AiB include:
  • The AiB now has the power to make and vary Debtor Contribution Orders.
  • Applications for the recall of sequestration are to be made to the AiB and not the sheriff where a debtor has paid or is able to pay his/her debts in full. The AiB can also grant a recall of an award of sequestration.
  • Where the AiB is not the trustee, an application can be made by the trustee to the AiB for a direction in relation to any matter arising in the sequestration.
  • The AiB has the power to remove trustees or commissioners.
  • The AiB can extend the period (currently 28 days) where a trustee must adopt or refuse to adopt a contract.
  • A ‘Bankruptcy Restriction Order’ (‘BRO’) can be made by the AiB; and can now only be made by a sheriff if the AiB makes an application to this effect.
  • The AiB can make an order converting a Protected Trust Deed into a sequestration award. Previously, a petition had to be made to the sheriff.
  • In addition, the AiB can make an order to cure defects in procedure such as correcting clerical or ‘incidental’ errors in documents and can waive a failure to comply with a time limit.
  • The AiB can, instead of a sheriff, review and revalue if appropriate the valuation of contingent debts by a trustee.
 The Scottish version of the means test is the Common Financial Tool ("CFT").   The AiB uses the CFT to determine the amount of the contribution to be made by the Debtor.   The AiB may set the debtor's contribution at zero and may approve a moratorium on diligence of up to six months not more than once in a year.   

Under BADAS, creditors have 120 days of receiving notice of the statutory meeting to submit claims.  If no meeting is convened, they have 120 days from the date on which the trustee gives notice inviting submission of claims.    

Under BADAS, the debtor can obtain a discharge within six months under the Minimal Assets Process ("MAP").   The MAP is pretty stringent.   A debtor cannot have debts of more than 17,000 pounds (about $25,000), assets of more than 2,000 pounds (about $3,000), no single asset worth more than 1,000 pounds (about $1,500) and cannot own land.    
There is not an automatic discharge of the debtor outside of the MAP.    Instead, the Trustee (who may also be the AiB) must submit a report within 10 to 12 months as follows:
The report must also state whether, in the opinion of the trustee, the debtor has complied with any contribution order, co-operated with the trustee, complied with the statement of undertakings, made a full and fair surrender of the estate, made full disclosure of all claims the debtor is entitled to bring against other persons and has delivered to the trustee all relevant documents relating to the debtor’s estate and financial or business affairs.
What this suggests to me is that instead of making payments from current monthly income over a period of time, the debtor is expected to make a lump sum contribution to the creditors within approximately a year of filing.     Of course, I may be wrong.   If you desire more information about BADAS, I would suggest that you fly to Scotland and play a round of golf with Mr. Aberdein.   His email address is


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