2002 Chapter 17

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These notes refer to the Debt Arrangement and Attachment (Scotland) Act 2002 which received Royal Assent on 17 December 2002

DEBT ARRANGEMENT AND ATTACHMENT (SCOTLAND) ACT

EXPLANATORY NOTES

INTRODUCTION

1.     These Explanatory Notes have been prepared by the Scottish Administration in order to assist the reader of the Act. They do not form part of the Act and have not been endorsed by the Parliament.

2.     The Notes should be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or schedule, or a part of a section or schedule, does not seem to require any explanation or comment, none is given.

THE ACT

3.     The Act is intended to implement the central recommendations of a broadly based Working Group which was set up, in response to the request of the Justice and Home Affairs Committee of the Scottish Parliament in the Committee's Stage 1 Report on the Abolition of Poindings and Warrant Sales Bill (SP Paper 82, paragraph 48), to consider an alternative for poinding and warrant sale. The Working Group's recommendations were published in its report Striking the Balance - a new approach to debt management on 6 July 2001.

4.     The Act is in five parts:

Part 1 (THE DEBT ARRANGEMENT SCHEME) creates a national debt arrangement scheme to enable multiple debts to be assessed with the support of money advisers and paid in accordance with a debt payment programme over a period of time. During participation in the debt arrangement scheme enforcement action against and sequestration of the debtor will be prohibited. Regulation making powers are included within the Act to enable the scheme to be introduced without the need for additional primary legislation, so allowing for early implementation. Matters of detail to be contained within the regulations will be informed by the responses to the consultation document Enforcement of Civil Obligations in Scotland, published on 22 April 2002. The first regulations to be made under the Act which make further provision in relation to debt payment programmes under the scheme will be subject to affirmative procedure.

Part 2 (ATTACHMENT) provides for attachment of corporeal moveable property.

Part 3 (ATTACHMENT OF ARTICLES KEPT IN DWELLINGHOUSES: SPECIAL PROCEDURE) provides for attachment, on an exceptional basis, of articles kept in dwellinghouses. This is competent only where a sheriff grants an exceptional attachment order and where assets exist which are not essential. An exceptional attachment order will be granted only after there has been a judicial enquiry in each individual case. This will take into account such matters as whether money advice has been given to the debtor, any previous time to pay arrangement, the nature of the debt and any information produced that relates to the debtor's financial circumstances. Factors to be taken into account by the sheriff in deciding whether there are exceptional circumstances include whether the creditor has taken reasonable steps to negotiate a settlement, whether an earnings or ordinary arrestment has been attempted and whether there is a reasonable prospect that a sum (currently £100) plus expenses will be recovered. The sheriff does, however, have an overriding discretion, after considering all the matters before him, to decide whether or not to grant an exceptional attachment order on the basis that it would be reasonable or not in the circumstances to do so.

Part 4 (ABOLITION OF POINDINGS AND WARRANT SALES) makes provision for the abolition of poinding and warrant sales. It also contains saving provisions in respect of warrant sales already completed before 30 December 2002 and for poindings where a warrant sale has not been completed before that date where the poinding was executed in premises that are not a dwellinghouse and provided that the warrant sale is completed on or before 31 March 2003.

Part 5 (MISCELLANEOUS AND GENERAL) makes provision for the short title, regulations and orders, commencement of the Act and other miscellaneous matters.

The SCHEDULES contain details of the expenses of attachment chargeable against the debtor, non-essential assets and minor and consequential amendments and repeals.

Part 1 - the Debt Arrangement Scheme

5.     Part 1 provides the framework within which the debt arrangement scheme will operate. Further detailed provision will be made following Ministerial consideration of the analysed responses to the consultation about proposals for the operational arrangements and legal effect of the scheme.

Section 1 - Debt arrangement scheme

6.     Section 1 creates a scheme, named the "debt arrangement scheme", to enable individuals to arrange for their debts to be paid under debt payment programmes.

Section 2 - Debt payment programmes

7.     Section 2 defines what a debt payment programme under the scheme is and specifies how an application for approval of a debt payment programme may be made.

8.     Section 2(1) defines a debt payment programme as a programme which provides for the payment of money owed by a debtor.

9.     The Scottish Ministers are given the power in section 2(2) to approve a debt payment programme upon submission of an application by a debtor. It is intended that this approval function of the Scottish Ministers will be delegated by them to another body by virtue of the power contained in section 8.

10.     Details of what must be included in an application are set out in section 2(3). The programme is to specify arrangements proposed for payment of debts giving details of the amounts, periods and manner in which debts are to be paid, these details to be specified by the debtor according to the debtor's knowledge and belief.

11.     Section 2(4) provides that the application form is to incorporate the consent of all the debtor's creditors.

12.     The debt payment programme will specify the person (the "payments distributor") to whom the debtor proposes to make instalment payments for distribution amongst creditors. Section 2(5) provides that a person appointed to carry out the payment distribution function has to be approved for that purpose by the Scottish Ministers.

Section 3 - Money advice

13.     Section 3 requires the debtor to take certain steps before submitting an application for approval, or variation, of a debt payment programme.

14.     Section 3(1) requires the debtor to seek the assistance of a money adviser before applying for approval of a debt payment programme, or its variation. Section 3(2) provides that the debtors' application to enter into a debt payment programme must contain a signed declaration by the money adviser that money advice has been given.

Section 4 - Effect of debt payment programmes

15.     Section 4 details the effects of an approved debt payment programme under the scheme.

16.     Section 4(2) and (3) prohibit all creditors from executing any form of diligence against or seeking to sequestrate a person who has debts which are being paid by way of an approved debt payment programme under the scheme.

17.     Section 4(4) provides that any period during which a debtor's debts were subject to an approved debt payment programme under the scheme is to be disregarded for the purpose of creditors' rights and remedies for enforcing a debt. The effect of this provision is, in particular, to suspend prescription during the relevant period. Thus debts for which creditors had not obtained decree which are included in a debt payment programme which ceases before payment is made in full, will not prescribe during the period of the programme.

18.     Section 4(5) provides that the prohibition on creditors from executing diligence or seeking to sequestrate a debtor whilst their debts are being paid under an approved debt payment programme is restricted to not only those debts owed that are included in the debt payment programme but also to any other debts owed to creditors who have been given notice of the approval of the debt payment programme.

Section 5 - Variation of debt payment programmes

19.     Section 5 deals with the variation of an existing debt payment programme and any conditions attached. It is anticipated that, once a programme is approved, variation will be infrequent. Circumstances in which variation should be allowed have been consulted upon and will be provided for in regulations to be made under section 7(1)(see section 7(2)(k) in particular).

20.     Section 5(1) allows both creditors and debtors to apply for a variation of a debt payment programme. Section 5(2) provides that a copy of the application is to be provided by the party applying for the variation to all other participants in the programme. Section 5(4) specifies that an application for variation will be made in a standard form which will be prescribed .

Section 6 - Deduction from earnings

21.     Section 6 provides for deduction from earnings under the terms of a debt payment programme. It is anticipated that, subject to consultation, the regular payments to be made for distribution amongst creditors could be made by deduction from a debtor's earnings.

22.     Section 6(1) and (2) require the debtor to instruct an employer to make the approved payments to the person distributing the payments to the creditors and for the employer to comply with the instruction.

Section 7 - Debt payment programmes: power to make further provision

23.     Section 7 gives the Scottish Ministers further powers to regulate the content, operation and effect of debt payment programmes approved under the scheme. This will enable the detail to reflect views expressed in the consultation.

24.     Section 7(1) gives the Scottish Ministers a general power to make further provision in this respect by way of regulations. It enables regulations to be made concerning applications for the approval, or variation, of debt payment programmes, the manner in which they are to operate, the conditions to be complied with and the effects which they will have.

25.      Section 7(2) sets out particular matters in respect of which the general power in section 7(1) may be exercised. It lists many of the arrangements for which it will be necessary to make provision in order to enable the scheme to operate and which have been anticipated in the consultation. For example, section 7(2)(n) provides for regulation of the period over which a debt payment programme may run. This is intended to enable settlement of the debts within a reasonable period (to be determined from the outcome of the consultation).

26.     Section 7(3) allows the regulations to make different provisions and Section 7(4) allows legislation, which may have to be modified as a consequence of the scheme in order to make it operate effectively, to be modified by the regulations. For example, it may be necessary to modify existing legislation concerning diligence and sequestration to ensure that their operation is suspended during participation in the scheme in accordance with provisions of the Act in section 4 and the regulations which can be made under section 7(1)(c) and (2).

Section 8 - Functions of the Scottish Ministers

27.     The Scottish Ministers may wish to nominate a body or bodies outwith the Scottish Executive to perform functions in relation to the debt arrangement scheme currently provided for in Part 1 of the Act as a function of the Scottish Ministers. Section 8 gives them the power to do so by order.

Section 9 - Interpretation of Part

28.     Section 9 defines terms used in Part 1. Money advisers, for the purposes of the scheme, will be approved by the Scottish Ministers to give advice to a debtor who applies for approval or variation of a debt payment programme. Debtors, for the purposes of the scheme, must be natural persons (i.e. companies, partnerships, associations etc. may not apply).

PART 2 - ATTACHMENT

Attachment

29.     This part of the Act introduces a new method of enforcement, or diligence, for the attachment of corporeal moveable property. The law of diligence provides procedures by which legal obligations, usually imposed by an order of the civil courts, can be enforced. Different procedures for the enforcement of obligations concerning legally constituted debt apply to different types of property. Corporeal moveable property is property which is tangible (corporeal), is not fixed like land or buildings and can be handled and moved (moveable).

30.     Rules of court will make supplementary provision for the manner in which the procedural requirements under this Part of the Act are to be undertaken within the court process - for example, regarding intimation of documents and steps in procedure, the conduct of hearings and the manner in which applications to the sheriff or appeals against decisions may be made (including provision of forms to be used). The Act of Sederunt (Debt Arrangement and Attachment (Scotland) Act 2002) 2002 , which came into force on 30 December 2002, makes provision for the rules to be applied under the Act.

Section 10 - Attachment

31.     This section creates a new diligence over corporeal moveable property for recovery of legally constituted debt, to be known as attachment.

32.     Section 10(3) and (4) provide that attachment is only competent where the debtor has been charged to pay the sum owed together with interest accrued and the creditor has provided the debtor with a debt advice and information package. In the absence of a charge to pay in summary warrant cases, the creditor must provide the debtor with a debt advice and information package before taking any steps to carry out an attachment.

33.     Section 10(5) defines terms used in this section. It specifies that the debt advice and information package is to contain such information as may be determined by the Scottish Ministers. It also specifies the meaning of decree and document of debt.

Section 11 - Articles exempt from attachment

34.     This section specifies property which is to be exempt from attachment.

35.     Section 11(1) provides that it will not be competent to attach articles which are reasonably required for the debtor's profession, trade or business, and which do not exceed an aggregate value of £1,000. In particular, tools of trade, books other equipment may not be attached. This will enable valuable property to be attached whilst permitting the debtor to retain items which will allow him to continue his business and generate income. This is in line with recommendations 7 and 11 of the Scottish Law Commission in its Report on Poinding and Warrant Sale (Scot Law Com No177). Specific provision is also made to exempt a vehicle reasonably required by the debtor and not exceeding £1000, and a mobile home which is the debtor's only or principal residence. Gardening equipment necessary for keeping a debtor's garden or yard adjacent to where the debtor lives is also exempted.

36.     Section 11(2) allows the Scottish Ministers to add or remove and vary the items exempted by regulations. This will provide flexibility in order to meet changing circumstances or where it is considered that further debtor protection may be needed.

Section 12 - Times when articles may not be attached

37.     Section 12 specifies days on which attachment may not take place, namely on a Sunday, a day which is a public holiday in the area in which the attachment is to be executed or any other day prescribed by rules of court. It also specifies times during which attachment may not take place, restricting it to between 8am and 8pm unless prior authority has been obtained from the sheriff.

Section 13 - Presumption of ownership

38.     Section 13 provides a presumption that articles in the possession of a debtor are owned by the debtor, either solely or in common with a third party.

Attachment of articles kept outwith dwellinghouses

Section 14 - Procedure for attachment of articles kept outwith dwellinghouses etc.

39.     Section 14 provides that sections 15 to 19 apply only to the attachment of articles which are kept outwith a dwellinghouse and that they do not apply to a mobile home which is the debtor's only or principal residence.

Section 15 - Power of entry and valuation

40.     Section 15(1) provides for entry into premises which are not a home (dwellinghouse) for the purpose of executing an attachment and permits locked premises to be opened if necessary. Sections 15(2) and (3) provide that the valuation of an article is to be based on the amount the article would be likely to fetch if sold on the open market, and is to be carried out, where appropriate, by a professional valuer or other suitably skilled person. This will be applicable in cases where, for example, the article concerned is antique or unusual.

Section 16 - Attachment of mobile homes

41.     This permits a caravan, houseboat or other moveable structure used as a dwellinghouse, which is the only or principal residence of a third party, to be released from an attachment. The third party must be given notice of the attachment. The debtor or the third party may then, within 14 days of the attachment, apply to the sheriff for its release. If, however, there is good reason for the application being made late the sheriff can consider an application made after that period but before the mobile home is auctioned.

Section 17 - Report of attachment

42.     This section provides for judicial supervision of the attachment by requiring that a report of the attachment be made to the sheriff within 14 days of its execution. The sheriff may allow a longer period on cause shown. If there is some irregularity in the format of, or procedure by which the report was made, the sheriff may refuse to accept the report and the attachment will cease to have effect.

43.     Section 17(2) provides that the report must be in the form prescribed in rules of court and that it must be signed by the officer. Section 17(3) stipulates what the report should specify. Under section 17(4) the report need not specify articles which have been sold following specific orders made by the court regarding the sale of perishables nor a vehicle that has been sold.

Section 18 - Redemption

44.     Section 18 enables attached articles to be redeemed by the debtor within 14 days of the date on which the article was attached. This provides for circumstances where an article has been attached but the debtor wants to buy it back before auction.

45.     Section 18(2) specifies that the article must be redeemed at the attached value. Section 18(3) and (4) provide for a receipt to be given when payment is made upon which the attachment will cease to have effect. The receipt will be in a form prescribed by rules of court.

46.     Section 18(5) provides for a supplementary report to be made as soon as reasonably practicable to the sheriff in respect of a redemption made after the original report of attachment has been made.

Section 19 - Removal and auction of attached articles

47.     Section 19 requires arrangements for the auction of attached articles to be made and, after notice of the date on which the auction is to take place has been given, permits the removal of articles from the place where they are kept to the place where the auction is to take place. Section 19(4) and (5) permit only sufficient articles as would, if sold at their attached values cover the debt due, to be removed for auction. Any remaining attached articles will cease to be subject to attachment.

Section 20 - Order for security of articles or sale of articles which are perishable etc.

48.     Section 20 allows the sheriff to make an order for the security of attached articles and for the immediate sale of perishable articles so that they will not deteriorate and lose value. The proceeds of sale are then consigned in court.

49.     Section 20(2) provides that an application for such an order must be intimated to the debtor or creditor and the officer depending on which party makes the application.

50.      Section 20(4) provides that where an attachment ceases to have effect before an auction takes place the sum consigned in court will be paid to the creditor to meet the debt and any surplus will be paid to the debtor.

Section 21 - Unlawful acts after attachment

51.     This section prohibits the removal, sale, gifting or other disposal of attached articles and their wilful destruction or damage. To do so will be in breach of the attachment and may be dealt with as a contempt of court.

52.      Section 21(7) requires the debtor to give notification to the creditor and officer if an attached article is stolen and of any insurance claim which the debtor intends to make. Section 21(10) provides that, where attached articles have been damaged, destroyed or stolen, the sheriff may order that others be attached. Damaged articles may, on the authority of the sheriff, be revalued.

53.     Section 21(11) to (15) makes provision for a sum of money to be consigned in court in circumstances where an article is made unavailable by the debtor or any third party who knows the article is attached. These include where the debtor or third party moves an attached article and it is subsequently damaged, destroyed, lost or stolen or is acquired by another person who is unaware of the attachment, and where the debtor or third party wilfully damages or destroys the article. The sum to be consigned will be equal to the difference between the value of the article when attached and the value of the damaged article or, in any other case, a sum equal to the attached value. Where the attachment of a damaged article ceases to have effect before its auction, any sum which has been consigned in court will be paid to the creditor to the extent necessary to meet the debt with any surplus left over being paid to the debtor.

Section 22 - Release of vehicle from attachment

54.     This section provides for the protection of vehicles where auction would be unduly harsh in the circumstances, for example, vehicles used for travel to work or for regular medical treatment in a rural area not serviced by public transport. Circumstances which would constitute undue harshness are not specified, thus allowing the sheriff to make a decision based on the debtor's individual circumstances. This section implements recommendation 11 of the Scottish Law Commission in Scot Law Com No 177.

55.     Section 22(1) entitles the sheriff, on an application by the debtor, to make an order for release of the vehicle. Section 22(2) restricts the release to vehicles whose value does not exceed £1,000. This monetary limit may be varied by the Scottish Ministers in regulations. Section 22(3) provides that, where the value of the vehicle is over £1,000, the sheriff may order the sale of the vehicle and for the proceeds of sale up to £1,000 to be paid to the debtor to enable a replacement vehicle to be obtained and for any surplus to remain in court. Section 22(5) provides that if the vehicle cannot be sold within 14 days of the date of the order the attachment will cease to have effect.

Section 23 - Appeals against valuation

56.     Section 23 provides that, where a sheriff is satisfied that the aggregate value of the attached articles is substantially below market value, the sheriff may, up until the date of their auction, order the attachment to cease. Section 23(2) provides that this can be done either on the sheriff's own accord or on an application by the debtor. Section 23(3) ensures that such an order cannot be made without the debtor and creditor having been given an opportunity to make representations and, if they so wish, be heard.

Section 24 - Duration of attachment

57.     This section provides that an attachment will cease to have effect if no further action is taken within six months of the attachment or 28 days of the removal of the attached article from the place at which it was attached, whichever is the earlier. An extension of the period may be permitted only by order of the sheriff in circumstances where the debtor is likely to comply with an agreement with the creditor to pay the debt due by instalments or where the auction cannot take place before the date on which the attachment ceases through no fault of the creditor and that will prejudice the creditor.

Section 25 - Second attachment at same place

58.     Section 25 provides that a second attachment may not be undertaken at the same premises to enforce the same debt unless other articles were brought onto the premises after the first attachment took place.

Section 26 - Invalidity and cessation of attachment

59.     Section 26 provides that, at any time before the auction of attached articles, the sheriff may, on his own initiative or on an application by the debtor, make an order declaring the attachment to be invalid or having ceased to have effect. The sheriff may also make such other order as is considered necessary in the circumstances. This enables enforcement action to be halted in the event of an irregularity in procedure or if an attachment should have ceased to have had effect.

60.     Section 26(4) gives the debtor and the creditor an opportunity to make representations and, if either so wishes, to be heard. Section 26(5) provides for any articles removed to be returned in the event of an order being made. Section 26(6) provides for the sheriff to give reasons for a refusal to grant such an order.