Home Owner and Debtor Protection (Scotland) Bill

Last month we noted that two bills in the Scottish government legislative programme had a commercial law content. The first of those bills was introduced to the Parliament this morning.

The Home Owner and Debtor Protection (Scotland) Bill and the explanatory notes and policy memorandum can be found on the Scottish parliament website here and as noted in our earlier post is based on the work of the Debt Action Forum.

The following is intended to give an overview of the proposed reforms, based on a quick reading of the bill.

Under the current law a secured creditor can sell secured property without judicial intervention. This is done through service of a calling up notice or a notice of default. The bill provides that where a standard security over property is called up (whereby the creditor requires the debtor to pay the outstanding amount in full) or a notice of default is used (whereby the debtor is required to remedy a breach of the security agreement) the secured creditor will only be entitled to its usual remedies (including the power to sell the secured property) if there is court authorisation – unless new s 23 A (to be inserted into the Conveyancing and Feudal Reform (Scotland) Act 1970) applies. The new section 23A will apply where the property is unoccupied and has been relinquished by the debtor, proprietor and family. This deals with those cases, which occur occasionally in practice, where the debtor moves out and hands in the keys to the creditor or its agent. To relinquish under s 23A though will require a degree of formality.
Section 24 of the 1970 Act (which is the current route to require judicial authorisation for sale and which will be the required route for sales by secured creditors under the bill), will be amended to introduce new subsections (1A) to (1D) to require the creditor to apply for a warrant to exercise the powers in the standard conditions only where: (1)  pre-action requirements under new s 24A of the 1970 Act have been complied with; and (2) after consideration of factors listed in new s 24 (7) (these are (a) the nature of and reasons for the default; (b) the ability of the debtor to fulfil within a reasonable time the obligations under the standard security in respect of which the debtor is in default; (c) any action taken by the creditor to assist the debtor to fulfil those obligations; (d) where appropriate, participation by the debtor in a debt payment programme approved under Part 1 of the Debt Arrangement and Attachment (Scotland) Act 2002; and (e) the ability of the debtor and any other person residing at the security subjects to secure reasonable alternative accommodation.

Section 24A requires the creditor to give details of the security and the obligations that trigger default; and must take reasonable efforts to reach agreement for future payments, and the creditor cannot apply if the debtor is taking steps that will allow payment of arrears (or satisfaction of obligations) within a reasonable time. As is normal with the debt enforcement provisions now advice on debt management must be provided (although there is no reference to the statutory debt information and advice package which appears in the diligence legislation). The pre-action position can also be influenced by ministerial advice, and be amended by SSI.
Amendments would also be made to the Heritable Securities (Scotland) Act 1894, s 5 (which allows the creditor to apply to eject the debtor from the secured property) with the insertion of new s 5 (2) and (3) requiring compliance with new ss 5A and 5B. The former  will require recorded delivery notices to be served in conformity with the forms in Part 2 of the schedule to the Mortgage Rights (Scotland) Act 2001 and notice of the application for ejection to be given to the local authority where the property is located (mirroring the requirements in the 1970 Act to notify the local authority as inserted by the Homelessness etc (Scotland) Act 2003. New s 5B will introduce a pre-action procedure in relation to ejection which mirrors that in the  proposed s 24A of the 1970 Act.
New s 24B of the 1970 Act and s 5C of the 1894 Act will allow those who benefit from the provisions of the Mortgage Rights (scotland) Act 2001 (namely, children, family members, non-entitled spouses) to make an application for a court order which could postpone the exercise of the remedies. Thus, a person that is not a party to the secured loan could effectively raise a matter in the action seeking authority to sell – which would justify the postponement of the sale.
New s 24E of the 1970 Act and s 5F of the 1894 Act will introduce new rules in relation to lay representation in proceedings regarding residential property. Approved lay representatives will be permitted to represent the debtor/family. The lay representatives that can be approved will include bodies (presumably bodies such as the CAB? – given that they can appear in certain benefit tribunal cases at the moment).

The main import of the bill was explained by Alex Neil, the minister for Housing and Communities.  He said,

"The Scottish Government recognises the responsibility it has to take prompt action where it can to help the Scottish people, particularly in the context of continuing economic uncertainty. With an increasing number of families facing financial difficulties, it is imperative that they are protected with the full weight of the law. Acting on the recommendations of the expert Debt Action Forum and the Repossessions Working Group, I am pleased that this Bill has attracted backing from across the political spectrum. When families are feeling the pinch it is important that politicians pull together to increase protection for those who are facing repossession or become bankrupt. Through the forthcoming Housing Bill and Debt and Family Homes Bill we are committing to giving even more support and protection for those hard pressed families."

The bill also proposes amendments to the Bankruptcy (Scotland) Act 1985 – rendering the piecing together of that legislation even more difficult. The reforms there include the introduction of certificates for sequestration; and a new notice requirement added to s 40 in relation to the powers over the family home. Without a map, a clean text of the current version – rather than a much annotated copy of the 1985 Act with the variety of amendments from 1993, and the various parts of 2007, as well as reforms from elsewhere – and a degree in physical geography it's probably best not to comment on the effect of these at the minute. The sooner that a consolidated Bankruptcy (Scotland) Act is produced to aid those advising debtors and creditors in the field of bankruptcy law, the better.