Wednesday 13 May 2020

Covid-19 and creditor petitions

(Image by Neal Nisbet from Pixabay)

A second Coronavirus (Scotland) Bill was introduced at Holyrood this week.  Parliament agreed yesterday to treat it as an Emergency Bill and it is now therefore on an accelerated timetable, with the third and final stage of its progress towards being passed as law due to take place on 20 May.

For businesses, one of the Bill's key provisions will be the proposal to raise the threshold for creditor petitions for sequestration of debtors from the current £3,000 to £10,000 (in England the threshold is already £5,000).  This higher hurdle for creditors is intended to provide an additional protection for debtors, meaning that fewer will face the threat of personal bankruptcy, and follows on from the increase in the length of the statutory moratorium, from six weeks to six months, that was introduced in the first 2020 Coronavirus Act. Scotland's Government has explained that the principal purpose of these measures is to give adequate time to those debtors who will be able to repay their debts, once they have recovered from the immediate financial shock caused by the economic impacts of the coronavirus outbreak. These measures will inevitably greatly reduce the number of creditor petitions proceeding through the courts, which ought to have the additional benefit of relieving some of the administrative burden upon both the courts and the Accountant in Bankruptcy.

The increase in the threshold for creditor petitions, if passed, will expire automatically on 30 September 2020, unless extended by the Parliament for no more than two periods of six months – so 30 September 2021 at the latest. The Scottish Ministers could bring the provisions to an end earlier than the expiry date if those are deemed no longer necessary.  The Scottish Ministers would also be required by the Bill to report on the continued need for the measures, and on the use of powers in the Bill, every two months.

Nevertheless, and despite the explicitly temporary nature of these proposed changes, we still don't know what the overall economic impact of the coronavirus outbreak will be nor how long it will last. The curve may be L-shaped, rather than V or even U.  The policy considerations underlying the change in the law are, expressly, those of debtor protection. Much law from Holyrood, not just provisions relating to Covid-19, has had similar underlying aims. Our Parliament does not have much of a history of removing protections like this. It may yet be that in the end it's felt sensible to keep the new limit and that it quietly becomes a permanent feature of our insolvency law. As with so much today, only time will tell.

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