The Coronavirus (Scotland) Act 2020 extended the moratorium on diligence from six weeks to six months and temporarily removed the prohibition on a debtor applying for more than one moratorium in a 12 months period. The rationale behind the provisions extending the period during which individuals with financial difficulties could secure protection from creditors taking action against them, is to allow such individuals more time to find advice on how best to deal with their debts as well as to recover from time-limited income shocks.
The new provisions have been welcomed and used with 2,152 applications for moratoriums granted in the 12 months to April 2021 compared with 1,060 for the previous 12 months. Concerns have, however, been raised that the 6 months period provided for is not appropriate on a longer term basis. Likewise, the temporary increase in the minimum debt level which a debtor must owe a creditor before being able to commence a petition for sequestration from £3000 to £10,000 (as introduced by The Coronavirus (Scotland) (No2) Act 2020) is also being challenged as inappropriate for the longer term.
These concerns amongst others have been addressed by the Scottish Government in its August 2021 consultation paper ‘Coronavirus (COVID 19) recovery - justice system, health and public services reform’ which recognised that the protection afforded through the increased creditor petition threshold is very likely to be required beyond March 2022. It is understood that in the first instance the Scottish Government intends to extend these measures to September 2022 via secondary legislation and then intends to make the measures permanent thereafter, via further primary legislation.
Sequestration: moratoriums on diligence
One of the concerns with the six months moratorium on diligence becoming permanent is that it may result in debtors losing that sense of urgency and disengaging from the advice seeking process to find a solution to their debt problems. On the other hand many in the debt sector are against reverting back to the original six weeks period as it is not considered to be long enough and could force many debtors into inappropriate debt solutions which are unsustainable and more likely to fail.
One possible solution being considered is to extend the moratorium on a permanent basis to a 12 weeks period. The obvious advantage to creditors is that they can take enforcement action a lot earlier than 6 months which it is feared by many could become a permanent moratorium. For debtors it would afford adequate time to seek debt advice and source a sustainable solution which is less likely to fail.
Sequestration: debt level
One of the biggest concerns with the minimum debt level becoming permanent at £10,000 is that it reduces the options available to creditors who are owed more than £3000 but less than £10,000. A reversion to the previous £3,000 minimum debt level is, however, unlikely with concerns that it may not afford sufficient protection as the economic consequences of the pandemic emerge following the end of furlough and other protections such as the £20 universal credit uplift.
In a bid to strike a balance between the interests of creditors and debtors one possible solution being considered is to permanently change the minimum debt level to £5,000.
It remains to be seen with the introduction of the Covid Recovery Bill whether the temporary measures currently in place will be extended to September 2022. One thing is for sure, the current temporary measures are unlikely to be sustainable long term. Only time will tell if the Scottish Government chooses to do something about it now or whether it will wait until September 2022 assuming the current measures are extended until then.
