Court orders review of Debt Arrangement Scheme proposal

In a rare appeal against the Debt Arrangement Scheme (DAS) administrator’s decision and subsequent review, which was also dismissed, the Sheriff Court has instructed the Accountant in Bankruptcy (AiB) as the DAS administrator to undertake a fresh review of the DAS proposal considering all relevant factors.

The case of Ingrid Gray and Catherine Deeney or Sweaton vs. The Accountant in Bankruptcy as the DAS Administrator was heard by Sheriff Murray at Dundee Sheriff Court with the Judgment decided on 13 February 2025 but only published on 16 April 2025. This case considered issues related to the approval of Debt Payment Programmes (DPPs) and the responsibilities of the DAS Administrator.

The pursuers, Ingrid Gray and Catherine Deeney or Sweaton, brought the case against the AiB, who acts as the DAS Administrator. The dispute centred around the approval of a DPPs submitted by John Cape, an individual against whom the pursuers hold decrees for payment amounting to approximately £293,000.

Statutory Background

The DAS Administrator operates under the Debt Arrangement and Attachment (Scotland) Act 2002 and the Debt Arrangement Scheme (Scotland) Regulations 2011. The DAS is designed to help individuals manage their debts by rescheduling payments, preventing enforcement actions, and freezing interest, fees, and charges. The approval of a DPP is a critical step in this process, as it determines the feasibility and fairness of the proposed payment plan.

The case background

John Cape submitted two DPP applications through BDO LLP who acted as the Money Adviser. 

The first application had disclosed surplus income calculated using the Common Financial Tool of £300 per month with a proposal of £200 per month being paid into the DPP for an unspecified period and that the balance of the debt be paid by 1 June 2027, when Mr Cape anticipated he would have sold land he owned in Kirriemuir and “other property” which would enable the whole debt to be paid. The pursuers objected to this application claiming that Mr Cape owned several valuable cars and other heritable properties which could be 
sold to satisfy the debt. In response it was stated that Mr Cape had never owned the cars and while he owned and rented out 12 properties, they provided a limited income and 
were subject to mortgages. BDO had verified those points alongside Mr Cape’s assets, income and expenditure.

The second application proposed payment of £200 per month into the DPP alongside a Regulation 28 discretionary condition which would enable the whole debt to be repaid by 1 June 2027. In objecting to the DPP, the pursuers considered that 

• the DPP would last for an excessive period, Mr Cape hadn’t identified or valued the properties he owned; 
• the equity in them exceeded the debt to the pursuers and the application made no provision for payment of sums secured over them; 
• sequestration of his estates would allow the debt to be repaid more quickly; 
• weight should be attached to Mr Cape’s previous failure to account to the pursuers for rent he collected for them, his conviction for embezzling a sum from them and his conduct, which caused the court to order him to pay substantial additional sums.

Despite their objections, the DAS administrator had considered that the second application met the ‘fair and reasonable’ test and had approved the DPP. The pursuers applied to the AiB for a review of the DAS administrator’s decision and the AiB upheld the original DAS administrator’s decision as fair and reasonable as 

• BDO had vouched Mr Cape’s assets, income and expenditure; 
• while Mr Cape owned several tenanted properties, the equity in them was unknown; 
• in any case, the rent received formed Mr Cape’s only income; 
• the discretionary condition allowed him to pay the whole debt within three years, which was a reasonable period having regard to the amount due; 
• if the discretionary condition wasn’t met, the DPP could be revoked; 
• it wasn’t clear that sequestration would enable his debts to be paid any earlier; 
• the nature of the debt was irrelevant

Under the terms of the legislation, the pursuers now sought to appeal the decision through an application to the Sheriff Court. 

They argued that the DAS Administrator failed to consider relevant factors such as the equity in Mr. Cape's properties and the feasibility of selling assets to satisfy the debt.

Court's assessment

It was a matter of agreement that such an appeal couldn’t succeed simply because the court would have reached a different decision from the DAS administrator. 

Although Sheriff Murray dismissed many of the arguments put forward by the pursuers, crucially however he considered that the DAS administrator failed to have regard to two relevant issues.

First, the amount of equity in the residential tenancy properties as required by Regulation 25(2)(c) and, second, whether some or all the properties could be sold immediately, with or without vacant possession, to satisfy the pursuers’ debt, as required by Regulation 25(2)(j). 

The DAS administrator’s response was that it couldn’t have regard to the equity in the properties as that information wasn’t provided to it, and as it has no investigatory function it must rely on information provided to it by others. 

Sheriff Murray agreed that the DAS administrator didn’t have an investigatory power and that it must reply on information provided to it. However, the productions given to the court demonstrated that Mr Cape, through BDO, had provided the DAS administrator with substantially more information than it had regard to.

In the second application, BDO had vouched that there was £142,000 of equity in one property which was to be sold as part of the discretionary condition and that for the remaining balance to be paid from another property as part of the discretionary condition to allow the debt to be repaid in full there must have been equity in it of at least £151,000 in that property. However, the discretionary condition provided that if that second property wasn’t sold by June 2027 the further property would be sold. As a result, the further property proposed to be sold must have had additional equity of at least the same amount. As such, the DAS administrator ought to have had regard to the fact that Mr Cape disclosed equity of at least £444,000 in all of the properties disclosed.

Regulation 25(2)(c) obliged the DAS administrator to have regard to that equity in making their decision. Regulation 24(2)(j) also obliged the DAS administrator to have regard to selling some or all of Mr Cape’s properties, as they were assets which could be sold to satisfy the only debt proposed to be included in his DPP. 

The DAS administrator hadn’t given regard to these factors. Not only had the DAS administrator not claimed to have done so as part of their defence but had stated in the review letter that “it isn’t known if any of the other properties have any equity”, clearly demonstrating that this hadn’t been considered when it could have been.

As such, Sheriff Murray concluded that the DAS administrator had erred in law by failing to have regard to relevant factors when it reviewed the second application. He also concluded that its decision to confirm Mr Cape’s DPP was arguably not fair and certainly not reasonable for that reason.

Outcome

The court decided that it couldn’t substitute its own decision for that of the DAS administrator and ultimately decided that the second DPP application should be remitted back to the DAS administrator to review and reconsider.

The court's decision to remit the application for reconsideration underscores the importance of the DAS administrator to thoroughly evaluate all relevant factors when approving DPPs. This may require them to look beyond the prima facie information provided to them. Ultimately consideration of a DPP for approval isn’t an administrative task but one which requires skilled and careful consideration. It’s concerning that the equity position was missed by both the original DPP application consideration and the AiB review process.