Breathing Space Scheme Regulations comparison with Scottish moratorium on diligence
By Steven Wood, Practice Support Specialist (Insolvency)
9 October 2020
Steven Wood compares the Breathing Space provisions to be introduced by the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (‘the Regulations’) with the moratorium on diligence available to assist individuals in problem debt in Scotland.
Legislation and extent
The legislation detail and who they apply to are starkly different.
The Breathing Space Regulations extend to some 32 pages whereas the Scottish moratorium provisions are set out in 3 short sections (sections 195-198) of the Bankruptcy (Scotland) Act 2016.
A previous article looks at the Regulations in more detail.
The Scottish moratorium provisions apply to a much wider group than Breathing Space, which is broadly restricted to individuals living in England and Wales.
| Breathing Space | Scottish moratorium | |
|---|---|---|
| Legislation | Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020. | Part 15 (sections 195-198) of the Bankruptcy (Scotland) Act 2016. |
| In force | 4 May 2021 (subject to SI being approved). | 1 April 2015. |
| Extent | England and Wales only in respect of individuals domiciled or ordinarily resident there. | Individuals habitually resident or with an established place of business in Scotland and to certain entities with an established place of business in Scotland or which were constituted or formed under Scots law and at any time carried on business in Scotland. |
Pre-entry requirements
Under normal circumstances the use of both reliefs cannot be used more than once in any 12-month period.
This restriction in Scotland has been set aside temporarily as a result of the coronavirus pandemic. More information about the changes to the moratorium on diligence brought about by the Coronavirus (Scotland) Act 2020 is available in a previous ICAS article.
The two reliefs also take a different approach to debt advice. Breathing Space requires the involvement of a debt advisor whereas the moratorium on diligence does not require such involvement and can be applied for by the debtor directly or through a money adviser.
| Breathing Space | Scottish moratorium | |
|---|---|---|
| Exclusions | Individuals who have entered a Breathing Space in the previous 12 months. | Not more than one moratorium in any 12-month period (temporarily set aside as a coronavirus measure). |
| Requirement for prior advice | Required. | Not required. |
| Debt advisor requirements | FCA authorised debt adviser. Adviser from an organisation which is exempt from FCA regulation (e.g. local authority). | N/A. |
For those looking for urgent relief from creditor pressure, the need to involve a debt advice provider to access Breathing Space could turn them off of the process.
When Breathing Space comes into force there may be considerable pressure on debt adviser capacity, and with the restrictions on non-FCA regulated insolvency practitioners it may be that many individuals looking to access the scheme are denied the opportunity to do so within a timeframe that would assist them.
Assessment, application process and registration
Due to the requirement for prior advice, Breathing Space requires greater assessment and consideration on whether it is appropriate for the debtor than the Scottish moratorium.
The application process is not too dissimilar, although detail on the mechanics of the confirmation and information to be submitted by a debt advice provider under Breathing Space is still to be provided. However, it is anticipated that this will be through an online service.
The publicity surrounding each scheme varies as well, with individuals subject to Breathing Space retaining more anonymity than Scottish counterparts who are the subject of a publicly available register.
| Breathing Space | Scottish moratorium | |
|---|---|---|
| Assessment | Factual criteria per Regulation 24(3). Assessment by debt advisor that the debtor is unable, or is unlikely to be able, to repay some or all of their debt as it falls due. Assessment by debt advisor of whether a Breathing Space moratorium would be appropriate based on factors set out in Regulation 24(5). | No assessment requirements. |
| Application | To a debt advice provider once money advice obtained. Debt advice provider only can submit application for inclusion in the register. | By debtor or money adviser to AiB through Register of Insolvencies homepage. |
| Register | Register maintained by Insolvency Service but not publicly available. | Publicly searchable register maintained by AiB. |
Creditor rights
Communication with creditors also varies under the two schemes with creditors affected by Breathing Space proactively receiving information and having a right of appeal, neither of which apply in Scotland.
| Breathing Space | Scottish moratorium | |
|---|---|---|
| Creditors notified? | Yes. | No. |
| Creditor right of appeal? | Yes - on the grounds of unfair prejudice or material irregularity. | No. |
Duration and effect
The duration of the protections provided by Breathing Space will ordinarily last almost 50% longer than under the moratorium in Scotland.
Perhaps the most significant practical difference between the two measures is in relation to the accrual of interest fees and charges, which is not impacted in Scotland.
| Breathing Space | Scottish moratorium | |
|---|---|---|
| How long do the protections last? | 60 days (not applicable to mental health crisis moratorium). | 6 weeks (temporarily extended to 6 months as a coronavirus measure). |
| Does the measure stop the accrual of interest fees and charges? | Yes (including retrospective application where no debt solution is entered at end of Breathing Space period). | No. |
| Stop on creditor enforcement and recovery | Wide-ranging – generally extends to any contact with the individual relating to the repayment of debts. | Stops service of charge for payments, execution of diligence, petitions for sequestration and the release of arrested funds. |
| Business debts | Business debts of sole traders with turnover under VAT threshold (£85,000) can be included. | Business debts of the applicant included. |
Mental Health Crisis Moratorium
As covered in the previous article looking at the Regulations, individuals receiving treatment for a mental health crisis will benefit from an alternative access mechanism to Breathing Space.
| Breathing Space | Scottish moratorium | |
|---|---|---|
| Specific provisions included for individuals receiving mental health crisis care? | Yes. | No. |
| Variations in process | A debt advice provider will not be required to carry out the full initial assessment of the individual’s finances but instead would give access to Breathing Space on the basis of evidence that the individual was receiving mental health crisis care. | N/A |
Comment
The Regulations, set to come into force next year in England and Wales, are far more wide-reaching than the Scottish equivalent.
Many of the provisions in the scheme for England and Wales will be welcomed, such as the slightly longer and more extensive protections offered, particularly in relation to the accrual of interest and charges, as well as the mental health crisis moratorium.
Despite its shortcomings, the easy accessibility and simplicity of the Scottish moratorium on diligence process may prove to be vital to many individuals in the post-coronavirus period. While well-intentioned and undoubtedly a positive step, in a similar way to its recently introduced corporate counterpart, the Breathing Space moratorium may suffer slightly from ‘over-engineering’.
It remains to be seen what action the AiB takes in response to the measures being introduced south of the border. However, the Scottish moratorium on diligence did form part of the AiB’s recent review of changes introduced by Bankruptcy and Debt Advice (Scotland) Act 2014, with specific comparisons to Breathing Space.
The report of the summary of responses from that review has now been published, which includes a commitment by the Scottish Government to consider the extension of the moratorium period and to include a freeze on interest, fees and charges during that period.
The report also indicates that more work will be undertaken to consider the practical application of introducing further provisions which are currently reserved and the additional protections for those receiving mental health crisis care.
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