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The Bankruptcy and Diligence etc. (Scotland) Bill was introduced in the Scottish Parliament on 21 November 2005. It will legislate on personal bankruptcy and diligence with the intention of providing a better balance between supporting business risk and protecting the rights of creditors.
Among the various measures in the Bill are a number of changes to the provisions of the Debtors (Scotland) Act 1987 that will affect the operation by employers of the court orders that are distinctive to Scotland, namely
- earnings arrestments (EAs), which are used to recover civil debts, fines and unpaid Council Tax,
- current maintenance arrestments (CMAs), which are used to deduct payments for maintenance, and
- conjoined arrestment orders (CAOs), which combine AEs and CMAs when there are more than one of either of them in force against the debtor. There cannot be more than one AE and one CMA in force at the same time.
The changes that will be introduced by the Bill are as follows. Readers should understand that changes could be made to these provisions before the eventual Act comes into force.
- Where a debtor is subject to both an EA and a CMA, they will rank equally in the deductions from the debtor's earnings if the debtor's net earnings are insufficient to allow deduction of the full amounts due under each. The existing priority of an EA over a CMA will no longer apply. This principle of equal sharing contrasts with the "first come, first served" approach used for court orders in England and Wales.
- The calculation will involve
- treating the debtors net earnings as the amount remaining after the deduction of protected earnings,
- adding together the AE and CMA deductions, and
- dividing the combined total in the proportions that the AE and the CMA have to that total.
Example: An employee has net earnings for a 31-day month of £;950. The deductions to be taken are £;123 for an EA and £;310 (£;10 per day) for a CMA. The protected earnings for the CMA are £;620 (£;20 per day), so there is insufficient earnings left to take both deductions in full.
Current interpretation of the rules requires the EA to be taken first, in full. The earnings that remain for the CMA are £;827, i.e. £;950 - £;123. After removing the protected earnings, the amount taken for the CMA is only £;207. As a result, the person entitled to the maintenance payment does not receive the full £;310 due.
Under the new rules, the amount available for the two arrestments, after deducting the protected earnings, is £;330, i.e. £;950 - £;620. This is split in the proportion that £;123 and £;310 are to £;433, their total:
EA: £;330 × 123 ÷ 433 = £;93.74
CMA: £;330 × 310 ÷ 433 = £;236.26
- Where deductions are made from a debtor's earnings under a CAO and the amount sent to the sheriff clerk is insufficient to split fully between the creditors, the amount is similarly split proportionately between all of the creditors instead of priority being given to debts and fines.
- The messenger of court, when serving an EA schedule or a CMA schedule on an employer must take all reasonable steps to provide the debtor with a copy of the schedule.
- The employer must provide the debtor with a copy of the EA or CMA schedule and must notify the debtor of the date on which the first deduction under the EA, CMA or CAO is to be made, together with the amount to be deducted.
- On receiving an EA or CMA schedule, or a copy of a CAO, the employer is required to send, as soon as is reasonably practicable, the following information to the creditor or the sheriff clerk, as appropriate, with a copy to the debtor:
- how the debtor is paid, i.e. weekly, monthly or otherwise
- the date of the debtor's payday next following receipt of the schedule or order
- the sum deducted on that payday and the net earnings from which it is so deducted, and
- any other information which the Scottish Ministers may, by regulations, prescribe.
- Unless the arrestment or order is no longer in force, the employer must send the same information to the creditor or sheriff clerk, with a copy to the debtor, as soon as is reasonably practicable, after
- the later of
- (a) 6 April next following receipt of the schedule or order, or
- (b) the day falling 6 months after receiving the schedule or order, and
- each 6 April thereafter.
The date (b) to be provided on this occasion is the date of the debtor's payday next following the relevant date above.
Example: An AE is served on an employer on 7 July 2006 and the employer promptly sends the prescribed information to the creditor and gives a copy to the debtor. The employer must provide the information again soon after 7 January 2007, this time giving the date of the payday next following that date. The employer must provide the information again soon after 6 April 2007, and then each year after that.
- If the debtor leaves the employment, the employer must, as soon as is reasonably practicable, inform the creditor or the sheriff clerk and, if known, provide the name and address of any new employer of the debtor. If the employer fails to do this, the sheriff may, on the application of the creditor, make an order requiring the employer
- to provide the information, and
- pay to the creditor an amount equal to twice the deduction that would have been taken at the next payday had the debtor still been employed.
The sum paid is offset against the debt and the employer may not recover it from the debtor. There is a right of appeal, on a point of law only, to the sheriff principal.
- Unless the arrestment or order is no longer in force, a creditor who receives payments under an EA, CMA or CAO is required to send the following information to the employer or the sheriff clerk, as appropriate:
- the sum owed by the debtor to the creditor
- the amounts received by the creditor by virtue of the arrestment or order, and
- the dates of payment of those amounts.
The information must be sent, as soon as is reasonably practicable, after
- the later of
- (a) 6 April next following service of the schedule of arrestment or order, or
- (b) the day falling 6 months after the service of the schedule or order, and
- each 6 April thereafter.
- A debtor, on leaving an employment, must inform the creditor or the sheriff clerk, as appropriate, and provide the name and address of any new employer.
- The existing exemption that prevents deductions under earnings arrestments being made from the earnings of merchant seamen (other than fishermen) will be removed.
- The fee chargeable by employers for operating an arrestment is to be increased from 50p to £;1. This change to section 71 of the Debtors (Scotland) Act 1987 does not yet appear to be included in the Bill.
A number of other issues that arise from the operation of court orders both in Scotland and in England and Wales were considered when preparing this Bill.
- The issue of what an employer should do if required to operate a Scottish earnings arrestment and an English attachment of earnings order for the same employee was discussed at length by the Scottish Executive and the Department for Constitutional Affairs. The Policy Memorandum accompanying the Bill states: "While a pragmatic solution for priority ranking on a first come-first served basis has been considered favourably by both the Executive and the Department of Constitutional Affairs, it has not as yet proved possible to introduce the necessary legislation in both Parliaments. This is likely to be considered in the context of a planned review in England and Wales of attachment of earnings orders."
- Occupational public service pension schemes are exempted from the 1987 Act from arrestment against earnings. They are not, however, excluded from deductions under Deduction from Earnings Order for the collection of child support maintenance. The removal of the exemption for public service pension schemes was considered but not pursued as the jurisdiction lies with Westminster.
- The recovery of student loans is suspended if an earnings arrestment is subsequently served, unlike the arrangement with attachment of earnings orders in England and Wales. The Scottish Executive is likely to change the rules but to do so through secondary legislation made under the Bill.
- The Scottish Executive has also given consideration to changing the current rules that include holiday pay in the pay period in which it is paid rather than spreading it out over the period of the holiday. Weekly-paid employees particularly can lose much of their holiday pay as a result. There are no measures in the Bill currently to rectify this situation.
...back to 1 December 2005
Sources:
Bankruptcy and diligence reforms
Bankruptcy and Diligence etc. (Scotland) Bill
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For Payroll and Human Resource Professionals
