Scottish Insolvency Statistics 2014-15: Quarter 2 Release

An Official Statistics Publication for Scotland22 October 2014

Introduction

This release provides Scottish insolvency statistics compiled by Accountant in Bankruptcy (AiB) for the second quarter of 2014-15. Statistics relating to the Debt Arrangement Scheme (DAS) are also reported. The figures are collated to 30 September 2014.

Key Points

The key points from this quarter’s release are:

Bankruptcies are at their lowest level in over six years as a total of 1,654 were awarded this quarter, down 3.9 per cent on the corresponding quarter of the previous year.

Total personal insolvencies which include both bankruptcies and protected trust deeds (PTDs), increased very slightly this quarter (0.8 per cent). However the total recorded was 12.5 per cent lower than the same quarter of the previous year as the longer term trend shows a general decline since 2008-09.

This small increase in personal insolvencies is due to the increase in PTDs recorded as the total recorded increased by 10.3 per cent this quarter, while the number of bankruptcies decreased by 5.8 per cent during this period.

The combined number of bankruptcies awarded, PTDs registered and DAS applications approved totalled 4,147 this quarter which is 9.6 per cent lower than the corresponding quarter of the previous year. Hence, the overall demand for statutory debt solutions in Scotland continues to decline.

The number of Scottish registered companies becoming insolvent or entering receivership decreased by 16.4 per cent since the last quarter and by 22.0 per cent on the same quarter of the previous year.

The number of debt payment programmes (DPPs) under DAS decreased by 8.3 per cent from the previous quarter as 1,156 were approved. However this is only 1.2 per cent lower than the number approved in the same quarter of the previous year. A total of £9.4 million was repaid through DAS in the second quarter of 2014-15.

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Key Trends

The longer-term trend of personal insolvencies in Scotland is represented in chart 1 below, with quarterly data from 2005-06 shown. This illustrates the significant increase in bankruptcies awarded in the second quarter of 2008-09 following the introduction of the Low Income Low Asset (LILA) route, which widened access to bankruptcy and the general downward trend since then. Recent quarterly totals of bankruptcy have been steadier and are closer to levels recorded prior to 2008-09 with this quarter’s total at the lowest level in over six years.

Personal insolvencies, which include both bankruptcies and PTDs, continue to be at their lowest recorded levels since 2005-06. This chart also shows the more recent downward trend in PTDs, despite an increase this quarter, while the number of DPPs under DAS remains relatively stable.

Chart 1: Total Bankruptcies, PTDS and DAS DPPs – Longer-term Trend

Bankruptcies

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Total Personal Insolvencies

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Chart 1: Bankruptcies, PTDs and DAS DPPs in Scotland - Longer Trend

LILA introduced on 1 April 2008

Personal Insolvencies

Personal insolvency figures consist of the number of bankruptcies awarded and the number of PTDs registered. There was a total of 2,991 personal insolvencies in Scotland in the second quarter of 2014-15. This represents a 0.8 per cent increase on the previous quarter. However this is a 12.5 per cent decrease from the total recorded in the same quarter of the previous year.

Bankruptcies

In total there were 1,654 awards of bankruptcy in the second quarter of 2014-15 which is a 5.8 per cent decrease on the previous quarter. This total is also 3.9 per

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cent lower than the total awarded in the equivalent quarter of the previous year. This quarter’s total is the lowest number awarded since access to bankruptcy was widened by the introduction of the LILA route in April 2008. The 1,654 individual awards of bankruptcy this quarter can be broken down as follows:

1,314 awards were made as a result of debtor applications to Accountant in Bankruptcy, a decrease of 8.1 per cent on the previous quarter and 5.5 per cent lower than the same quarter last year. Of these, 629 were awarded bankruptcy through the LILA route. This is 47.9 per cent of the total debtor applications, which is a higher proportion than the previous quarter. The equivalent proportion in the same quarter of the previous year was 48.2 per cent.

338 awards resulted from petitions to the courts by creditors. This is a 6.6 per cent increase compared to the previous quarter and 7.0 per cent higher than the same quarter last year.

2 awards were made as a result of petitions to the court by trustees in a trust deed. This represents a 77.8 per cent decrease on the previous quarter and an 85.7 per cent decrease on the same quarter last year.

PTDs

The number of PTDs increased with a total of 1,337 recorded in the second quarter of 2014-15. This is an increase of 10.3 per cent from the previous quarter, although 21.2 per cent lower than the total recorded in corresponding quarter of the previous year. Further information is shown in table 1 below.

Table 1: Personal Insolvencies by Quarter

Quarter Q2 Q3 Q4 Q1 Q2 2014-15 Q1 2013-14 Q2

Awards of Bankruptcy 1,721 1,673 1,757 1,756 1,654 -5.8% -3.9%

Breakdown of awards by sourceCreditor Petitions 316 324 411 317 338 6.6% 7.0%Trust Deed Petitions 14 17 5 9 2 -77.8% -85.7%

Debtor Applications 1,391 1,332 1,341 1,430 1,314 -8.1% -5.5%of which LILA 670 658 667 648 629 -2.9% -6.1%of which other 721 674 674 782 685 -12.4% -5.0%% LILA 48.2% 49.4% 49.7% 45.3% 47.9%

Protected Trust Deeds 1,697 1,674 1,272 1,212 1,337 10.3% -21.2%

Total Personal Insolvencies 3,418 3,347 3,029 2,968 2,991 0.8% -12.5%

Percentage change 2014-15 Q2 on:

Financial Year 2013-14 (r) 2014-15 (p)

r - Figures for 2013-14 have been revised following validation at the end of the previous financial year.p - Figures for 2014-15 will remain provisional until validation following the end of the financial year.

Table 2 below shows the number of personal insolvencies recorded each year from 2006-07 to 2014-15 to date. This illustrates the total number of personal insolvencies in Scotland has been declining in more recent years. The table also shows the total

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personal insolvencies figure for the first two quarters of 2014-15 is 5,959. This is 19.6 per cent lower than the corresponding total in the previous year as the downward trend in the number of personal insolvencies continues.

Table 2: Personal Insolvencies by Financial Year

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 (r) 2014-15 (p)Year to date

Bankruptcies 5,885 6,158 14,777 13,810 11,443 11,056 8,838 7,112 3,410Protected Trust Deeds 8,298 7,509 7,633 9,188 7,980 9,194 8,177 6,681 2,549

Total Personal Insolvencies 14,183 13,667 22,410 22,998 19,423 20,250 17,015 13,793 5,959

Annual change 12.4% -3.6% 64.0% 2.6% -15.5% 4.3% -16.0% -18.9% -19.6%

r - Figures for 2013-14 have been revised following validation at the end of the previous financial year.p - Figures for 2014-15 will remain provisional until validation following the end of the financial year.Note: LILA route to bankruptcy introduced at start of 2008-09 which widened access to bankruptcy resulting in a significant increase in the number of bankruptcies awarded.

The following chart shows the quarterly volume of bankruptcies awarded and PTDs recorded since 2008-09.

Chart 2: Personal Insolvencies in Scotland

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Chart 2: Personal Insolvencies in Scotland

The general trend is that the number of bankruptcies awarded each quarter has been declining since the second quarter of 2008-09, with the exception of the first quarter of 2012-13 when changes to the bankruptcy fee structure resulted in a substantial increase in the number of applications received. In more recent quarters, the number of bankruptcies has been more stable.

The trend of PTDs awarded each quarter has been more flat since 2008-09 with the first quarter of each year tending to have the highest volume of the four quarters in

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the year. Recent quarters have seen a downward trend although there was an increase in the number of PTDs awarded this quarter.

Debtor Applications

The Accountant in Bankruptcy received 1,332 debtor applications for bankruptcy in the second quarter of 2014-15. This is a 4.5 per cent decrease on the previous quarter and 8.8 per cent lower than the corresponding quarter of the previous year.

At the end of the second quarter, 130 applications were still being processed. During the quarter, 26 applications were rejected as the criteria for bankruptcy had not been demonstrated and no applications were returned due to application errors in this quarter.

Case Administration

In Scotland, a trustee is appointed to administer each bankruptcy. A nominated insolvency practitioner may be appointed as trustee or the Accountant in Bankruptcy may be appointed. In the second quarter of 2014-15, the Accountant in Bankruptcy was appointed trustee in 1,166 cases awarded, representing 70.5 per cent of bankruptcies for the quarter. This is a slightly lower proportion than in previous quarters.

Company Liquidations and Receiverships

Receiverships and liquidations are of those companies which the Court of Session has jurisdiction to wind up, and are recorded in the Register of Insolvencies (RoI).

Accountant in Bankruptcy received 209 notices of Scottish registered companies becoming insolvent or entering receivership in the second quarter of 2014-15. This is a 16.4 per cent decrease on the last quarter and a 22.0 per cent decrease on the same quarter of the previous year.

The total figure consists of 1 receivership, 152 compulsory liquidations, and 56 creditors’ voluntary liquidations. There were also 98 members’ voluntary liquidations. Further information is shown in table 3 below.

Table 3: Company Liquidations and Receiverships

Financial Year

Quarter Q2 Q3 Q4 Q1 Q2 2014-15 Q1 2013-14 Q2

Receiverships 6 2 1 0 1 - -83.3%

Compulsory Liquidations 155 163 181 188 152 -19.1% -1.9%

Creditors' Voluntary Liquidations 107 64 62 62 56 -9.7% -47.7%

Total Corporate Insolvencies 268 229 244 250 209 -16.4% -22.0%

Members' Voluntary Liquidations 75 119 89 118 98 -16.9% 30.7%

Percentage change2014-15 Q2 on:

2013-14 2014-15

Note: the RoI does not contain information on corporate administrations in Scotland as they are a reserved matter. This means they are not included in the corporate

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insolvency statistics produced by AiB. However the UK Insolvency Service do report these statistics on a quarterly basis and further information can be found on their website at https://www.gov.uk/government/collections/insolvency-service-official-statistics (Table 5 on the UK Insolvency Service statistics release contains information on Receiverships, Administrations and Company Voluntary Arrangements in Scotland).

Chart 3 below shows the quarterly volume of Scottish corporate insolvencies recorded on the RoI since 2009-10. This series, which includes receiverships, compulsory liquidations and creditors’ voluntary liquidations, shows a general upward trend between 2009-10 and the first quarter of 2012-13 followed by a sharp decrease for the remainder of that year. More recently, there has been an upward trend since the beginning of 2013-14, although the total fell this quarter. This chart also shows the total number of members’ voluntary liquidations recorded each quarter and this series is showing an increasing upward trend since the middle of 2012-13.

Chart 3: Corporate Insolvencies in Scotland

Total Corporate Insolvencies

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Chart 3: Corporate Insolvencies in Scotland

Debt Arrangement Scheme

Applications Approved

During the second quarter of 2014-15 there were 1,156 DPPs approved under DAS. This is an 8.3 per cent decrease on the previous quarter and 1.2 per cent lower than the same quarter in the previous year. Further information is in table 4 below.

Table 4: Approved Debt Payment Programmes by Quarter

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-1.2%-8.3%1,170 1,181 1,024 1,261

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Chart 4 below shows the quarterly total number of approved DPPs under DAS since the first quarter of 2009-10 and illustrates the increase in volume of DPPs approved, particularly from 2011-12 onwards. More recently, the number of approved DPPs in each quarter has been relatively steady.

Chart 4: DAS DPPs Approved

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Chart 4: DAS DPPs Approved

Applications Completed

A total of 227 DAS DPPs were completed in the second quarter of 2014-15 which is 20.7 per cent higher than the total completed in the previous quarter. This is also 87.6 per cent higher than the total completed in the same quarter of the previous year. Further information is in table 5 below.

Table 5: Completed Debt Payment Programmes by Quarter

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188 20.7% 87.6%

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2014-15 Q2 on:

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Completed Debt Payment Programmes under the Debt

Arrangement Scheme121 116 179

2014-15

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Note that uptake in DAS was initially slow until changes to the legislation and improvements to its IT system led to a substantial upturn in applications from 2011 onwards. Since the average length of a DPP is around 7 years, we can expect a steady rate of increase until 2018 when it is likely completion numbers will increase significantly in line with this more recent growth in approved applications.

Variations

If a debtor's circumstances change and they can no longer afford the agreed payments, or if they want to increase the level of payment, they can apply for a variation to their DPP.

In the second quarter of 2014-15, a total of 752 applications to vary a DPP were approved while 40 were rejected. The number of approved applications is 45.7 per cent higher than the previous quarter and 32.9 per cent higher than the same quarter of the previous year.

Note the variation figures for 2013-14 were revised last quarter following validation at the end of the previous financial year. This also means the variation figures for 2014-15 will remain provisional until they are fully validated at the end of this financial year.

The number of approved variations is equal to 5.2 per cent of live cases, which is a higher rate than in recent quarters. Further details are in table 6 below.

Table 6: Applications to Vary a Debt Payment Programme by Quarter

Q2 Q3 Q4 Q1 Q2 2014-15 Q1 2013-14 Q2

Total Approved 566 526 683 516 752 45.7% 32.9%

Total Rejected 44 29 63 36 40 11.1% -9.1%

Total 610 555 746 552 792 43.5% 29.8%

% Approved 92.8% 94.8% 91.6% 93.5% 94.9%

Approved as % of Live Cases 4.7% 4.1% 5.2% 3.7% 5.2%

Applications to vary a Debt Payment Programme

Financial Year Percentage change2014-15 Q1 on:

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2013-14 2014-15 (p)

r - Figures for 2013-14 have been revised following validation at the end of the previous financial year.p - Figures for 2014-15 will remain provisional until validation following the end of the financial year.

Revocations

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A DPP is automatically revoked if the debtor applies and is awarded bankruptcy or signs a trust deed which becomes protected. There are also a number of grounds where the debtor, a money adviser acting on behalf of the debtor or a creditor in the DPP can apply to revoke a DPP, including where a debtor has failed to satisfy the conditions of the DPP or if two payments have been missed and a third is due.

A total of 496 applications to revoke a DPP were approved in the second quarter of 2014-15 and 240 were rejected. This is an approval rate of 67.4 per cent which is a higher approval rate than recent quarters. The number of approved applications is a 16.2 per cent increase on the previous quarter and 45.0 per cent higher than the number approved in the corresponding quarter of 2013-14.

The number of approved revocations is equal to 3.4 per cent of live cases, which is a higher rate than recent quarters. Table 7 below provides further information.

Table 7: Applications to Revoke a Debt Payment Programme by Quarter

Q2 Q3 Q4 Q1 Q2 2014-15 Q1 2013-14 Q2

Total Approved 342 328 336 427 496 16.2% 45.0%

Total Rejected 265 158 226 224 240 7.1% -9.4%

Total 607 486 562 651 736 13.1% 21.3%

% Approved 56.3% 67.5% 59.8% 65.6% 67.4%

Approved as % of Live Cases 2.9% 2.6% 2.5% 3.1% 3.4%

Applications to revoke a Debt Payment Programme

Financial Year Percentage change2014-15 Q2 on:

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2013-14 2014-15

Amount Repaid

A total of £9.4 million was repaid through DAS in the second quarter of 2014-15. This is a 9.6 per cent increase on the amount repaid during the previous quarter and 30.2 per cent higher than the amount repaid during the corresponding quarter of the previous year. Further details are in table 8 below.

Table 8: Amount Repaid Through DAS by Quarter

Q2 Q3 Q4 Q1 Q2 2014-15 Q1 2013-14 Q2

£7.2 m £7.7 m £8.1 m £8.6 m £9.4 m 9.6% 30.2%Amount Repaid under the Debt

Arrangement Scheme

2013-14Financial Year Percentage change2014-15 Q2 on:

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Note: The published amounts have been rounded however the percentage changes have been calculated using the unrounded figures.

Distribution of Statutory Debt Solutions

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Statutory debt solutions in Scotland consist of bankruptcies and PTDs, which are debt relief solutions, and DAS which is a debt management solution. Chart 5 below shows the number recorded for each of these solutions where the figures are expressed as a percentage of the total recorded each quarter. This illustrates the change in distribution of bankruptcies, PTDs and DAS DPPs since 2008-09.

Chart 5: Total Bankruptcies, PTDS and DAS DPPs – Distribution Breakdown

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Chart 5: Total Bankruptcies, PTDS and DAS DPPs – Distribution BreakdownBankruptcies Protected Trust Deeds DAS DPPs Approved

This chart shows the proportion in bankruptcy has been generally declining since 2008-09, although has been more stable in recent quarters. The proportion of individuals entering DAS has been generally increasing, particularly since 2011-12, while the proportion of individuals with a PTD has been declining, particularly in recent quarters.

When considering the above chart, it’s important to note that the overall demand for statutory debt solutions in Scotland continues to decline. In 2012-13, the number of individuals entered bankruptcy, a PTD or DAS decreased by 8.2 per cent, while in 2013-14, the rate of decline increased to 15.1 per cent. In 2014-15 to date, this rate of decline is 14.4 per cent.

Background Notes

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Accountant in Bankruptcy supervises all personal insolvencies in Scotland and administers those bankruptcies where appointed. Insolvent individuals in Scotland are subject to bankruptcy (sequestration) or enter protected trust deeds (PTDs) under the Bankruptcy (Scotland) Act 1985. The 1985 Act was amended by the Bankruptcy (Scotland) Act 1993 and on 1 April 2008, part 1 of the Bankruptcy and Diligence etc. (Scotland) Act 2007 came into force making significant changes to some aspects of bankruptcy in Scotland. Changes included the introduction of LILA, a route into bankruptcy for people with low income and low assets. The changes also took a number of processes out of the Scottish Court system, reducing costs and freeing up court time.

PTDs are voluntary arrangements, where the debtor passes his estate to an insolvency practitioner who arranges to repay part of the debt to creditors on the debtor’s behalf. This is similar to Individual Voluntary Agreements (IVAs) in England and Wales, although there are important differences in the way they are set up and administered.

The Debt Arrangement Scheme (DAS) is administered by Accountant in Bankruptcy. Debt payment programmes approved under DAS allow individuals to repay their debts in full over an extended period of time whilst providing protection from enforcement by their creditors and safeguarding their home as long as mortgage payments are maintained. The legislation relating to DAS is contained in the Debt Arrangement and Attachment (Scotland) Act 2002 and subsequent regulations.

Accountant in Bankruptcy is also responsible for receiving, extracting and recording information from certain forms relating to company liquidations and receiverships. The legislation appropriate to liquidations and receiverships is contained in the Insolvency Act 1986 and the Insolvency (Scotland) Rules 1986.

Further information on DAS, including a register of debt payment programmes, is available at http://www.dasscotland.gov.uk

Further information regarding insolvency in Scotland, including legislation, can be found on the Accountant in Bankruptcy’s website at www.aib.gov.uk

Official statistics are produced by professionally independent statistical staff. Further information on the standards of official statistics in Scotland can be accessed at http://www.scotland.gov.uk/Topics/Statistics/About

AN OFFICIAL STATISTICS PUBLICATION FOR SCOTLAND

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Official and National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. Both undergo regular quality assurance reviews to ensure that they meet customer needs and are produced free from any political interference. Correspondence and enquiriesFor enquiries about this publication please contact:Daniel Harrison,Accountant in Bankruptcy,Telephone: 0141 278 4411e-mail: daniel.harrison@scotland.gsi.gov.uk

For general enquiries about Scottish Government statistics please contact:Office of the Chief Statistician, Telephone: 0131 244 0442,e-mail: statistics.enquiries@scotland.gsi.gov.uk

How to access background or source data

The data collected for this statistical bulletin:☐ are available in more detail through Scottish Neighbourhood Statistics

☒ are available on the AiB Statistics webpages at:

http://www.aib.gov.uk/About/annualtargets/quarterlyreports

Details of bankruptcies, PTDs, liquidations and receiverships can be found on the Register of Insolvencies, which is maintained by Accountant in Bankruptcy and can be accessed at http://roi.aib.gov.uk/roi/

The DAS register is an online public register which holds information about those who have a DPP under DAS (http://services.aib.gov.uk/dasregister/)

☐ may be made available on request, subject to consideration of legal and ethical factors.

☐ cannot be made available by Scottish Government for further analysis as Scottish Government is not the data controller.

Complaints and suggestionsIf you are not satisfied with our service or have any comments or suggestions, please write to the Chief Statistician, 3WR, St Andrews House, Edinburgh, EH1 3DG, Telephone: (0131) 244 0302, e-mail statistics.enquiries@scotland.gsi.gov.uk. If you would like to be consulted about statistical collections or receive notification of publications, please register your interest at www.scotland.gov.uk/scotstatDetails of forthcoming publications can be found at www.scotland.gov.uk/statistics

Crown CopyrightYou may use or re-use this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. See: www.nationalarchives.gov.uk/doc/open-government-licence/

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