Understanding the recent insolvency regulation reform
September 18, 2023
A Debt Arrangement Scheme enables someone in debt some respite. Through a debt payment programme, the person can repay their debts in full over an extended period of time.
The Debt Arrangement Scheme (“DAS”) is similar to a Debt Management Plan however, it is backed by the Scottish Government and is legislation lead. A DAS allows an individual to make one affordable monthly payment towards all unsecured debts included in the DAS until debts are paid in full.
Once the DAS is approved by creditors, all interest and charges are frozen during the term of the DAS. Any assets owned by the individual are not included in the DAS.
If breathing space is required to allow an individual to enter into a DAS, or obtain further advice, a Moratorium can be applied for. The Moratorium is registered on a public register, being the Register of Insolvencies, and stops creditors taking any action during the period being 6 months.
The DAS is a straightforward process which allows all debts to be paid in one affordable monthly payment via a Debt Payment Program (“DPP”). The DPP can last for any reasonable time.
The individual will receive initial advice and assessment of the monthly payment affordability. Once the DPP has been agreed, the proposal will be put to creditors.
Creditors have 21 days to agree to the DPP. If no response is received from creditors, it is deemed to be accepted. Should creditors of more than 10% in value lodge an objection to the DPP, it will not be approved. However, the DPP can be reviewed by the DAS Administrator, who is the Accountant in Bankruptcy. The DAS Administrator will complete a ‘fair and reasonable’ test and if the DPP passes this test then it is deemed to be approved and creditors are legally bound.
Once the DPP is approved, creditors will freeze all interest and charges, therefore, the balance due at the start of the DAS will not increase, irrespective of the term of the DPP. Creditors included in the DAS cannot raise legal action against the individual whilst the DAS is in place. The creditors will receive payment from the DPP on a monthly basis until the debt is paid in full.
Should the individual come into a windfall, the DAS term can be ended early if the payment clears the balance due.
All assets owned by the individual are not included DAS and are not at risk as long as re-payments are maintained to any relevant securities.
Sole traders also have a Business DAS available to them. The maximum period for a business DAS is 5 years.
For more information on personal debt and the Debt Arrangement Scheme, we offer an initial free consultation to review the situation and make recommendations on the best way forward. If we think that the Debt Arrangement Scheme is the best route forward, our specialists can support the individual at every step of the way through the process.
For information on fees in relation to a Debt Arrangement Scheme, click here.
“We approached Steve Parker of Opus when our business, which was in the hospitality sector, began to get into difficulties. Steve was helpful and supportive and gave clear and timely advice regarding our options. Resultantly the company was placed into Administration which was handled by Steve and his team in a fair and very professional manner. As a consequence we were able to emerge with a much slimmed down business which has flourished over a number of years allowing us to build up considerable reserves sufficient to see us through any future period of uncertainty”