SCOTTISH INSOLVENCIES IN THE THIRD QUARTER OF 2008/09

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1 SCOTTISH INSOLVENCIES IN THE THIRD QUARTER OF 2008/09 Statistics showing insolvencies in the third quarter of year ending 31/3/09 are published today, 21 January 2009, by the Accountant in Bankruptcy. Figures are collated to 31/12/08. INDIVIDUAL INSOLVENCIES There were 5807 individual insolvencies in Scotland in the third quarter of this year. This represented a decrease of 3% on the previous quarter and an increase of 75% on the same period in the previous year. In the total there were 3970 bankruptcies, a decrease of 2% on the previous quarter. As expected there was a large percentage rise on the corresponding quarter of 2007/08. This amounted to 154% and is attributable to the introduction of the "Low Income, Low Asset" (LILA) route into bankruptcy. Protected Trust Deeds (PTDs) totalled 1837, a decrease of 5% on the previous quarter and an increase of 5% on the corresponding quarter of last year. Insolvencies in Scotland Total Insolvencies By Year - Figures for 2005/06 and 2006/07 are taken from the respective annual reports. - Low Income, Low Assets (LILA) route to bankruptcy introduced at start of 2008/09 financial year.

2 Note: LILA is a new route into bankruptcy and consequently no direct comparison should be drawn between figures in the current year against figures reported on in previous years. A full review of LILA will be conducted one year after its introduction. As in the previous two quarters of 2008/09, the increase in bankruptcies is attributed to the introduction on 1 April 2008 of a new route into bankruptcy for people who have low income and low assets. Some people were previously unable to make themselves bankrupt unless they had the concurrence of a creditor or they were apparently insolvent, that is, a creditor was taking legal steps against them to pursue what was owed. The Bankruptcy and Diligence etc. (Scotland) Act 2007 introduced the 'Low Income, Low Asset' (LILA) route, whereby people who meet the relevant criteria can apply for their own bankruptcy without proving apparent insolvency. There were 3035 debtor applications received by the Accountant in Bankruptcy in the third quarter of 2008/09. Of these, 2651 individuals were awarded bankruptcy because they met the LILA criteria and 600 were awarded bankruptcy through apparent insolvency. At the end of the quarter, there were 310 applications still being processed and 135 applications had been rejected or returned. Petitions to the courts by creditors resulted in 616 bankruptcies for the quarter, a decrease of 14% on the previous quarter and a decrease of 25% on the corresponding quarter of last year. There were also 103 awards as a result of petitions by trustees in a trust deed. 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. Since 1 April 2008, the Accountant in Bankruptcy has been appointed trustee in 9850 cases representing 91% of all bankruptcies awarded so far this year. The Accountant in Bankruptcy is deemed to be trustee in all bankruptcies awarded through LILA. Of the non-lila bankruptcy awards where the Accountant has been appointed trustee, 35% of cases are being administered in-house and the remainder are being administered by insolvency practitioners carrying out work on behalf of the Accountant. Personal Insolvencies by Quarter * /08 Q4 Awards of Bankruptcy absorb 49 late awards made and not previously counted in the year. r - Revised quarterly figures. Annual totals are not affected.

3 COMPANY LIQUIDATIONS AND RECEIVERSHIPS The Accountant in Bankruptcy received 228 notices of Scottish companies entering liquidation or receivership in the third quarter of 2008/09. This figure includes 8 receiverships, 166 compulsory liquidations and 54 creditors' voluntary liquidations. Company Liquidations and Receiverships Notes The 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 This Act was amended by the Bankruptcy (Scotland) Act 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, debt relief and debt enforcement in Scotland. This included the introduction of the new 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 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 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 Details of bankruptcies, PTDs, liquidations and receiverships are found on the register of insolvencies, which is maintained by the Accountant in Bankruptcy (AiB). Further information about insolvency in Scotland, including legislation, can be found on the AiB website. Accountant in Bankruptcy 21 January 2009 Both Fergus Ewing, MSP, Minister for Community Safety and Gillian Thompson, the Accountant in Bankruptcy issued statements to accompany the release of the Insolvency Statistics.

4 Minister for Community Safety Fergus Ewing said: "The rise in personal insolvencies we now see is as a result of the introduction of the new "Low Income Low Asset" route into bankruptcy. The latest figures released today show an increase when compared to the same period last year, although a small reduction on the previous quarter of this current year. We are not yet able to assess what impact the current recession may have on bankruptcy figures. Clearly the Scottish Government will continue to do absolutely everything we can to support Scottish business and families during these tough times with our economic recovery plan. "The Scottish Government's six-point plan includes specific measures to increase help for companies and individuals, and improve financial advice for vulnerable households. For example we're increasing funding for our Home Owners Support Fund to 30m over 2 years in December 2008, providing 3m to expand in-court legal advice services, 1m to expand CAB advice services, and 400,000 for a new TV campaign to raise awareness of the help available through the National Debtline for people with debt worries. "I have also set up the Debt Action Forum, a panel of experts brought together to examine information and initiatives on debt relief, debt advice and repossession of properties and recommend a package of legislative and non-legislative measures to tackle the issues. This will make sure appropriate solutions and protections to help Scots who are struggling with debt and to provide safeguards to protect family homes are in place. "And the changes I've recently announced to the Debt Arrangement Scheme mean that more people will be able to access this debt management tool, which provides an important long term interest free option to pay back unmanageable debt." Gillian Thompson, Chief Executive of Accountant in Bankruptcy said: "The current financial climate is undoubtedly a cause for concern to all of us. Including those of us in the Scottish Government who offer support to those struggling to cope with personal debt. "It is inevitable that there will be high level of interest in insolvency figures. In releasing these statistics it is essential to understand their context. The present levels of personal insolvency in Scotland are directly related to bankruptcy reforms, in particular the Low Income, Low Asset (LILA) route into bankruptcy, introduced on 1 April LILA provides a much needed gateway to debt relief for some people who were not previously able to access bankruptcy because they could not meet the criteria. "LILA is a new concept and only time will show the extent to which people use this route into bankruptcy. I fully expect bankruptcy levels to continue be higher than before the reforms as bankruptcy legislation now meets the needs of a wider client group. The rise seen in bankruptcy numbers since April 2008 was expected as prior information from the money advice sector had clearly indicated that there were a high number of individuals, worried about their financial situation, who needed debt relief.

5 "I am closely monitoring the progress of LILA, and Ministers have asked me to carry out a review after the first full year of operation. I will publish a report sometime in the summer."

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