Very few people want to experience financial difficulty but it can happen quite easily and quickly, sometimes as a result of matters outwith your control e.g. redundancy, relationship breakdown or overspending at this time of year.  It is not uncommon for someone to use a traditional credit card or online payment facility, and then realise that even the minimum monthly payments are hard to find, with interest making the debt burden even worse.  Howsoever incurred, managing your debt can be stressful, complicated and embarrassing.  The thought of approaching someone to discuss such a personal matter can be quite daunting and this article provides some broad guidelines on options that might be worth considering as we head into 2022 :

1. Debt consolidation : you may be in a position to borrow money from a bank, possibly by securing a loan against heritable property, in order to discharge the liabilities that are causing concern. Of course, failure to meet repayments on a secured loan can put your house or other assets at risk.  This process can be costly in terms of the interest rate that you may have to pay on the top-up loan, but the monthly payments may be less than the amounts charged by your creditors.  Regrettably, many people find that mainstream lenders do not provide loans to settle old debts, which may mean using a more obscure lender who will charge a very high rate of interest.  Alternatively, you may be able to borrow from a friend, colleague or relative.

Borrowing requires to be repaid and thus, all you are doing is replacing one liability with another and hence, you need to be sure that this is a practical option in view of your pattern of expected income and expenditure.

2. Informal debt repayment : this can be instigated by you, or in conjunction with assistance from an approved money advisor. There are also various debt management companies who advertise their services fairly extensively but charge a fee.  Generally speaking, the plan is to offer creditors a regular weekly/monthly sum that you can afford, divided amongst creditors according to the value of each debt.  Your creditors will be requested to cease applying interest although there is no guarantee that they will do so, and you cannot force them.  The risk is that creditors will reject your offer. You should also be aware that any agreement will not be legally binding which means that creditors can change their mind at any time.

Generally speaking, unless a reasonable offer is tabled, creditors are unlikely to be supportive.  Thus, although your debts will be settled in full eventually, you will repay them over a longer period of time and probably incur a higher proportion of interest.  However, for many it creates peace of mind and avoids anything more formal.

3. Debt Arrangement Scheme “DAS” : with the assistance of an approved money advisor, a DAS can be considered. Ongoing interest and all liabilities are frozen once the DAS has been approved by the accountant in bankruptcy (State official) and repayment of the full amount of your debt due to each creditor is made over an agreed period of time : normally no more than 7/8 years.  If you own your home, it will be excluded from the process. This option has become more popular in recent years with those who have a regular income flow and whose debts are not excessive.

4. Trust deed : a trust deed is a Scottish insolvency procedure (the English equivalent is an IVA) and typically lasts four years. All debts are frozen upon signing the trust deed and you will be required to pay a monthly contribution from your earned income during the trust deed period, based upon your ability to pay i.e. due regard is given to meeting your essential commitments such as rent, insurance, food and child support.

If you own heritable property with equity that you cannot finance e.g. with help from family and friends, it may well have to be sold such that there is cash to pay your creditors.  However, a home is always looked at with individual circumstances in mind and thus, expert advice should always be sought.

5. Bankruptcy: if you consider that there is no realistic prospect of you ever being able to repay your debts, or cannot afford a monthly contribution such that either a DAS or a trust deed can be considered, bankruptcy may be the most suitable debt solution for you. Indeed, many people prefer the bankruptcy option because it tends to offer greater certainty of outcome.

As with a trust deed, part of your commitment will be to pay a weekly/monthly contribution over a period of four years, with such contribution being varied as your circumstances change during such period.  The State has a standard form, for utilisation across Scotland and to ensure consistency of outcome, which assesses the level of contribution you will be required to pay, and will often lead to a change in some of your lifestyle expenditure in order to comply with the process .  The impact on your heritable property will typically be the same as for a trust deed.

Each person’s circumstances are assessed on their merits because no two people are the same, and this helps to explain why the best option is probably not decided from an internet search but by speaking with someone who has the knowledge/experience to provide advice.  When personal financial troubles exist, do not be scared to discuss them with a confidential advisor because there will always be an answer.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general.

Perhaps the description above is not heard very often, but many tasks are undertaken by a licensed insolvency practitioner “IP” that, arguably at least, fall into such definition. At this time of year when we hear much about helping those less fortunate than ourselves and are exhorted to show our caring side e.g. by giving to charity, let’s have a look at some of an IP’s daily tasks that demonstrate that insolvency work is not all about closing a business and sacking people.

Indeed, an IP is often consulted by a business in financial trouble. After listening carefully to the background situation and asking appropriate questions, it may turn out that the business can be saved, albeit with some tweaking. The IP will work in conjunction with management and key stakeholder groups in order to save the business and related jobs. Understandably, this type of assignment is undertaken confidentially rather than in the open glare of a formal insolvency process. A successful task means that the IP is thanked ( and paid ! ) before departing the scene : leaving the business in a stronger more viable position.

In another example, the IP can be approached by an individual seeking advice about how to deal with a barrage of creditor pressure. Again, an exploratory first meeting is held ( no obligation : no charge ) in order to determine the facts. The various options for dealing with debt are explained, together with the advantages/disadvantages of each one. A significant benefit to many who attend such a meeting is the ability to share problems and listen to experienced advice in a private forum because many find it difficult to discuss personal financial problems with friends/family.  Being able to remove some of the anxiety and offer constructive solutions is invariably met with major relief by the client. The result may be an informal debt repayment programme or something more formal such as a trust deed or sequestration. Even where there are insufficient assets to merit Meston Reid & Co acting in a sequestration process, help remains on hand to assist the person complete the lengthy forms that allow the State to accept a  sequestration application

The reality is that whilst googling a problem can produce lots of responses, many articles on the internet tend to be based upon English bankruptcy law, and  those that might be pertinent never seem to fit a person’s individual circumstances. Small wonder that most websites have a few catchy highlights and then ask you to call for advice.

An IP may well be engaged by a bankrupt to help deal with the trustee in sequestration e.g. by completing forms, or advising about how to deal with the potential equity in the matrimonial home. Being able to speak to the trustee with IP knowledge is helpful to the bankrupt, who is often unaware of the details of the process and what can/can’t be done.

Similarly, a director can find that the Director Disqualification Unit is taking steps to either query their actings or perhaps disqualify them from being a company director in the future. It is not uncommon for there to be many facets to a situation and the experienced IP is able to offer ways to deal with matters e.g. provide more information to the Unit that might change their view, engage with the company’s former professional advisers in order to obtain details, act as an expert witness, engage a suitably qualified law agent, give general guidance to the director about the options e.g. consider an Undertaking if appropriate, and offer support as the process unfolds. For the vast majority of directors being pursued under the Company Directors Disqualification Act 1986, the whole experience is both new and unnerving : help is required to navigate the process.

Equally, a director may be pursued by the liquidator e.g. for recovery of an overdrawn loan account. The IP will often look at how the loan account has been calculated and provide help to the director when negotiating repayment terms to the liquidator. An obvious advantage of the IP’s help is that he/she will have handled both sides of such scenario in the past and hence, be able to offer constructive, experienced and pragmatic support to the director.

During 2021 there has been a noticeable increase in the number of solvent liquidations as the impact of IR35 has meant a lesser requirement for one-man companies in the oil and gas sector. Thus, it has been a pleasure to act as liquidator and see the smiling faces of shareholders as they pocket large payments under a benign capital gains tax regime that may generate a personal tax liability of only 10% of the sum received.

The last twelve months has witnessed a number of changes to insolvency legislation, much of which has been designed to try and protect a business/person from aggressive creditors such that time can be given to  consider how best to survive/contain the vagaries of Covid-19 and live to fight another day. The IP has been on hand to provide help in terms of understanding the changes and dealing with them as appropriate.

These examples of the type of task that can arise in IP’s standard day will hopefully demonstrate the caring and helpful side to the job.

The insolvency team at Meston Reid & Co have had a busy year and wish to thank all those who we have had the pleasure of engaging with and, one hopes, offering a little care and help to make a challenging situation a bit more palatable.  The team looks forward to providing a similar service in 2022 and meantime I wish every reader a fun-filled festive season.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general.

Although one reads in the media about a lower level of unemployment than the Government had anticipated and a relatively positive economic outlook, the number of queries received by the Meston Reid & Co insolvency team “ the team “ suggests that there are plenty people who have either been made redundant following the end of the furlough period, are in low paid jobs such that the increasing cost of living is causing concern, or are worried generally about their financial position.

Very few people wish to experience financial difficulty but it can happen quite easily and quickly, often as a result of matters outwith one’s control.  Equally, as Christmas looms ahead, there is a natural tendency in many of us to spend more than is affordable.  Managing one’s debt burden can be stressful, complicated and embarrassing and the team often find that those who contact the firm have already been surfing the net in order to seek answers.  Invariably, this is because of the wish to try and find answers to questions without exposing personal frailty to others.  The difficulty is often that many  websites refer to bankruptcy procedures in England and hence, explain the implications of the Insolvency Act 1986, whereas Scotland uses different legislation : the Bankruptcy (Scotland) Act 2016.  Further, each situation has its own idiosyncrasies and it is rare to find someone in financial distress who can look at their position dispassionately.

When the team is consulted, the types of options that are explained/considered include :

1. Debt Arrangement Scheme
2. Trust Deed
3. Bankruptcy
4. Debt consolidation
5. Informal debt repayment programme

Each option has its advantages/disadvantages which means that the team will ask various questions in order to determine the suitability of each option.

Whether it is a telephone interview or physical meeting, it takes time to allow an individual to feel sufficiently relaxed/trusting in order to provide full responses to questions and perhaps unsurprisingly, not all of the answers will point to a perfect solution i.e. an element of decision-making is necessary. Further, when consulted, the team consultant will generally wish to be positioned in broadly neutral territory in order to consider the situation from all angles. A balanced view is required.

Frequently asked questions include :

1. Does it matter if my credit card liabilities are joint with my partner or solely in my name?
2. My partner and I own our home and are worried that it might be repossessed/sold. If my home is at risk, what can I do to protect it and with whom do I negotiate?
3. Will I lose my job if I enter a formal insolvency process?
4. Is there a public record that will show that I have entered a formal insolvency process i.e. who will find out?
5. Will someone come to my house and remove the contents for sale?
6. Can I have a bank account if I have been sequestrated and use it for my ongoing employment?
7. Can I be self employed after I have been sequestrated and if not, why not?
8. How long will a period of formal insolvency last and is there anyone in authority who oversees the process?
9. If I am self employed, will my business assets be removed and sold?
10. Are any debts excluded from the sequestration process that I must still pay?
11. If I am earning, do I have to pay a contribution towards my creditors?
12. If I have to pay a contribution, how is it calculated and monitored, and to whom is it paid?
13. Will I have to sell my car and if so, how I am expected to get to work?

These are merely examples of the type of question for which an answer is sought and explains why, despite the various options available for dealing with personal financial difficulty, until one knows the detailed circumstances of a person’s situation it is impossible to answer questions fully and create an action plan.

Experience suggests that one should ignore the adverts about “deleting debt” and “avoid paying all your creditors”. The Meston Reid & Co experience is that many individuals regret becoming involved with unknown/distant debt advisors who do not hold a consumer credit licence, who are not sufficiently experienced to provide appropriate advice, or do not have accreditation e.g. licensed insolvency practitioner, and may well have an interest in steering the person towards a product that is more beneficial to the advisor than the person seeking help.  When responding to internet and press adverts, it is important to check the credentials of whoever is offering advice, no matter how suave and knowledgeable they may sound.

In reality, there is no substitute for seeking advice from an experienced source as soon as possible in order that you can become knowledgeable about your circumstances/options and formulate a plan that deals with the situation in a practical manner. A meeting is usually better than an exchange of e-mails and texts. Don’t be afraid to seek advice from a reputable source and just as importantly, don’t wait until it is too late for you.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general.

When asked about the daily tasks undertaken by a licensed insolvency practitioner “LIP”, many would guess that they include business viability reviews, providing advice to directors, preparing reports to banks, advising individuals in financial distress, acting as administrator/liquidator or trustee, and assisting implementation of a turnaround/strategy that seeks to save both the business activity and jobs.

Correct on all counts : but as well as these, and being involved with court matters such as director disqualification, acting as an expert witness, and debt recovery, the role of an LIP also covers acting as either a judicial factor or guardian.

A judicial factor can be appointed when there are directors/partners in a business who cannot agree on anything and it is evident to everyone else that without someone else taking charge, the business may suffer, perhaps falling into terminal decline.  For example, I was involved with two brothers who could not bear to be in the same room together yet were equal partners in a large business which, as a consequence of continuing disagreement between the brothers, lacked direction.  The task of the judicial factor was either to run the business in the short term in the hope that the brothers might find a way to work with each other, or sell the business and distribute the monies to the brothers, thereby allowing them to pursue different interests. In the face of continuing and acrimonious family animosity, the latter option was followed.

Whether one uses the title judicial factor, guardian or curator, these appointments all relate to the LIP looking after the financial interests of the person/business.  Typically, the appointment will be at the instance of a court because all other avenues have been exhausted.

Take the case of an individual who may be incapacitated by virtue of old age, or perhaps either mental or physical circumstances, yet has substantial assets in their name. If nobody, such as a close relative is willing to accept financial responsibility, the LIP can be approached to accept appointment. The  focus is then upon trying to organise the welfare of the individual whilst exercising careful stewardship over the money.  For example, there may be a substantial sum which requires to be invested in suitable quoted investments, thereby generating income which will help to pay for the care of the individual or preserve wealth in anticipation of the occurrence of a future event.

In the aftermath of the Piper Alpha disaster in 1988, a number of large financial settlements were provided by Occidental Petroleum Limited. In a number of situations, either the parent of the child (children) decided that they did not wish the responsibility of looking after a substantial sum of money, or the court decided that there was no suitable relative and thus sought to appoint a responsible individual to look after the money.  A number of interesting challenges arose as a result of my appointment in a number of such cases and it should be stressed that the role was one of financial guardian rather than welfare guardian i.e. an LIP is not required to take the child (children ) into his family circle, but exercise stewardship over the money such that it is utilised wisely and invested sensibly until each individual reached the age of sixteen.  Accordingly, the mother or other person with whom each child resided would liaise with me in order to ensure that each child’s interests were best served during my term of office.

The Children (Scotland) Act 1995, which was updated slightly in 2020 to cater for the protection of children subject to abuse, ensuring that a child’s views are respected at times of domestic discord, and enshrining rights under the UN Convention on the Rights of Children, also provides a source of work for the LIP who can be  appointed by court to look after the financial interests and wellbeing of a child.  Typically, this might arise when the value of assets available to a child are such that the LIP is deemed to be the most suitable person to utilise the monies for the care and wellbeing of the child, whilst ensuring that the child’s welfare is being looked after.  Where a child of unmarried parents inherits a substantial sum of money, the Accountant of Court can become involved in terms of assessing whether or not the surviving parent is the most appropriate person to assume control of the money.

The provisions of the Children (Scotland) Act 1995 mean that if a third party is appointed to look after the assets i.e. an LIP, such appointment normally lasts until the child reaches the age of 16, or a different age if the court deems it suitable in the circumstances.

Where there are substantial monies and an LIP is involved, external advice would normally be taken e.g. asking a stockbroker regarding a share portfolio, or an estate agent/lawyer if heritable property is to be purchased/sold. As one might expect, there are some fairly strict rules about investment protocols that the LIP is required to observe. The key is to work with the surviving parent (if there is one) in order to ensure that the child’s short term and long term welfare is the focus of attention.

Over the years, quite a few appointments have arisen and perhaps the fact that an LIP is used to dealing with this type of situation lends itself to being approached to act.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general.

When a liquidator is appointed to a company, a key task is to identify, value and recover assets. Where that asset is, say, a car that is not subject to finance, selling it at auction is a straightforward process. However, a large chunk of value is often reflected in book debts, or an overdrawn director’s loan.

Recovering book debts relies to a great extent on the quality of documentation in the liquidator’s possession i.e. are there agreed purchase orders, signed delivery slips, properly completed sales invoices and evidence of customer acceptance of the goods. If the documentation is lacking, recovery prospects are reduced and, of course, the dark side of human nature seems to come to the fore by customers denying all knowledge of a debt unless it can be clearly demonstrated/validated. The fact that the liquidator is not continuing to trade with the customer means that there is no benefit in threatening to stop future supplies, and it is not uncommon to have to contact the customer many times before a response is received.

A similar situation can arise when taking steps to recover an overdrawn director’s loan account because entries will be questioned and all sorts of reasons offered for non payment.

The asset recovery process requires time and resources from the liquidator and his staff which inevitably costs money and tends to mean that a pragmatic/economic view is often taken about small amounts i.e. is it worth it overall ?

Of course, as the figure becomes larger, a more robust view is taken, particularly if it seems clear that the debtor is seeking to avoid payment merely because a liquidator is in office and may have little cash within the liquidated estate to appoint specialists to help such as a surveyor, debt collector or lawyer. Part of the decision process will be the perceived chance of successful recovery when matched against the costs involved. For example, if creditors have the choice of a dividend of, say, 50p in the £ against the chance of full recovery in a year or so but with the risk that a lost case will diminish dividend prospects to, say, 10p in the £, it is not unreasonable for them to consider that a payment now at a certain rate is better than speculating on the outcome of the liquidator’s challenge.

On occasion, creditors will express the view that they are happy to accept less as long as whoever is being pursued is embroiled in expensive proceedings and may well lose the battle, but the liquidator’s task is to remove emotion from a corporate action and assess the merits of success.

What happens when a liquidator has a supporting file of documents and considers that there is a good chance of success but has no cash within the liquidated estate to raise an action ?

One option is to risk his own time and to engage a lawyer, surveyor etc. who will work on a no win/no fee basis. That stance will often persuade a debtor to pay because he can see that the liquidator has documentation to support his position and is prepared to commit to the recovery process. The initial bold and belligerent debtor response can become muted.

Another option is to purchase after-the-event insurance which allows the liquidator to cover his costs up to a certain figure in the event of a failed court action. As one might imagine, the premium for such cover is based upon the perceived risks of the case by the underwriter, and if the premium only covers the liquidator’s costs, he will need to take a view on the potential sum payable to the debtor’s legal team in the event of a total loss. The reality is that a liquidator is naturally cautious because it is creditors’ money that is at risk and thus, when he instigates court action it tends to reflect a positive assessment of recovery prospects.

The next option is to engage the services of a specialist litigation funder, and there are a few around, who will pay for the court case, accept the risk of loss, and charge a fee based upon how much is recovered. Again, in terms of customer reaction, when they see that a large well-funded organisation is backing the liquidator, that may be sufficient to persuade settlement. If not, the liquidator’s main focus at the outset is to seek to persuade the funder that the debt is supportable. Of course, in any of these situations, the liquidator must also take a view on the likelihood of the customer being in a position to pay once the debt has been agreed i.e. no point in a successful outcome if there is no cash to collect.

At all stages in whatever debt recovery process is being adopted, the liquidator will be alert to the possibility of a negotiated settlement because, whilst there are options that allow debt recovery, a court process can be fraught with risk and expense. All in a day’s work in the liquidator’s world.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen.  They do not purport to represent those of the firm in general.