Credit Where Credit Is Due: The Effect of Devolution on Insolvency Law in Scotland

By Skene, Donna McKenzie | Nottingham Law Journal, Annual 2014 | Go to article overview

Credit Where Credit Is Due: The Effect of Devolution on Insolvency Law in Scotland


Skene, Donna McKenzie, Nottingham Law Journal


INTRODUCTION

The Scotland Act 1998 reserved some aspects of insolvency law to the United Kingdom parliament and devolved others to the Scottish parliament. (1) The period since the Scottish parliament's establishment has been characterised by rising debt, particularly consumer debt, and a severe financial crisis and recession resulting in increased financial difficulties for both consumers and businesses. (2) The total number of personal insolvencies, including sequestrations, protected trust deeds (PTDs) and, since their introduction in 2004, debt payment programmes (DPPs), has increased steadily; (3) the total number of corporate insolvencies, namely compulsory and creditors' voluntary liquidations, receiverships, administrations and company voluntary arrangements under Part 1 of the Insolvency Act 1986, has fluctuated but the general trend has also been upwards. (4)

It is not therefore surprising that the Scottish parliament has already paid considerable attention to, inter alia, the devolved aspects of insolvency law and is about to legislate further. This article examines the effect of devolution on insolvency law in Scotland. It begins with a discussion of the reserved/devolved split in relation to insolvency law, provides an overview and assessment of the legislation already passed by the Scottish parliament and that in prospect and concludes with an overall assessment.

RESERVED AND DEVOLVED ASPECTS OF INSOLVENCY LAW

The Scotland Act 1998 specifically reserved to the United Kingdom parliament most aspects of corporate insolvency law and some aspects of non-corporate insolvency (bankruptcy) law. (5) All non-reserved aspects are devolved. In broad terms, this means the process of winding up and the effect of winding up on diligence and prior transactions generally; certain additional aspects of the winding up of registered social landlords; receivership (with the exception of preferential debts, regulation of insolvency practitioners and co-operation of courts); and bankruptcy law (also with the exception of preferred debts, regulation of insolvency practitioners and co-operation of courts). These areas reflect the areas of insolvency law which have traditionally been distinctively Scottish.

The reserved/devolved split has, however, given rise to difficulties, most notably with regard to the reform of corporate insolvency law. Since devolution, the United Kingdom parliament has legislated extensively on corporate insolvency. Most of that legislation has related to reserved matters and applied equally to Scotland, but the Enterprise Act 2002 (EA 2002), for example, included reforms to receivership which, as noted, is largely devolved. The Scottish parliament had the option of passing separate legislation implementing the relevant reforms in Scotland, consenting to the inclusion of provisions implementing the relevant reforms in Scotland in the EA 2002 or deciding that it did not want these reforms in Scotland and therefore refusing to do either of these things. Since the receivership reforms were part of an integrated package of corporate insolvency reforms, however, such a refusal could have caused a constitutional crisis--the United Kingdom parliament would have had to decide whether to ignore the constitutional convention of not legislating on devolved matters without the Scottish parliament's consent in order to implement the reforms in their entirety. Fortunately, this did not happen: the Scottish parliament was agreeable to the relevant reforms and passed an appropriate Sewel motion. (6) Similar issues may, however, arise in future. For example, the government recently proposed to introduce new statutory provisions regulating pre-pack sales in administration and liquidation. (7) Since administration is reserved, the relevant legislation relating to administration would have fallen to be made by the United Kingdom parliament for both England and Wales and Scotland. …

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