The Institute of Chartered Accountants of Scotland (ICAS) receives regular calls from members of the public who are seeking information on insolvency. Some of the more common questions raised are addressed below.
What is insolvency?
Where an individual or a company is facing financial difficulty and is unable to meet its debts the individual/company is described as being insolvent. The insolvent party is referred to as the debtor. A number of insolvency procedures are available to allow the debtor's affairs to be managed in an orderly manner. As insolvency has serious consequences it should only be considered as an option of last resort. All types of insolvency procedures are governed by legislation. There are differences between legislation applicable in Scotland to legislation in the rest of the UK.
How is ICAS involved in insolvency?
As a recognised professional body (RPB), ICAS is authorised to issue and renew insolvency licences and to withdraw them from its members or regulated non members. It regularly monitors the performance of insolvency practitioners licensed by it. The Institute also seeks to influence new legislation and best practice by being involved in their development and by lobbying both the Scottish and the British Governments.
Who can become an Insolvency Practitioner (IP)?
An IP is someone who is authorised to act in insolvency matters. Under UK law anyone who wants to act as an IP must hold a licence issued by an authorised body. There are strict rules for becoming an IP. Most IPs in the UK are qualified accountants or accredited insolvency specialists. For information on training to become an insolvency practitioner click on the link in the right hand column titled "Training to be an IP".
What does an Insolvency Practitioner (IP) do?
IPs are qualified to advise individuals and businesses facing financial difficulties. In addition they are authorised to carry out formal insolvency procedures such as sequestrations, trust deeds, various types of liquidations, receiverships and administrations. IPs realise the assets of the insolvent party and distribute the free funds to the creditors in the manner provided for in legislation.
How does a member apply to become an IP?
Before applying for a permit, members must hold a current Practising Certificate, have passed the Joint Insolvency Examiniation (or equivalent EU professional qualification) and satisfy the ICAS Insolvency Permit Committee that they have the required knowledge and experience in insolvency practice to hold an insolvency permit. For further information access the section on "Insolvency Regulation and Monitoring".
How are IPs regulated?
IPs are subject to a Code of Ethics which has been agreed by all the authorising bodies. ICAS IPs are required to apply annually for an insolvency permit and they must satisfy the ICAS Insolvency Permit Committee that they continue to meet the required criteria. ICAS IPsreceive a monitoring visitevery 3 years to ensure compliance with legislation and with the required standards of practice.
What is the complaints process against IPs?
All complaints to ICAS should be made in writing. ICAS takes complaints seriously and will deal with them fully but it can only deal with complaints against its members and regulated non members. It cannot interfere in the insolvency process.The complainant should in the first instance write to the Head of Investigations. The complaint should detail the pertinent issues as comprehensively as possible and copies of relevant documentation should be provided. For further information click on the link in the right hand column.
How can people get free advice on their debts?
Local Council sponsored organisations such as Money Advice and the Citizens' Advice Bureaux are good starting points for anyone who is struggling to make ends meet. Alternatively you could contact an IP for initial advice, the first hour of which is normally free of charge, but you should check prior to attending an appointment. Individuals should be wary of information obtained by searching the internet as the information may only apply in England & Wales, or apply in some other country. The Accountant in Bankruptcy has issued a booklet entitled "Debt Advice and Information Package" which can be accessed by clicking on the appropriate link.
What is Sequestration?
Sequestration is the Scottish legal term for personal insolvency (bankruptcy). This is a formal procedure which starts when someone in debt is sequestrated as a result of an application to the Accountant in Bankruptcy either by the debtor or by a creditor. The Accountant in Bankruptcy awards sequestration. The person who administers a sequestration is called the Trustee. A trustee can either be an insolvency practitioner or the Accountant in Bankruptcy.
What are Trust Deeds?
A trust deed is a less formal procedure for personal insolvency in Scotland. It is a contract signed by a debtor by which he or she conveys his or her estate to a licensed IP who is appointed Trustee to realise the debtor's assets for the benefit of creditors. Trust Deeds become protected trust deeds provided specific level of objections are not received by the trustee within a specified period.
What is a Certificate for Sequestration?
The Certificate for Sequestration was introduced in 2010 as a new route to access bankruptcy as a debt relief option.The Certificate must be issued by an authorised person who is defined as being an insolvency practitioner, a money adviser, a citizens' advice money adviser or a local authority money adviser. Only debtors who live in Scotland or who have lived in Scotland within the last year before the insolvency can apply for a Certificate for Sequestration. Other criteria must also be satisfied.
What is a debt arrangement scheme (DAS)?
The Debt Arrangement Scheme allows debtors to pay off their debts in a managed way over a period of time.
What is a low income low asset (LILA) scheme?
The Low Income Low Asset scheme is a route into bankruptcy for those unable to access personal insolvency any other way.
- Low income is defined as having a weekly income equivalent to or less than the standard national minimum weekly wage for a forty hour working week. Any pensions or maintenance payments that are received are included with the income, however social security benefits or working tax credits are excluded.
- Low assets is defined as an individual having total assets of £10,000 or less and no single asset worth more than £1,000. You must not own or jointly own a house or any other property or land.
Further information can be obtained from the Accountant in Bankruptcy website.