Buchanan Macleod - Solicitors & Notaries


Insolvency

The insolvency procedures in Scotland presently allow creditors to recover debts by petitioning the court for the appointment of a provisional liquidator at a much cheaper cost than in England. Karen Buchanan leads the insolvency team so you know you will be in good hands.

Proceeding this way allows the clients a fast and effective way of recovering their debts as an alternative to the usual court method. The debt has to be due and in the case of limited companies, petitions can be presented once demands have been served or judgment has been obtained and a charge served.

Thereafter, the court must be satisfied the debtor company is unable to pay its debts as they fall due and will grant the First Deliverance. They have the discretion to appoint a provisional liquidator and if they do so, he then immediately makes contact with the debtor company and takes control of it, for the benefit of creditors. He freezes the bank account immediately.

Similar procedures apply for the personal insolvencies which are sequestrations and apply for debts of over £3000. Interim Trustees’ appointments may also be sought at first instance and a court date is appointed, approximately 4 weeks hence, which is the date the debtor must pay the debt by with expenses or be sequestrated.

Karen Buchanan

Insolvency Methods

There are many approaches you can take when it comes to insolvency action in Scotland. Here are a few:

There are many approaches you can take when it comes to insolvency action in Scotland. Here are a few:

Liquidation :: The procedure in Scotland is easier and quicker than in England. The law provides certain routes for insolvency. more info

Sequestration :: These are the Scottish form of Bankruptcies. The Creditor can proceed by either serving a statutory demand for sequestration, which then expires without denial after 21 days from service, or following upon the expiry of a charge following upon a decree or English registered judgment. more info

Protected Trust Deeds (IVA’s) :: In a trust deed the debtor signs a contract (trust deed) to pay the creditors as much as the debtor can afford. The Trust Deed is a voluntary arrangement. more info

DAS Scheme :: Under DAS, a single regular payment is made to an approved payments distributor. If the debtor keeps to the agreed payments, creditors cannot carry out enforcement actions. more info


Liquidation

The procedure in Scotland is easier and quicker than in England. The law provides certain routes for insolvency and the most popular are:

  • Following upon service of a statutory demand which expired after 21 days
  • Following upon service of a court decree/English registered judgement and charge for payment
  • Following upon service of an expired short form demand which was not disputed
  • Any other grounds which you can establish that the company is unable to pay its debts. We have used a variety of examples such as bounced cheques, accounts lodged with Companies House showing a loss and a letter which admits the debt is due although they are unable to pay their debts on time
  • While the Court of Session has exclusive jurisdiction for companies where the issued share capital exceeds £120,000 the majority of cases are warranted by the local sheriff court where the debtor company registered office is situated.

There is no minimum amount for liquidations if there is a decree and expired charge but in practice, the creditors will present petitions for amounts exceeding £1500. If you have a decree for less than that and an expired charge, it is possible to present a petition for liquidation.

A petition is presented by us to the court for the appointment of the Provisional Liquidator and the first warrant is granted by the court.

The Sheriff may refuse the appointment of the Provisional Liquidator at first instance and normally we are required to attend court to have the application granted.
If there are sufficient reasons, the court will usually appointment the Provisional Liquidator and he then acts on behalf of all creditors to make enquiries to establish if the company is solvent. They will have to settle the debt by third party funds and if they do, the Petition can be dismissed.

If they do not, the Creditor has to decide if there are sufficient assets to fund the liquidation and if there are, they will proceed with an advert in the local newspaper and the Edinburgh Gazette. 8 days after, the court will then appoint the Interim Liquidator and wind up the company. The petition is served by sheriff officers at the registered office.

The Company assets will then be realised and distributed to creditors by way of dividend.

These are usually obtained from the debtors, but if they cannot pay, the clients will be required to pay minimal expenses of the petitioning procedure, details of which are available on commencement of the action. However, most of the time, the debtors pay these expenses and the client pays nothing!


Sequestration

These are the Scottish form of Bankruptcies. The Creditor can proceed by either serving a statutory demand for sequestration, which then expires without denial after 21 days from service, or following upon the expiry of a charge following upon a decree or English registered judgment.

The debtor requires to owe at least £3000 and the demand or charge must have been served within 4 months of the date of presentation.

The petition is presented to court. The creditor can crave the interim appointment of the Interim Trustee who can be a privately appointed trustee, or the Accountant in Bankruptcy. The court appoints the Interim Trustee if cause is shown and fixes a date about 6 weeks hence, for the calling date.

We serve the petition by sheriff officers not more than 14 and not less than 6 days, before the calling date, personally upon the debtor. If he does not wish to be sequestrated, he has to pay the debt and the expenses otherwise we would proceed with the appointment of the Trustee and have sequestration granted.

The court is not permitted to grant a continuation of the calling date, as it should grant the appointment ‘forthwith’.

The debtor is either sequestrated and the Trustee then engathers any assets and pays off the creditors with any money he has engathered. The petition can be dismissed with expenses either if the creditor obtains payment in full, or if it is decided an alternative method of enforcement would be more effective, such as arrestment of earnings etc.

The Accountant in Bankruptcy can also be appointed at no cost to creditors if the private trustee does not wish to proceed with the case, due to insufficient assets.

We do not recommend proceeding with sequestration unless there are assets to be realised, such as houses, etc. The Trustee is vest in all the debtor’s estate, from the date of the warrant to cite.

The debtor is responsible for these expenses provided he is able to make payment but in the unlikely event he is not, the creditors’ expenses will be approximately £250 plus vat and outlays of approximately £120.


Protected Trust Deeds (IVA’s)

A trust deed does not always stop creditors from taking enforcement action. It can become ‘protected’ if most of the creditors do not object to the planned payment. The Trust Deed becomes protected if after intimation in the Edinburgh Gazette, after 5 weeks, the Trustee has not received objections from the majority of creditors in number or not less than one third in value of the creditors. If as a creditor, you have an earnings arrestment already in place, you do not have to cancel it on the Trust Deed being intimated. The only option would be for the Trustee to sequestrate the debtor to reduce the arrestment.

If as a creditor you wish to object to the Trust Deed, you must:

  • make the objection in writing and do not wish to accede to the Trust Deed; and
  • make sure that the Trustee receives it within the 5 weeks from the advert in the Gazette.

The Trustee has to intimate to the creditors he is aware of within one week of the Gazette notice, so you should ensure, if you do wish to object to the Trust Deed, that intimation is made in writing to the Trustee. Should it fail, the Trustee then has a ground to apply for sequestration. A creditor who has not been sent a copy of the petition can also petition for sequestration.

In that case all creditors are bound to accept the payment offered and cannot enforce their debts except in very limited circumstances, such as when you have commenced diligence before the trust deed, your earnings arrestment can continue to be enforced and the only way for the Trustee to defeat that, is to sequestrate the debtor. The Trust Deed only becomes protected if a majority of creditors do not object.

The debtor is not subject to many restrictions in a trust deed, which in most cases will last three years. The main sanction for not making payment is that the trustee can sequestrate the debtor. In most cases a trust deed lasts for three years. As with sequestration, the practical effect can last a lot longer.

The signing of a Trust Deed is a ground for the creditor in petitioning for sequestration.


DAS Scheme

This is a scheme which was brought in to help persuade debtors to be responsible in repaying their creditors.

The scheme is always free for people paying debts under an approved debt payment programme (DPP). For the purposes of DAS, a debtor must have more than one debt which they want to pay off.

Under DAS, a single regular payment is made to an approved payments distributor. If they keep to the agreed payments, the creditors cannot carry out enforcement action against the debtor. As yet it is not popular although more Money Advisers are being appointed by the Government.

To see the official advice please visit www.moneyscotland.gov.uk


The Bankruptcy and Diligence (Scotland) Act

The Bankruptcy and Diligence (Scotland) Act amended diligence in Scotland and brought in amended procedures for the granting of interim applications for interim diligence such as inhibition and arrestment upon the dependence.

There are time limits once decree is granted whereby arrestees who hold funds are required to release arrested funds (14 weeks or lesser with consent) and a third party may object within 4 weeks of intimation.