Debt Recovery Newsletter Autumn 2010
Inside this issue:
New Route to Bankruptcy
In light of the economic downturn, the Scottish Government has been considering ways to help individuals address their debt problems.
Under the original Bankruptcy (Scotland) Act 1985, a debtor could petition the court for his own bankruptcy (sequestration) only with the agreement of one or more of his creditors. The Bankruptcy (Scotland) Act 1993 introduced an amendment to allow debtors to petition for their own bankruptcy on grounds of “apparent insolvency”. Debtors would tend to rely on an expired but unpaid Charge for Payment to establish apparent insolvency, but this meant that it was difficult for a debtor to establish apparent insolvency unless one of his creditors had raised debt recovery proceedings against him. The Bankruptcy and Diligence etc (Scotland) Act 2007 introduced a further provision to allow debtors to apply directly to the Accountant in Bankruptcy for sequestration instead of petitioning the court and also introduced a new route to bankruptcy for debtors with low income and low assets, known as the “LILA” route.
There remained some debtors who could not make themselves bankrupt, however. Those who could not establish apparent insolvency or go down the LILA route were still dependent on a creditor taking debt recovery action against them before they could apply for bankruptcy.
Individuals who own their own home but have little equity, for example, would fall into this category.
In response to this situation, the Scottish Government passed the the Home Owner and Debtor Protection (Scotland) Act 2010, which introduces a new route to bankruptcy. This allows debtors to apply to the Accountant in Bankruptcy for an award of sequestration if they have been granted a Certificate for Sequestration. The Certificate for Sequestration must be completed by an authorised person. Those authorised include insolvency practitioners and money advisors for various organisations. The authorised person must certify that the debtor has demonstrated that he or she is unable to pay his or her debts as they fall due. Before the Certificate is signed, the authorised person must be satisfied that the debtor has considered the alternative options of negotiated payments to their creditors, a debt payment programme under the Debt Arrangement Scheme or a protected trust deed. The Certificate for Sequestration is valid for thirty days.
The Accountant in Bankruptcy has estimated that there will be around 500 new applications a year from debtors who are presently unable to apply for bankruptcy themselves as a result of the introduction of this route.
Subject to parliamentary approval, the relevant provisions of the 2010 Act will come into effect on 15 November 2010.
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Attachment
In our last newsletter we highlighted some of the procedures that a creditor can use against a debtor’s assets to try and recover the sums due under a court decree.
In this newsletter we are looking at the enforcement option of attachment in more detail.
Attachment is a form of diligence or enforcement action which can be taken against a debtor’s moveable property. Attachment prevents a debtor removing attached items from the place in which they were attached. Items in a debtor’s home cannot be attached, nor can the following items:-
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Tools of trade, books or other equipment reasonably required by the debtor in practising his profession, up to a total value of £1,000;
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Vehicles reasonably required by the debtor up to the value of £1,000;
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A mobile home if it the debtor’s only residence; and
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Tools or equipment required to keep the debtor’s garden in good order.
A creditor can apply to the court for an exceptional attachment order, which would allow the creditor to carry out an attachment in the debtor’s home but, in practice, exceptional attachment orders are rarely granted. When an attachment is carried out, sheriff officers prepare a schedule detailing the items that have been attached and their value. The sheriff officers will determine the open market value of the attached goods. A report must be given to the court within 14 days of the attachment and the debtor has an opportunity to object to the valuation given to the items. The debtor can redeem the attached items by paying the value determined by the sheriff officers within 14 days of the attachment. If he does not do so, the sheriff officers can make arrangements for the items to be auctioned.
If the debtor, or anyone else in possession of the attached items, attempts to remove, sell or otherwise dispose of any of the items before these have been removed by sheriff officers, they will be in breach of the attachment and may be held in contempt of court.
An attachment lasts for 6 months, after which the items must be removed or auctioned, or the attachment will fall. All proceeds from an auction will be put towards the expenses and principal debt plus interest. If any articles are unsold, ownership will transfer to the creditor and the value of those items will be credited against any outstanding debt.
Exceptional Attachment
In limited circumstances, a creditor may be granted an exceptional attachment order by the court. This allows articles in the debtor’s house to be attached. There has to be a court hearing before an exceptional attachment order will be granted and the sheriff will only grant such an order if he is satisfied on a number of matters, including that the creditor has tried other methods of recovering the sums due.
Even if an exceptional attachment order is granted, sheriff officers are not empowered to attach items that are needed by the debtor for day to day living. Items that fall into this category include clothes and furniture and most items found in a house, such as TV, DVD players and PCs. In practice, therefore, there will rarely be a great deal in a debtor’s home that can be caught by an exceptional attachment order.
Residual Attachment
This form of enforcement covers items that cannot be attached by any other diligence, such as intellectual property rights and property owned in common by the debtor and a third party. After the attachment has been made, the creditor can apply to the court for a Satisfaction Order, authorising the sale or transfer of the property, or payment of any income generated by it, to the creditor. A residual attachment remains in effect for 5 years, although the court may extend this period.
Interim Attachment
Interim attachment protects the interests of a creditor before a decree has been granted. It enables the creditor to attach a debtor’s assets during the course of a court action. The scope of interim attachment is limited and it excludes items that cannot be subject to attachment after decree has been granted, as well as articles within a house, perishable items and certain items connected with the debtor's trade.
Interim attachment does not allow the creditor to take immediate steps to dispose of the items attached. This cannot be done until after a decree has been granted. This means that the debtor can continue to use the items, although he cannot dispose of them.
Land Attachment
Although the Bankruptcy and Diligence etc. (Scotland) Act 2007 created a new diligence of land attachment, this form of enforcement action has not yet been introduced. Land attachment will allow a creditor to force the sale of a debtor’s land in order to recover a debt of £3,000 or more. The Scottish Government announced some time ago that a debtor’s house would not be subject to land attachment and, indeed, it remains to be seen whether this form of diligence will be introduced at all - as yet, no information is available about when land attachment is likely to come into effect.
Money Attachment
This new diligence was introduced in November last year. We covered this in detail in our last Newsletter. Click here to view.
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Enforcement of Court Decrees and Judgements in other parts of the UK
It is possible to obtain a court decree (judgement) from a Scottish court against a debtor based in another part of the UK and, similarly, courts in the rest of the UK can pass judgements against debtors in Scotland.
After a creditor has obtained a court judgement against a debtor elsewhere in the UK, how does he go about enforcing this?
The first thing a creditor must do is apply to the court that issued the judgement for a Certificate of Money Provisions. The application must be accompanied by an affidavit, or sworn statement, setting out details of the sums due in terms of the judgement.
The court will issue a Certificate if it is satisfied on a number of points, including the fact that the time available for enforcing the judgement has not expired. The Certificate then has to be registered at the relevant court for the jurisdiction in which the judgement is to be enforced. This must be done within 6 months of the Certificate being issued.
The expense incurred in obtaining a Certificate and registering it is recoverable from the debtor.
We are familiar with the processes required to enforce a Scottish decree elsewhere in the UK and, equally, to enforce judgements from England, Wales or Northern Ireland in Scotland. For further information, please contact David Scott.
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Latest Scottish Insolvency Figures
Last month, the Accountant in Bankruptcy published insolvency figures for the second quarter of 2010/11 (July to September 2010). The figures showed an overall 4% drop in personal insolvencies and a 19% drop in corporate insolvencies compared to the period from March to June 2010.
There were over 5,000 personal insolvencies in Scotland during the second quarter of 2010/11, a decrease of 10% on the same period in the previous year. Personal insolvency covers both bankruptcy and Protected Trust Deeds.
Between July to September 2010, 497 Debt Payment Programmes (DPPs) were approved, an increase of 1% on the previous quarter and 60% on the same quarter in 2009 / 2010.
These figures reflect the fact that those facing financial difficulties are being encouraged to enter into DPPs, which allow individuals to repay debts over an extended period of time. The Minister for Community Safety, Fergus Ewing, commented that the increase in DPPs, along with lower numbers of personal bankruptcies, was a possible indication that people are seeking advice at an earlier stage and getting the right help. He added that “choosing a debt solution appropriate to their circumstances, rather than the severity of bankruptcy, gives both parties an opportunity to arrive at a better outcome for everyone."
With regard to company liquidations and receiverships, there were 247 notices of the Scottish Registered Companies becoming insolvent or entering receivership in the second quarter of 2010/11. Of that figure, there were 16 receiverships, 147 compulsory liquidations, 84 creditors’ voluntary liquidations. In addition, there were 33 members’ voluntary liquidations.
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The information contained in these articles is given for general information only, reflects the current law on the date of the article, and does not constitute legal advice on any specific matter