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
• The Bankruptcy and Diligence (Scotland) Act :: This act was passed in 2007. It is controversial and there are many stages of consultation. The Scottish Executive has provided some guidance and policy statements. 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 £1500 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:

• a) make the objection in writing and do not wish to accede to the Trust Deed; and
• b) 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

It is controversial and there are many stages of consultation. The Scottish Executive have provided the following statements:

• The Bankruptcy and Diligence etc. (Scotland) Bill will modernise the laws of bankruptcy, floating charges and diligence (debt enforcement) in Scotland to strike a better balance between the rights of debtors and creditors.
• Improvements to bankruptcy will reduce the stigma of sequestration (the Scottish term for bankruptcy), and encourage personal and business restart. This is particularly important at a time when more people are experiencing the pain of bankruptcy.
• One year discharge will remove the key legal barrier to early re-start after business failure. It is a useful reform by itself, and should be seen as part of our wider effort to grow Scotland's economy. It has been welcomed by Scottish business as a step in the right direction. It has been welcomed by the advice sector as a more humane way to deal with severe debt problems.
• Improvements to floating charges will make it easier for limited companies to secure credit, and make Scotland a better place in which to do business.
• Improvements to debt enforcement build on 20 years worth of research and consultation by the Scottish Law Commission. Parliament has endorsed the principle behind these changes, and we will work with Parliament to refine the changes and make them even better.
• Improvements to debt enforcement will make Scotland a better place in which to do business, for example by bringing in new diligences such as money attachment, so making life tougher for the 'won't pays' who try to avoid paying their debts.
• Improvements to debt enforcement will help people who could pay their debts with a bit of extra help and support, for example by bringing in debt relief to the new Debt Arrangement Scheme.

There have been some important changes to the law of Bankruptcy which is not yet in force but will be in the next year or so.

Reduction in length from three years to one year::

The period in England is reduced to one year- it is expected we may follow this but although the debtor will be discharged after one year, although certain matters, such as property e.g. relating to the sequestration will continue to belong to the Trustee after the year. It is thought they will follow this period to keep in line with England as to keep the 3 year period would not be fair to debtors north of the border!

Land Attachment ::

As presently drafted, the Act provides creditors may apply for the debtor’s land to be attached and sold if the debt is unpaid after a period of 6 months.

This is a new provision which it is hoped, for creditors, will be a more effective tool for recovering debts. There are several steps to go through as creditor, which we will carry out, but it will perhaps be worthwhile if it brings either payment in full being tendered or more acceptable proposals being offered.

This new diligence would enable a creditor holding a decree or someone in authority to obtain a real right over heritable property and security for the debt due. After 6 months this could be followed by an application to the court for authority to sell.

The first stage of a land attachment is the registration in the Register of Sasines or Land Register as appropriate ("the property registers") of a Notice of Land Attachment.

The creditor must serve a charge for payment, and on expiry of the days of charge may record the Notice. A copy of the Notice is served on the debtor, and a certificate of service recorded in the property registers. The Notice establishes litigiosity for a period of 14 days, on the expiry of which the creditor acquires a subordinate real right securing the debt. The debtor has continued use and occupation of the land after the recording of the Land Attachment, so that there is no undue interference with the debtor’s own rights.

The second stage of the land attachment is the sale of, or foreclosure on, the secured property. The sheriff must grant a warrant for the sale, and application for a warrant will only be possible six months from the date of registration of the Notice. Grant of the warrant to the creditor would depend on the sheriff being satisfied that the diligence was competent, and struck a fair balance in respect of various matters that protect the debtor’s interests. Striking such a balance would be a particular challenge where the property is a dwelling house.