Creditor's guide

• Explanation of terms
• Conditions for sequestration
• Apparent insolvency
• Searching the Register of Insolvencies
• Presenting petitions for sequestration
• Nomination and appointment of interim trustee
• Election/appointment of permanent trustee
• Public funding and the costs of the interim and permanent trustees
• Administration of sequestrations by the Accountant in Bankruptcy
• Contacts for further information
• Appendix 1 - Apparent Insolvency
• Appendix 2 - Enquiry request form

Explanation of relevant legal terms

Below is an explanation of some of the legal terms we use in this section.

Apparent insolvency

A legal term that means you are unable to pay your debts and that at least one of your creditors has taken legal action against you.

Charge for payment

The formal demand for payment following a decree. A Sheriff Officer usually serves it on you and you have to pay the debt within 14 days.

Creditor

Any person, business or organisation you owe money to.

Debt Arrangement Scheme

A confidential debt management tool introduced by the Scottish Executive accessed through an approved money adviser (see www.moneyscotland.gov.uk). It may help you if you have two or more debts and want to pay what you owe, by giving you more time for repayments free from the threat of enforcement (diligence) or bankruptcy.

Debtor

 Any person who owes money. In this booklet it means someone who is insolvent and is aiming to have their estate sequestrated.

Decree

A formal order of court which says the debtor must pay money to a creditor. This might follow court action such as:

1. small claim (up to £750);
2. summary cause (£750 to £1500); or
3. ordinary action (more than £1,500).

Decree of adjudication

Adjudication is an action in the Court of Session (Scotland's Supreme Civil Court) where property you own which can be inherited, usually a house or similar, is transferred to a creditor to pay a debt.

Estate

Your estate is literally everything of value you own, including any rights you may have to receive money or goods from anyone else.

Interim trustee

Someone appointed by the court to handle your estate until a permanent trustee is appointed.

Permanent trustee

Someone appointed by the court to:

1. take possession of your estate;
2. sell any property you own; and
3. pay your creditors as much as possible of what you owe them.

Petition

A formal application to the court.

Protected trust deed

A trust deed which transfers all of your estate to a trustee and is not objected to by most of your creditors or by creditors to whom you owe at least one-third of your debts. It is binding on all the creditors, that is, 'protected'. None of the creditors may then apply to have you sequestrated.

Qualified creditor or creditors

A creditor to whom you owe at least £1500 (or a number of creditors to whom you owe at least £1500 in total).

Receiving order

A court order in England or Wales placing your assets under the control of an Official Receiver.

Sequestration

The Scottish legal term for bankruptcy. Bankruptcy is a formal court process which transfers your property to a trustee.

Sequestration for rent

A court process that can be raised against you by your landlord for rent you have not paid.(This is not the same as bankruptcy or formal sequestration.)

Statutory demand

A formal demand by a creditor giving you 21 days to repay a debt. The demand must be on the proper form and be served by a sheriff officer.

Summary Warrant

An order granted by the court to local or public authorities giving the creditor authority to recover amounts of money you owe. This procedure is generally used to recover unpaid rates, taxes, community charge and so on.

Trust deed

A voluntary alternative to sequestration. You can transfer all or part of the estate to a trustee to handle for the benefit of your creditors.

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Conditions for sequestration

1. How much money must the debtor owe me before I can present a petition for the sequestration?
   At least £1,500.
2. If I am owed less than £1500 by a debtor, is there any way I can still petition for the debtor's sequestration?
   Yes. If you and other creditors are together owed a sum of at least £1500, you can petition jointly.
3. Can the £1500 include any interest owed on the debts, or the expenses of any preceding legal action (diligence)?
   Yes. It can include both.
4. Are there any other circumstances which affect whether or not I can present a petition for sequestration of a debtor?
   Yes, the debtor must be apparently insolvent.

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Apparent insolvency

What does 'apparent insolvency' mean?

Apparent insolvency is defined in section 7 of the Bankruptcy (Scotland) Act 1985.The three most common grounds are:

1. a charge for payment has been served on the debtor and the 14 days allowed for payment have passed without the debt being paid;
2. a creditor has served a statutory notice on the debtor and 21 days have expired and the debtor has not paid the debt nor returned the denial slip; and
3. the court has granted a summary warrant for the recovery of unpaid rates or taxes and goods have been attached (or there has been an attempt to attach them) and 14 days have passed without payment.

Appendix 1 gives other conditions of apparent insolvency.

How much must a debtor owe before a charge for payment can be served on him for the recovery of a debt?

There is no set sum. It is for any amount for which the creditor has obtained a court decree.

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Searching the register of insolvencies and the DAS register

If you are a petitioner, or creditor concurring with (or agreeing to) a petition, and you become aware that there is:

• already a petition before the court for the debtor's sequestration; or
• that an award of sequestration has already been made, from which the debtor has not been discharged, you must inform the court as soon as possible.

Failure to do this means that you may be made liable for the expenses of presenting the petition. It is a waste of money to sequestrate a debtor again if he has not been discharged from an earlier sequestration.

How can I find out if there are already proceedings for the sequestration of the debtor or if someone else has sequestrated them?

You can have a search made in the Register of Insolvencies. If sequestration has already been awarded, the search show the name and address of the interim or permanent trustee. You should contact the trustee to find out if your claim can be included in the existing sequestration.

How do I search the Register of Insolvencies?

You can:

• write to us asking for a search:
• call into the office personally; or
• use the fax service.

How does the fax service work?

Simply complete the standard enquiry form in Appendix 2 and fax or post it to us. A reply will be faxed back to you within one working day.

What is our address?

• The Accountant in Bankruptcy
  Po Box 8313
  Irvine
  KA12 2AA or
  LP- 4 Irvine
• Phone: 0845 6126 460
  Fax: 0845 6126 470
  Helpline: 0845 7626171

What information do we need to carry out a search?

Give as much detail as possible using the standard enquiry form in Appendix 2. The more information you give, the easier it is to distinguish between debtors who have the same or similar names. You should also make sure, as far as possible, that the information is accurate. For example, check that the debtor's name is spelt correctly,as this can affect the results of the search.

Do we charge for this service?

Yes. The current fee is £16 for each search. (This is reviewed periodically.)

• If you send a written search request, enclose a cheque or postal order for the fee payable. Do not send cash through the post.
• If you call at the office, you can pay by cheque or cash at the time.
• If you use the fax service, we will send you an invoice.

What if the trustee says that the debt does not qualify in the existing sequestration because it became due after the date of the sequestration?

If this happens a further petition is possible, but will probably not attach any assets which will already have vested in the earlier sequestration. Before proceeding therefore, you should consult a solicitor or us for further advice.

How do I search the Debt Arrangement Scheme register?

This contains information on Debt Payment Programmes approved under the Debt Arrangement Scheme. You can find information on how to search the register at www.moneyscotland.gov.uk

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Presenting petitions for sequestration

Where can I get detailed information about presenting a petition for sequestration?
In another of our pages called 'Petitions'

What should I keep in mind when considering the sequestration of a debtor who is trading either on their own or in partnership with another?
To avoid a costly error, you should be quite sure of who is to be sequestrated. An award of sequestration in a debtor's trading name only will not be effective. The debtor should be properly designated (for example, 'John MacDonald trading as Edinburgh Carpets').

If the debtor is in a partnership, you should be clear about who is to be sequestrated:

• one partner?
• all the partners?
• the partnership itself? or
• the partnership plus the partners?

Note: sequestrating the partners will not automatically result in the sequestration of the partnership or vice versa. You should also check to make sure that the petition for sequestration contains full and accurate information and that the debtor is properly designated and the name spelt correctly.

If I consult a solicitor, who is liable for the solicitor's expenses and the legal and incidental expenses of presenting the petition?

The petitioner (that is, you, the creditor) is personally liable unless entitled to Legal Aid.

Will Legal Aid be available for any of the costs involved in presenting a petition for sequestration?

Possibly. The booklet 'Guide to Legal Aid in Scotland' is available from the Legal Aid Board, Citizens Advice Bureaux, and solicitors' offices.

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Nomination and appointment of interim trustee

Who can be appointed as interim trustee?

If you are a petitioning creditor, you can nominate an insolvency practitioner to beinterim trustee. They must be eligible and must sign an undertaking that they will act as:

• interim trustee; and
• as permanent trustee, unless another insolvency practitioner is elected by the statutory meeting of creditors.

What happens if no nomination is made or if the insolvency practitionerdeclines the nomination?

The court will automatically appoint the Accountant in Bankruptcy as interim trustee.

When is the appointment of an interim trustee normally made?

Usually when the court issues the award of sequestration, but the court can in certain circumstances make an earlier appointment immediately after the petition is presented.

Why would I want the interim trustee to be appointed earlier?

You would ask for this if you believed that the interim trustee will have to act quickly to safeguard the debtor's estate, for example, if the debtor is trading.

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Election or appointment of the permanent trustee

How is the permanent trustee elected?

Creditors may be invited to a statutory meeting to hear a report by the interim trustee and to elect a permanent trustee.

Must a statutory meeting be called?

Only if the interim trustee is an insolvency practitioner. If the Accountant in Bankruptcy is the interim trustee, he does not have to call a statutory meeting but he is obliged to inform the creditors if he decides not to call a meeting and of their rights to object to that decision. If one quarter in value of the creditors object, the Accountant must call a meeting.

What happens if there is no statutory meeting or if the meeting does not elect a permanent trustee?

The interim trustee will automatically be appointed as the permanent trustee.

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Public funding and the costs of the interim and permanent trustees

If the Accountant in Bankruptcy is appointed as interim and permanent trustee, who pays for her services and the other costs of the sequestration?

If there are funds in the debtor's estate, they will be used to cover these costs. If there are not enough funds to cover all the costs, the shortfall will be met from public funds.

When an insolvency practitioner is interim or permanent trustee, who pays forhis services and other costs in administering the sequestration?

If there are funds in the debtor's estate, these will be used to cover the costs. If there are not enough funds in the debtor's estate to cover all of the costs, the balance must be borne by the insolvency practitioner himself unless a third party has agreed to meet any shortfall.

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Administration of sequestrations by the Accountant in Bankruptcy

The Accountant in Bankruptcy is an officer appointed by the Secretary of State.Some of her staff specialise in the administration of sequestrations. They perform all the duties that are required of interim and permanent trustees under the Bankruptcy(Scotland) Act 1985.

Do the Accountant in Bankruptcy's staff investigate the circumstances thathave led to sequestration?

Yes. The Accountant's staff carry out all investigations that are required by the Bankruptcy (Scotland) Act 1985.

Where appropriate, will the Accountant in Bankruptcy's staff realise thedebtor's assets to pay for the cost of the sequestration and pay a dividend tocreditors?

Yes. If there are enough funds for a dividend to be paid, this will be done.

Does the Accountant in Bankruptcy always use her own staff to administersequestrations?

No. The Accountant also contracts out the administration of sequestrations to insolvency practitioners under an agency contract.

Does the use of agents by the Accountant in certain cases increase the costs of administration in these cases?

No. There are no additional costs for the sequestrated estate if the Accountant uses agents.

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Contacts for further information

• Accountant in Bankruptcy
  PO Box 8313
  Irvine KA12 2AA
  LP-4 Irvine
  Phone: 0845 6126 460
  Fax: 0845 6126 470
  Helpline:
  0845 7626171

Local sheriff court (Number in your local phone book)

Our staff and the staff at the sheriff court will be happy to advise you what you need to do for sequestration. However, we and they are not allowed to advise you if sequestration is the best way to deal with your debt problem.

The following organisations may be able to give you general advice and support.

Look at your local area phone book for addresses and numbers of national agencies such as:

1. Money Advice Centres
2. Citizens Advice Bureau
3. Trading Standards Offices

Scottish Bankruptcy Advice Ltd
1 Milton Road
Kilmarnock KA3 7HG
Phone: 01563 541028
Fax: 01563 537040

The Bankruptcy Advisory Service
2 Greenways
Swanland Hill
Kingston-upon-Hull HU14 3JN
Phone: 01482 633034, or 01482 633034

To help to find a solicitor with specialist knowledge about insolvency matters.

Law Society of Scotland
26 Drumsheugh Gardens
Edinburgh
EH3 7YR
Phone: 0131 226 7411

Names and addresses of insolvency practitioners can be obtained from:

Institute of Chartered Accountants of Scotland
CA House
21 Haymarket Yards
Edinburgh EH12 5BH
Phone: 0131 347 0100

The Insolvency Practitioners Association
52-54 Gracechurch Street
London
EC3 0EH
Phone: 020 7623 5108

The Chartered Association of Certified Accountants
64 Finnieston Square
Glasgow
G3 8DT
Phone: 0141 309 4080

(Contact the Members' Services Department for a list of insolvency practitioners.)

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Appendix 1

Apparent Insolvency

Certain conditions are needed for someone to be sequestrated (made bankrupt) in Scotland. They must be 'apparently insolvent' whether they are making themselves bankrupt or being sequestrated by someone else.

You will find the full legal meaning of apparent insolvency in section 7 of the Bankruptcy (Scotland) Act 1985.

However, the most common forms of apparent insolvency are shown below.

• A creditor has been to court, got a decree, and has had a charge for payment served on the debtor and the 14 days allowed for them to pay have passed without them making a payment.
• A creditor has served a statutory demand on the debtor telling them to pay the debt within 21 days and they have not paid the debt or sent the creditor a letter by recorded delivery denying that the debt is due for payment.
• A local or public authority has a summary warrant against the debtor to recover rates or taxes and some of their goods have been attached (or someone has tried to attach them) to the order, and 14 days have passed.
• The debtor has had a debt payment programme that has been revoked under the Debt Arrangement Scheme (Scotland) Regulations 2004 and a debt being paid under the programme is constituted by decree or document of debt as defined in section 10 (attachment) of that Act.

The debtor will also be apparently insolvent if any of the following apply.

• A creditor has a decree of adjudication from the Court of Session transferring the debtor's house or other property which can be inherited to them.
• A receiving order has been made against the debtor in a court in England, or Wales.
• The debtor is made bankrupt in England, Wales or Northern Ireland.
• The debtor has given written notice to his creditors that he has stopped paying their debts in the ordinary course of business.
• The debtor has signed a trust deed. This allows a qualified creditor to petition for sequestration.

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Appendix 2

Register of insolvencies: Enquiry request form

To:
Accountant in Bankruptcy
PO Box 8313
Irvine KA12 2AA
LP - 4 Irvine
Fax No: 0845 6126 470

I/We:                                                               of         

 

 

Post Code:

request a search of the Register of Insolvencies for an entry for the following person/business:

Name:.

Trading Name:

Other names the person is known as or may trade as (including other spellings).

 

 

 

Address (and post code):

 

 

 

Other recent address(es) known:

 

 

 

Notes

The more information provided, the more likely it is to obtain a positive result.

We will charge you £16.00 for this enquiry. Unless you have an account arrangement with the Accountant in Bankruptcy's Office, a cheque should be enclosed with this form.

If you receive no reply within 5 days, please phone 0845 6126 460.

Accountant in Bankruptcy
PO Box 8313
Irvine
KA12 2AA
LP - 4 Irvine

Phone: 0845 6126 460
Fax: 0845 6126 470
Helpline : 0845 7626171
E-mail helpline@aib.gov.uk

Disclaimer:

The information given on this page is for general guidance only. It is not a detailed or full statement of law.

© Accountant in Bankruptcy - Updated December 2004