This is the second article in ‘Back to Basics’, a series of articles looking at insolvency proceedings in Scotland. This article will examine the kidnapping judicial process, focusing on requests from creditors.
Sequestration is the Scottish legal term for personal bankruptcy. Once the court grants a lien, a trustee is appointed to collect and liquidate the debtor’s estate in order to pay a dividend to the debtor’s creditors to satisfy their claims. Kidnapping can have serious consequences for the debtor and as such, a kidnapping petition can function as a very powerful tool for debt recovery from creditors. The law is governed by the Bankruptcy (Scotland) Act 2016 (“the Act”).
What criteria must be met to allow a creditor to file a garnishment petition with the Court?
In summary, a creditor can request the seizure of the debtor’s assets if the following criteria are met:
- the debtor owes the creditor not less than £ 3,000 * (* – due to Covid-19, this amount has been temporarily increased to £ 10,000; see below);
- the apparent bankruptcy of the debtor has been constituted within the four months prior to the filing of the application (there are various ways in which the apparent bankruptcy can be constituted but one of the most common is the extinction of a payment charge); Y
- Prior to the filing of the petition, the creditor has provided the debtor with a debt advice and information package no earlier than 12 weeks prior to the filing of the petition.
What is the judicial procedure for kidnapping in Scotland?
Once a creditor has filed a petition, the bailiff must grant an order to summon the debtor to appear in court on a specified date not less than six and not more than 14 days after the date of the summons to demonstrate the cause for which the embargo should not be made. to be awarded.
Typically, a subpoena will be granted without the need for a hearing and the petition will be filed with the court on the date specified in the subpoena. The debtor may appear in person or be represented at the hearing.
In terms of the Law, the bailiff must grant the kidnapping if he is satisfied that the following conditions have been met:
- if the debtor does not appear at the hearing, that the debtor was duly summoned;
- that the petition has been presented in accordance with the Law;
- that the petitioner sent a copy of the petition to the Bankrupt Accountant on the day the petition is presented to the Court; Y
- that the requirements relating to the apparent insolvency of the debtor have been met.
The Sheriff will not grant kidnapping in circumstances where:
- the cause for which the kidnapping cannot be awarded competently is shown (for example, because the court does not have jurisdiction);
- the debtor pays, satisfies or produces written evidence of the payment or satisfaction of the sums owed to the petitioner (and to any creditor who concurs in the petition);
- the bailiff is convinced that the debtor within 42 days will pay or satisfy the debts owed to the petitioner. In these circumstances, the bailiff may continue with the petition for no more than 42 days; Y
- The bailiff may also proceed with the petition if he is satisfied that the debtor has requested a debt settlement program that has not yet been approved or rejected.
Format of the seizure request
The petition must be on Form 6.1-A as set forth in Schedule 1 of the Sederunt Act (Bankruptcy Rules of the Sheriff’s Court) of 2016.
The petitioning creditor must also present an oath in the prescribed form, together with an account or voucher evidencing the debt and the evidence available to the creditor to demonstrate the debtor’s apparent insolvency.
In addition, the petition may nominate a particular bankruptcy administrator to be appointed as trustee in the seizure or, failing that, the Bankruptcy Accountant. Once appointed, the trustee will administer the kidnapping process going forward.
How has the coronavirus (COVID-19) affected kidnappings?
First, the Coronavirus (Scotland) Act 2020 extended the due diligence moratorium from six weeks to six months and temporarily removed the prohibition on a debtor requesting more than one moratorium in a 12-month period.
The Coronavirus (Scotland) Act (# 2) 2020 temporarily increased the minimum level of debt that a debtor must owe to a creditor before a kidnapping petition can be initiated from £ 3,000 to £ 10,000. This temporary increase in the debt threshold is scheduled to end on March 31, 2022.
However, the Scottish government published a consultation document (‘Covid Recovery: A Consultation on Public Services, Justice Systems, and Other Reforms‘) in August 2021, which recognized that the protection afforded to debtors through increasing the creditors’ petition threshold would most likely be necessary beyond March 2022.
The difficulty with the minimum debt level remaining at £ 10,000 is that it limits the number of options available to smaller creditors who have debts of more than £ 3,000 but less than £ 10,000. In the past, it was often enough for a creditor to threaten a garnishment petition to obtain payment. However, due to the measures currently in place, smaller creditors have to rely entirely on other foreclosure options that may not be as effective.
The fact that the £ 10,000 threshold frustrates smaller creditors and prevents them from initiating kidnapping proceedings was recognized in the consultation paper and, as a result, the Government sought opinions on the appropriate minimum debt threshold and whether a figure £ 5,000 would be a success. A more appropriate balance between the interests of debtors and creditors was an increase of £ 3,000 to place it on a more permanent basis. The consultation also sought opinions on the appropriate moratorium period in the future.
The court procedure in Scotland to kidnap a debtor is generally an effective process, making it a popular option for many creditors. However, the temporary increase in the minimum level of debt, coupled with greater use of the extended moratorium, has meant that the number of kidnapping requests has been drastically reduced during the pandemic, as smaller creditors have been unable to make use of the process.
The consultation has already closed and we are awaiting the introduction of the Covid Recovery Bill to see if the temporary COVID-19 measures currently in force become permanent or if the minimum level of debt will be reduced, allowing more creditors the option, once again, to request for the seizure of the debtor’s assets.