Commercial Law Week 8

Dilligence

• attachment of debtor’s assets to provide security for debt

• creditor will ‘due diligence’ to obtain repayment of obligation

why diligence?

when debtor has not agreed to a security over the obligation

why might a creditor choose diligence over a petition to put the debtor into formal insolvency proceedings (eg, sequestration)

• speed

• cost

• full recovery

4 principles of diligence

1. diligence can only be effected against assets in the debtor’s personal patrimony

2. any right received by the creditor from the debtor as a result of diligence can be no better than the right held by the debtor (nemo plus)

3. where a debtor has several creditors, the first to effect diligence on a particular asset is able to recoup his debt in full before the second creditor has any claim (prior tempore, potior iure)

4. diligence can only be used with a warrant from a court to enforce debts

main types of diligence

inhibition

adjudication

attachment

sieze diligence

enables creditor to trasnfer property out of debtor’s patrimony without debtor’s consent

freeze diligence

prevents debtor trasferring property out of their patrimony, or granting subordinate real rights in respect of it, without creditor’s consent (inhibition)

preliminary steps for diligence

1. if decree is awarded to pursuer, it will authorise ‘all lawful execution’

• document of debt for summary diligence. contract incl ‘consent to registration for execution

2. charge to pay - final notice demanding payment within 14 days. diligence must follow within 2 years of the date of service of the charge

3. DAIP - where debtor is a natural person. a booklet prepared by an accountant. incl debtor’s rights, advice etc. set period of time before DAIP diligence can proceed.

2. charge ro pay

final notice

must pay within 14 days

diligence must follow within 2 years of the date of service of charge

3. DAIP

where debtor is a natural person

accountant prepares booklet

includes rights and advice

certain time period must pass before DAIP diligence can commence

detor protection measures

DAS - Debt Arrangement Scheme

DPP - Debt Payment Programme

‘Time to Pay’ direction/order

DAS - Debt Arrangement Scheme

• money advisor

• for natural persons

• liaise with creditors on debtor’s behalf

• help apply for Debt Payment Programme

DPP - Debt Payment Programme

• enable to pay over longer period without interest

• may allow for some discount

• creditor not obliged to consent

• DAS has authority to overrule creditor refusal if ‘fair and reasonable’

• creditor cannot start diligence while DPP is in operation

‘Time to Pay’ direction/order

• management instalments

• reference to their financial situation

• can be made at any point prior to decree

• can be made after charge for payment, arrestment executed, action for adjudication of debt commenced

attachment

• gives creditor right to seize and sell debtor’s corporeal moveable property at action to recoup the debt

• creditor must serve a charge

• if debtor is natural person must also provideDAIP

• after days of charge or 12 weeks after DAIP, creditor can instruct officers of court to attend any premises where debtor has goods

• creditor cannot attach items inside dwelling house (without exceptional attachment order), tools of trade, vehicle reasonably required by debtor not exceeding £1000, a mobile home they live in.

Exceptional Attachment order s48 2002 act

must be no other way for creditor to recoup their debt

allows for attachment of items inside a dwelling house

Money attachment

• cash, banking instruments

• ss174-198 & sch 3 Bankruptcy and Diligence etc (Scotland) act 2007

Money attachment process

• banks valued at their open market value

• officer must give signed report to sheriff within 14 days of securing attachment

• creditor has 14 days after receiving report to apply for payment order, authorising transfer of the attached money to the creditor up to value of the debt

• if no application for payment order is made, attachment is terminated & money restored to debtor

• if payment order is applied for and granted, officers of court will realise any banking instruments and pay money over to the creditor

• officer then makes final statement to sheriff, which brings money attachment to an end

Arrestment

1. incorporeal moveable property of the common debtor - (eg assets held in a set of accounts under ‘debtors’)

2. corporeal moveable property owned by the debtor, but in possession of a third party

Debtors (Scotland) act 1987

process of Arrestment

1. creditor must serves charge for payment on the detor

2. no requirement to provide DAIP s37d

3. ‘schedule of arrestment’ on arrestee (the third party who is in possession of the debtor’s property)

4. arrestee is obliged to send form of disclosure to creditor & debtor within 3 weeks

5. arrestee must release funds to arrestor 14 weeks after service of schedule if debt has not been repaid

6. where goods have been arrested, creditor must raise an action of forthcoming, arrestee will be ordered to sell the goods and transfer the sale proceeds to arrestor

7. once arrested property has been released to the creditor, arrestment is at an end

‘schedule’ in arresment

formal notice advising arrestee that:

1. funds held by them on behalf of the debtor up to the value of the debt, and/or

2. all moveable property held nay them on behalf of the debtor

3. have been arrested

arrestee is prohibited from releasing the property from their possession

what can/can’t be arrested?

no benefit payments

yes ships

earnings arrestement

employer is employees debtor in week/month of wages

therefore it is open to then employee’s creditor to arrest earnings in the hand of the employer

1987 act s46-s50

procedure broadly the same as normal arresment

deductions are made each pay day and given to the creditor until the debt is paid off