Commercial Law Week 9

earnings arresment

• where creditor is natural person DAIP must be provided

• on expiry of days of charge or 12 weeks after DAIP, creditor serves earnings arrestment schedule on employer specifying the amount of debt

• if employer fails to comply, they may be held liable for sums due to creditor

inhibition - ‘freeze diligence’

debtor can’t sell land etc without creditor’s consent

• 2007 act s146-168

process of inhibition

1. creditor instructs officers of court to serve ‘schedule of inhibition’ on the debtor

2. natural person = DAIP

3. schedule, and a certificate of execution, must be registered in Personal Register

4. no need for creditor to wait for expiry of days of charge - inhibition takes effect from beginning on day of which it is registered

5. can make a ‘priority notice’

6. once registered, inhibition remains in effect for 5 years, then prescirbes

7. alternatively may be discharged by the creditor

priority notice in inhibition

if creditor is worried debtor will quickly dispose of property to avoid payment

statement that creditor intends to register a schedule of inhibition in near future

if accepted, inhibition will be backdated to the beginning of the day on which the schedule was served

what does inhibition affect?

all heritable property in Scotland in debtor’s patrimony

prohibits debtor from voluntarily conveyancing their heritage to a third party, and voluntary granting subordinate real rights in their heritage

obligations that pre-date the inhibition will not be considered voluntary

Adjudication

against heritable property

allows creditor to obtain a real right in security over the property

process of Adjudication

1. creditor must raise a second action of adjudication in Court of Session

creditor cannot simply proceed to adjudication once they have obtained decree in respect of the debt

2. the summons in action must specify particular property which the creditor wishes to adjudge

3. unless debtor has relevant defence (unlikely), court will pronounce a decree of adjudication including details of the property in question

4. creditor must then register the exact degree against the title to the property in the Land Register

creditor then has right in security over the property

5. if debt not paid in 10 years ‘expiry of the legal’, the adjudged may raise another action seeking declarator of expiry of the legal

declarator of expiry of the legal can be registered in Land Register

Effect of Adjudication

• adjudged has power ti eject debtor from property if necessary

• can grant leases over property

• keep rent paid by tenants in satisfaction of debt

• after 10 years, if debt unpaid debtor applies to have ownership transferred to them

if valuee of the property exceeds remaining debt, any surplus is paid to debtor

diligence on the dependence

not a specific form of diligence; rather a way that diligence can be used

seeks to prevent evasion of judicial process

allows pursuer to carry out certain diligence ‘on the dependence of the action’

how does diligence on the dependence happen?

court grants warrant for diligence on dependence if:

1. pursuer has a prima facie case on the merits of the action (requires ‘good arguable case’)

2. there is a ‘real substsantial’ risk that any degree obtained by pursuer will be unenforceable because defender is on verge of insolvency or likely to dispose of their assets

3. its reasonable

difference between simple/practical absolute and apparent insolvency

simple/practical insolvency - debtor is unable to pay debts as they fall due. does not necessarily indicate real financial trouble; short-term problem

absolute insolvency - debtor'‘s liabilities exceed total assets. balance sheet insolvency

what is sequestration

its removal and deposit in the hands of a neutral third person

its realisation and ultimate distribution amongst the creditors of the estate

may occur through granting of a voluntary trust deed for creditors, or through formal sequestration

what is accountant in bankruptcy

may determine applications by debtors to be sequestrated

supervision of the performance of those involved in sequestration

investigates complaints

maintains Register of Insolvencies

prepares annual report

2 routes to sequestration

1. debtor application

2. petition by qualified creditors

debtor’s application for sequestration

debtor can apply for their own sequestration if:

1. they owe at least £3000

2. sequestration has not been awarded against them for 5 year

3. they’ve obtained advice from money adviser

4. given statement of undertakings

5. apparently insolvent, have been granted a certificate for sequestration, or have handed over their estate to a trustee under a voluntary trust deed