When we receive instructions to pursue cases on behalf of clients, understandably, the primary objective is to resolve their dispute in the quickest and most cost effective manner. We always consider whether an alternative form of dispute resolution can be used but where litigation is inevitable, the end goal is obtaining a decree (court order). In an ideal world after a decree has been issued by the court, debtors will pay up quickly but if they don’t, we have to consider the best enforcement options available to our clients.
We have therefore prepared this short guide detailing some of the enforcement options which may be available in these circumstances.
Charge for payment
The most common form of diligence in Scotland is service of a charge for payment. The reason being that following the issue of a decree creditors usually must serve a Charge for Payment and issue a Debt Advice and Information Package before using other forms of diligence.
A Charge for Payment is a formal document served by Sheriff Officers which requests that a debt is paid within 14 days, failing which the creditor is entitled to take further enforcement action against the debtor.
Once a Charge for Payment has expired, a creditor may wish to consider taking action to arrest the debtor’s earnings. To do so, an earnings arrestment is served on the debtor’s employer who is then obliged to deduct a specified sum from the debtor’s earnings until the debt is paid in full.
Arrestment allows a creditor to seize moveable property of the debtor where that property is held by a third party (i.e. goods in storage, vehicles in a garage and money in a bank). The creditor must have obtained a decree however there is no requirement to serve a Charge for Payment for arrestment to be effected.
However, where the creditor is a public body such as a local authority or HMRC and an accelerated court process has been used (i.e. summary warrant), a charge for payment must still be served prior to arrestment.
To effect an arrestment, Sheriff Officers must be instructed to serve a schedule of arrestment on the third party, which prevents any funds or goods being held by them to be released to the debtor – they are frozen. Where funds are attached as a result of the arrestment, the amount arrested is limited to either, the amount the arrestee holds for the debtor, or the total amount (including all charges, expenses and interest) due to the creditor, whichever is less. The third party is also under an obligation to send details to the creditor, the debtor or anyone else who may have an interest in the property within 3 weeks of the nature and value of the items arrested.
Where funds are arrested in a bank account, there is a protected minimum balance which cannot be arrested (currently £494.01). Funds are also frozen for a period of 14 weeks before they are released unless a written authority is given by the debtor to release them earlier than that date.
Attachment allows a creditor to seize a debtor’s moveable property as a means of recovering money owed. Unlike arrestment, which is used against property held by a third party, attachment can be used to seize property owned by the debtor and in their possession. Attachment cannot be used to seize goods in the debtor’s dwellinghouse, unless an order for exceptional attachment been granted by the court.
There are certain days and times when an attachment cannot be carried out unless prior authority has been granted by the court. Attachment may not be carried out on Sundays and public holidays, before 8am or after 8pm.
Within 14 days of carrying out the attachment, if the debt is not paid in full, a report can be provided to the court which then allows the court to make an order for the attached items to be recovered and sold at auction.
Exceptional attachment is a special procedure where luxury and “non-essential” items can be attached within the debtors home.
A charge for payment must have been previously served and following its expiry, Sheriff Officers can attend at the debtor’s dwellinghouse to mark items for future sale. Before granting an order for exceptional attachment the court will consider matters such as the nature of the debt and whether there has been any agreement between the debtor and creditor regarding payment. The court must be satisfied that the creditor has taken reasonable steps to negotiate payment before making the order.
Unlike ordinary attachment, articles attached under authority of an exceptional attachment order are removed immediately from the dwellinghouse unless it is impractical to do so. Once removed, attached articles may not be auctioned before seven days have elapsed from the date of removal. During this seven day period the debtor may apply to the sheriff for an order that will cease the attachment and return the attached articles to the debtor, if the sheriff considers this appropriate in the circumstances.
Essential living items are exempt from attachment and this can often mean that televisions and electronic devices which are required for educational or other purposes cannot be attached.
Following expiry of a charge for payment, a creditor can instruct Sheriff Officers to attach money which is held on a debtor’s business premises. Money includes, cash, coins, banknotes, postal orders and cheques. Money cannot be attached at a dwellinghouse.
As with attachment, money attachment can only be carried out during specified times unless otherwise ordered by the court.
If funds are attached, Sheriff Officers must make a report to the court asking for a Payment Order within 14 days of the attachment. If no objection is lodged then the court will make an order and the funds will be released to the creditor.
Inhibition is a form of diligence which prevents a debtor from dealing (i.e. selling) their heritable property after the inhibition takes effect. Therefore a debtor cannot sell or transfer title or take out any loans or standard securities against their home (or any other property owned by them).
A creditor must have a decree (or relevant document of debt) before proceeding with inhibition. A schedule of inhibition must be served on the debtor and, where the debtor is an individual and the action is in respect of debt, the creditor must also provide a Debt Advice and Information Package. Generally the inhibition takes effect from the day it is registered in the Register of Inhibitions and Adjudications at the Registers of Scotland. The exception to this is where a prior ‘Notice of Inhibition’ has been registered in which case the effect of the inhibition is backdated to the date the schedule of inhibition is served. This exception only applies where that service is registered before the expiry of 21 days from the registration of the Notice.
Inhibitions last for a period of five years, after which they expire automatically.
Sequestration proceedings can be raised where the outstanding balance is greater than £3,000 at the time of raising proceedings and the debtor is an individual or partnership. Sequestration proceedings can be raised at the debtor’s local sheriff court, following expiry of a Charge for Payment.
In considering whether to award sequestration, the court requires to be satisfied that the creditor is able to prove that the debt due is in excess of £3,000 and that the debtor is apparently insolvent and/or unwilling or unable to make payment of the debt.
A copy of the petition for sequestration also requires to be served on the Accountant in Bankruptcy (AiB) at the same time as the debtor.
Once a sequestration order has been granted, an accountant (Trustee in Sequestration) is appointed to ingather the debtor’s assets and distribute them amongst all creditors with any secured creditors taking preference for any funds available.
When a limited company owes a creditor in excess of £750, a petition can be made to the court to wind up the company.
A winding up petition can be presented to the court following an expired Charge for Payment, Statutory Demand or where there is sufficient evidence that the company cannot pay its debts as they fall due.
The process generally takes 4-6 weeks and once an order has been granted an accountant (liquidator) is appointed to ingather, realise and dispute the company’s assets amongst creditors.
This article has been prepared as brief guide with regards to the enforcement options which may be available to you. We would always recommend that you take independent, professional advice should you wish to consider taking enforcement action against a debtor or if you are facing any form of insolvency.
Should you wish to obtain any further advice please contact us online by clicking here or speak to a member of our specialist team on 0333 222 1855.