Sequestration (Bankruptcy)

Sequestration is a formal legal process governed by the terms of the Bankruptcy (Scotland) Act 1985, as amended by the Bankruptcy (Scotland) Act 1993 (now repealed) and the Bankruptcy and Diligence etc (Scotland) Act 2007. These acts have now been consolidated by the Bankruptcy (Scotland) Act 2016 which consolidates existing bankruptcy legislation in Scotland into a single act.

In this process a person’s estate is transferred to a trustee who is then responsible for distributing the estate amongst the person’s creditors in settlement of their claims. Practically any person’s estates can be sequestrated except for those of a company.

Judicial sequestration begins with a petition to the sheriff court, which petition may be brought by a creditor or voluntary trustee. That is, an action for bankruptcy is brought by a third party, rather than being a voluntary application by the debtor for bankruptcy.

Where a petition is brought to court, the debtor must be given the opportunity to appear before the court to answer the petition. A warrant to cite is used to call the debtor to appear. The warrant to cite is called the first deliverance, and the date of first deliverance is important for the RoI.

Useful links

Sequestration

The Bankruptcy (Scotland) Act 2016 and the ROI - CAJR Guidance

Insolvency - Personal and Corporate (2012 Act manual)

Bankruptcy (Scotland) Act 2016 (external link)

In terms of section 26(1) of the 2016 Act, after the sheriff grants warrant to cite the debtor, the sheriff clerk is required to send a certified copy of the court order granting warrant to cite the debtor to the Keeper for recording in the Register of Inhibitions. At this stage no final decision has been made as to whether an award of sequestration will be made against the debtor, but the registration of the warrant to cite has the effect of preventing the debtor from disposing of heritable property in the interim. The effective date for sequestration is, therefore, the date of first deliverance - i.e. the date of the warrant to cite the debtor is taken to be the date of sequestration.

Warrant to Cite Minute

Certified Copy Interlocutor (Sequestration) granting Warrant to cite CHRISTINA MITCHELL 25 Murrayhall View, Cambusnethan. Date of Warrant 6 May 2016. Per James Iain Smith, Registers of Scotland.

If the petitioner successfully proves his case, then an award of sequestration is made against the debtor. However, the legislation does not provide for the registration of a creditor-led or trustee-led award in the RoI. These should be returned to the Sheriff Court.

If the debtor is successful at the court hearing, no award of sequestration will be made, the petition is dismissed and the court is obliged to forward a CCI dismissal of sequestration to the Keeper.

CCI Dismissing Sequestration MInute

Certified Copy Interlocutor, dated 8 Sep 2016, dismissing petition for Sequestration of CHRISTINA MITCHELL, who carries on business at 25 Murrayhall View, Cambusnethan, the warrant to cite being dated 9 May 2016. Per James Iain Smith, Registers of Scotland.

If sequestration is granted by the sheriff court, the trustee is appointed and vested in the debtor's estate on the award of sequestration.

It should be noted that the Keeper does not register sequestrations, but the inhibitory effect of a sequestration. So sequestration or bankruptcy lasts for one year but the inhibitory effect of sequestration lasts for three years.

Warrant to Cite of New (Re-service)

As described, where a pursuer has petitioned the court to get a debtor sequestrated for the payment of his debts, the warrant to cite or first deliverance will be issued and be sent to the Keeper for registration.

Then, at court, one of three things will happen:

The pursuer proves his case and an award of sequestration is made. These are the awards we do not see. The case is handed over to the Accountant in Bankruptcy (AiB) or an interim trustee who will look after the debtor’s estate until they are satisfied the debts are cleared, or
The pursuer does not prove his case, it is thrown out and the case is dismissed. The Keeper registers the CCI dismissal, or
The parties will be asked to re-appear at a later date and the court will issue a Warrant to Cite of New (headed Warrant to Cite (Re-service)). The Keeper is required to register a certified copy of this interlocutor.

The date of first deliverance remains the same (i e the date of the original Warrant to Cite). The Warrant to Cite of New will show the date of first deliverance and will have the same court reference number starting SQ, because this is the same action.

Warrant to Cite (of new) Minute

Certified Copy Interlocutor (Sequestration) granting Warrant to cite, of new CHRISTINA MITCHELL 25 Murrayhall View, Cambusnethan. Date of Warrant 16 Aug 2016. Per James Iain Smith, Registers of Scotland.

Sheriff Court interlocutors relating to sequestration can only be submitted by the Sheriff Court, not by an agent.