Accountant in Bankruptcy

April Diligence Changes

07/04/2009

A number of changes to diligence will take effect on 22 April 2009.

• Provisions contained in part 5 and part 10 of the Bankruptcy and Diligence etc. (Scotland) Act 2007 which deal with inhibition and arrestment in execution & actions of furthcoming.
• Acts of Sederunt amending the Rules of Court for the commencement of Parts 5 and 10.
• Most of Section 169 of the Act which relates to diligence on the dependence commenced on 1 April 2008 but one further provision, sub-section 15H(4) into the Debtors (Scotland) Act 1987, will now be introduced.

Changes to The Diligence against Earnings (Variation) (Scotland) regulations were intended to come into force but were revoked.

Changes to diligence against earnings will be commenced later in 2009.

Changes to Inhibition and Arrestment from 22 April 2009

Changes to the processes of inhibition and to arrestment introduced by the Bankruptcy and Diligence (Scotland) etc. Act 2007 will come into force on 22 April 2009.

A number of new forms are provided for both of these diligences. These forms are contained in the Diligence (Scotland) Regulations 2009 and in the Acts of Sederunt.

Those provisions not changed will continue to be provided for in the common law.

Inhibition

Part 5 of the Act introduces changes to inhibition which is a 'freezing' diligence and prevents a person from disposing of, or granting security over, their interest in heritable property to the prejudice of creditors. Key changes include:-

• Creditors will no longer be required to obtain 'letters of inhibition' from the Court of Session in order to inhibit in execution of a sheriff court judgement. Warrant to inhibit will be automatically contained in a sheriff court extract decree.
• Where the debtor is an individual, the schedule of inhibition served in execution of an inhibition must be accompanied by a Debt Advice and Information Package (DAIP). Failure to provide the DAIP will render the inhibition incompetent.
• An inhibition is registered only by registering a copy of the schedule of inhibition and the certificate of execution of inhibition in the Register of Inhibitions.
• A new section 155 is inserted into the Titles to land Consolidation (Scotland) Act 1868 to clarify from when inhibition takes effect, including those cases when a Notice of inhibition has been registered.
• In actions where an inhibition on the dependence is limited to specified property at the discretion of the sheriff under s15J(b) of the Debtors (Scotland) Act 1987, any inhibition in execution of decree is no longer limited to that property. Further clarification is provided by the Bankruptcy and Diligence etc. (Scotland) Act 2007 (Inhibition) Order 2009 which modifies s152 to require the registration of a decree following inhibition on the dependence in those actions where the sheriff previously limited the effect of that inhibition to specified property under s15J(b) of the 1987 Act. The order also provides when the effect of such a limited inhibition is widened.
• Inhibition no longer confers any preference in sequestration, insolvency proceedings or other processes in which there is ranking.
• An inhibition is no longer terminated by payment of the debt alone. It will cease to have effect when the debt is paid plus any interest, expenses and the expenses of discharging the inhibition.

Arrestment in Execution and Action of Furthcoming

Arrestment allows a creditor to attach a debtor's moveable property, such as goods or funds, where it is in the possession of a third party. Part 10 of the Act inserts new section 3 into the Debtors (Scotland) Act 1987 and makes several modifications to the law of arrestment. Key changes include:-

• Rules are provided to limit the sums that can be attached by arrestment. For ascertainable debts, funds attached by the arrestment will be calculated with reference to the sum due, the expenses of the arrestment and interest. The previous 'more or less' provision which attached all funds will no longer apply for arrestment in execution.
• A protected minimum balance (PMB) of funds within bank and other accounts is introduced. Only funds above the minimum balance can be arrested. The PMB is linked to the first figure in Table B of the Diligence against Earnings (Variation) (Scotland) Regulations, last updated in 2006. Due to the revocation of the Diligence against Earnings (Variation) (Scotland) Regulations 2009 (SSI 2009/98) the PMB will not be increased to £410 at this time. The PMB will be £370 from 22 April 2009 and will increase later in 2009, when the Diligence against Earnings regulations are commenced.
• The arrestee has a duty to disclose to the creditor the nature and value of any funds or goods arrested within 3 weeks from the date on which the schedule of arrestment is served.
• Arrested funds are subject to automatic release 14 weeks after the arrestment if no objection is lodged. An action of furthcoming will still be required for the release of arrested goods.

New section 73D which provides for the provision of a DAIP is not being commenced at this point in time.

Section 169

Section 169 inserted new part 1A, which relates to diligence on the dependence, into the Debtors (Scotland) Act 1987 on 1 April 2008. New section 15H was, however, only partially commenced at that time. Sub section 15H(4) applies the protected minimum balance in section 73F to arrestment on the dependence and is being commenced on 22 April 2009.

Diligence Against Earnings

Changes to The Diligence against Earnings (Variation) (Scotland) regulations (SSI 2009/98) were intended to come into force but were revoked (SSI 2009/133) due to concerns raised by software developers. There will be no changes to diligence against earnings at present.

Changes to the regulations will be commenced later in 2009.