Notes for Guidance - Bankruptcy (Scotland) Act 2016 (as amended)

When a debtor is made redundant and receives a severance payment from their employer the question arises as to whether this payment, or part of it, vests in the trustee under Section 86(4) of the Act.

This question was considered in an application by Patrick McGrail under section 78(11) of the Act (Sheriff Murphy, Glasgow Sheriff Court, 10 August 1990). The sheriff did not issue a written judgement but the Accountant understands the facts of the case to be as follows.

During the relevant period, as defined by Section 79(5) of the Act, Mr McGrail was made redundant and received a severance payment of £5050. This sum was made up of four elements:

The trustee conceded the payment in lieu of notice was income but claimed the remaining £4240 as acquirenda.

This approach was later approved by the sheriff. The debtor disputed this approach and applied to the sheriff for this amount be excluded from vesting in the trustee under Section 78(11) of the Act.

The sheriff held that:

• the statutory redundancy payment of £810 fell to be regarded as alimentary in nature and therefore as income which did not vest in the trustee
• the other payments made by the company which were voluntary did vest in the trustee

When dealing with payments made on redundancy, it will be necessary for trustees to identify the part which represents the debtor’s statutory entitlement and care will be required in those cases, such as McGrail, when it is company policy to pay an enhanced sum. In some cases such an enhanced sum might be loosely termed the redundancy payment.

In summary, the various elements of payment which can be received on redundancy should be treated as follows:

Once a debtor has received their statutory redundancy payment the trustee should consider whether a contribution or increased contribution should be sought.

The trustee should bear in mind receipt of a redundancy payment does not immediately debar the debtor from receiving unemployment benefit under Section 20(3A) of the Social Security Act 1975.