Guide to Debt Collection in Scotland

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1 There are a variety of debt collection procedures available in Scotland many of which are similar to those used elsewhere in the UK. The usual demand letters and statements will be issued but if the debtor still fails to pay then some other enforcement action is required. Raising Court Proceedings Court proceedings for the recovery of debts in Scotland are normally raised in the Sheriff Court. There are 47 Sheriff Court Districts throughout Scotland and the action will be initiated in whichever court has jurisdiction. There are three different types of proceedings which can be raised, dependent on the value of the debt being pursued. (i) Small Claims Procedure This is used where the debt is or less. A Summons is completed, setting out the parties to the action, the nature and amount of the claim. On receipt of warrant from Court the summons is served on the defender/s. If the defender does not lodge a response form with the Sheriff Clerk by the date detailed in the Summons, then an application can be submitted for decree to be awarded against the defender. (Decree is the Scottish equivalent of an English County Court Judgement.) In addition to ordering the defender to pay the amount sought and any interest claimed, the extract decree will also order payment by the defender of a fixed sum of judicial expenses towards the creditor s costs of raising the action. In all defended cases where the sum sued for is less than 200 no expenses are

2 recoverable. If the defender does submit a response form by the specified date indicating an intention to defend the action, the case will call in Court on the Preliminary Hearing date. The Sheriff decides at this point if the case should be continued for further hearing for evidence to be taken. (ii) Summary Cause Procedure This is used where the sum being sought falls between to The documentation and court procedures are similar to those in a Small Claim. (iii) Ordinary Cause Procedure This is used where the sum sought exceeds The document drafted to obtain a warrant for service is known as the Initial Writ rather than a Summons. There is a period of 21 days after service of the action in which the debtor may notify the court of his intention to defend the action. If the debtor returns the form to the court indicating his intention to defend the action then, the Court will fix a date for an Options Hearing, no less than ten weeks ahead. The Sheriff Clerk issues a written direction to both parties giving the date by which written defences must be lodged and the last day for making adjustments to the written pleadings of the parties. The Sheriff will decide how the case will proceed, whether a hearing of evidence should be fixed, or some other disposal of the case would be more appropriate e.g. a debate (in England, this is called an application to Strike Out ) on a legal point.

3 If the defender does not return the form to the Court within 21 days after service of the writ, then the court can be asked for decree to be granted against them. If the form is returned, the procedure is lengthy too lengthy to detail here but further information will be given if required by contacting us directly. Inhibition on the dependance This is similar to, although not the same as, the English Charging Order. The Inhibition precludes the debtor from voluntarily selling or granting securities over any property owned when the Inhibition was granted. As a means of forcing settlement of a debt, inhibitions can be extremely effective where the debtor wishes to sell heritable property. Service of charge After Decree has been granted against a defender, a Charge for Payment of the sums due in terms of the decree requires to be served on the defender. This can only be done by Sheriff Officers, the Scottish equivalent of English Bailliffs. This affords the defender a further opportunity to pay the full sums due in terms of the Charge, which will include the original sum sued for plus interest and judicial expenses. It is only after the charge has been served and no payments have been made that further enforcement action can be taken.

4 Enforcement after charge Certain methods of diligence can only be used after a Charge for Payment has been served and the days of Charge have expired (i.e. 14 days have elapsed from the date of service of the Charge) namely:- Debt Attachment; Earnings Arrestment; and (in most cases) Sequestration and Liquidation. Earnings Arrestment This is a diligence which is used against a debtor who is in employment. It is similar to an attachment order in England. A charge for payment must have been served upon the debtor within the past year, and the days of charge must have expired (i.e. at least 14 days must have elapsed since the charge was served). Unlike the procedure in England, there is no need to obtain any order from the court before proceeding with an Earnings Arrestment. The Earnings Arrestment is served on the debtor s employers by Sheriff Officers. It obliges the debtor s employers to retain and remit a sum from the debtor s salary each week or month as the case may be until the debt is extinguished. The sum which is deducted depends solely upon the debtor s net salary and is calculated in accordance with tables in the Debtors (Scotland) Act No account is taken of any other income which the debtor may be receiving, nor is any account taken of the debtor s outgoings.

5 Sequestration This is the equivalent of bankruptcy in England, and is the final remedy against an individual debtor. A Charge for Payment or an expired Statutory Demand is usually necessary prior to raising a petition for sequestration. The creditor requires to swear an oath confirming the existence of the debt. A trustee is appointed to ingather and realise the debtor s assets with a view to distributing them amongst all creditors. Following some major changes to the Scottish Bankruptcy legislation in 1993, the petitioning creditor is no longer able to nominate the insolvency practitioner of his choice to be interim trustee, unless the creditor is prepared to underwrite the trustee s costs (which could be considerable). If the creditor does not wish to do this, then the Accountant in Bankruptcy (similar to the Official Receiver in England) will take the appointment at no cost to the petitioning creditor. The petitioning creditor will of course still require to pay the legal fees and outlays for the petition. If in particular circumstances of the case, none of the other forms of diligence is appropriate, then the service of a sequestration petition may prompt settlement or settlement proposals from the debtor. The petition can then be dismissed. There is of course a risk that if the sequestration petition proceeds, the debtor s trustee will find that the debtor has no assets, or that any funds which are available require to be paid to the statutorily preferred creditors (such as the Inland Revenue), leaving no dividend for ordinary creditors.

6 Liquidation A creditor s petition for liquidation is normally on the basis that a limited company is unable to pay its debts. One of the ways of establishing this is by the existence of an expired Charge for Payment (i.e. where at least 14 days have elapsed since the date of service of the Charge), although it can also be inferred by the expiry of statutory demand or even dishonoured cheques. In all cases, the debt owed must be greater than A petition is presented to the Court for appointment of an insolvency practitioner as provisional Liquidator of the company. The provisional Liquidator preserves assets of the company and reports on whether any recovery of funds is likely. If little or no recovery is predicted then usually the process is stopped and the petition dismissed. The costs to that point are fairly reasonable but the subsequent appointment of a full Liquidator can be very costly. The Liquidator is charged with the ingathering and realisation of the company s assets with a view to distributing any available funds to creditors on a pro rata basis. The petitioning creditor normally requires to underwrite the Liquidator s costs in the event that there are insufficient assets of the company to meet its costs. This could involve a potential liability of several thousand pounds. For this reason, the appointment of a full Liquidator is unlikely to be appropriate unless the debt is substantial or there are special circumstances.

7 For more detailed advice tailored to your needs please contact one of the following people: Lynn Harrison Mike Kemp

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