Apparent Insolvency

Conditions for Apparent Insolvency

Certain conditions are needed for someone to be sequestrated (made bankrupt) in Scotland. They must be 'apparently insolvent' whether they are making themselves bankrupt or being sequestrated by someone else.

You will find the full legal meaning of apparent insolvency in section 7 of theBankruptcy (Scotland) Act 1985.

However, the most common forms of apparent insolvency are shown below.

• A creditor has been to court, got a decree, and has had a charge for payment served on the debtor and the 14 days allowed for them to pay have passed without them making a payment.
• A creditor has served a statutory demand on the debtor telling them to pay the debt within 21 days and they have not paid the debt or sent the creditor a letter by recorded delivery denying that the debt is due for payment.
• A local or public authority has a summary warrant against the debtor to recover rates or taxes and some of their goods have been attached (or someone has tried to attach them) to the order, and 14 days have passed.
• A local or public authority has a summary warrant against the debtor to recover rates or taxes and some of their goods have been attached (orsomeone has tried to attach them) to the order, and 14 days have passed.

The debtor will also be apparently insolvent if any of the following apply.

• A creditor has a decree of adjudication from the Court of Sessiontransferring the debtor's house or other property which can be inherited to them.
• A receiving order has been made against the debtor in a court in England, orWales.
• The debtor is made bankrupt in England, Wales or Northern Ireland.
  • The debtor has given written notice to his creditors that he has stoppedpaying their debts in the ordinary course of business. This only allows creditors to petition for sequestration. The debtor cannot petition just forthese reasons.
• The debtor has signed a trust deed. This allows a qualified creditor to petition for sequestration. But, the debtor can only petition if the trust deed fails to become protected because their creditors object.
• A debt payment programme the debtor was party to has been revoked under the Debt Arrangement and Attachment (Scotland) Act 2002 and a debt being paid under the programme is constituted by decree or document of debt as
  defined in section 10 (attachment) of that Act.

Apparent insolvency also covers partnerships and unincorporated organisations (seesection 7 of the Bankruptcy (Scotland) Act 1985).

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Explanation of terms

Below is an explanation of some of the legal terms we use in this section.

Apparent insolvency

A legal term that means you are unable to pay your debts and that at least one of your creditors has taken legal action against you.

Charge for payment

The formal demand for payment following a decree. A Sheriff Officer usually serves it on you and you have to pay the debt within 14 days.

Creditor

Any person, business or organisation you owe money to.

Debt Arrangement Scheme

A confidential debt management tool introduced by the Scottish Executive accessed through an approved money adviser (see www.moneyscotland.gov.uk). It may help you if you have two or more debts and want to pay what you owe, by giving you more time for repayments free from the threat of enforcement (diligence) or bankruptcy.

Debtor

 Any person who owes money. In this booklet it means someone who is insolvent and is aiming to have their estate sequestrated.

Decree

A formal order of court which says the debtor must pay money to a creditor. This might follow court action such as:

1. small claim (up to £750);
2. summary cause (£750 to £1500); or
3. ordinary action (more than £1,500).

Decree of adjudication

Adjudication is an action in the Court of Session (Scotland's Supreme Civil Court) where property you own which can be inherited, usually a house or similar, is transferred to a creditor to pay a debt.

Estate

Your estate is literally everything of value you own, including any rights you may have to receive money or goods from anyone else.

Interim trustee

Someone appointed by the court to handle your estate until a permanent trustee is appointed.

Permanent trustee

Someone appointed by the court to:

1. take possession of your estate;
2. sell any property you own; and
3. pay your creditors as much as possible of what you owe them.

Petition

A formal application to the court.

Protected trust deed

A trust deed which transfers all of your estate to a trustee and is not objected to by most of your creditors or by creditors to whom you owe at least one-third of your debts. It is binding on all the creditors, that is, 'protected'. None of the creditors may then apply to have you sequestrated.

Qualified creditor or creditors

A creditor to whom you owe at least £1500 (or a number of creditors to whom you owe at least £1500 in total).

Receiving order

A court order in England or Wales placing your assets under the control of an Official Receiver.

Sequestration

The Scottish legal term for bankruptcy. Bankruptcy is a formal court process which transfers your property to a trustee.

Sequestration for rent

A court process that can be raised against you by your landlord for rent you have not paid.(This is not the same as bankruptcy or formal sequestration.)

Statutory demand

A formal demand by a creditor giving you 21 days to repay a debt. The demand must be on the proper form and be served by a sheriff officer.

Summary Warrant

An order granted by the court to local or public authorities giving the creditor authority to recover amounts of money you owe. This procedure is generally used to recover unpaid rates, taxes, community charge and so on.

Trust deed

A voluntary alternative to sequestration. You can transfer all or part of the estate to a trustee to handle for the benefit of your creditors.

Disclaimer:

The information given on this page is for general guidance only. It is not a detailed or full statement of law.

© Accountant in Bankruptcy - Updated December 2004