Petitions

• Petitions for Sequestration
• Petitions by qualified creditors
• Petitions by trustees under trust deeds
• Petitions by debtors
• Nomination of the interim trustee
• Costs
• Appendices:
  1. Explanation of terms
  2. Form 3 - Form of petition by qualified creditor
  3. Form 4 - Form of petition by trustee under trust deed
  4. Fax message: Information relating to a creditor's petition for sequestration

Petitions for sequestration

A petition for the sequestration of a debtor may be presented by:

1. a qualified creditor or creditors. A qualified creditor is one to the debtor owes at least £1500 (2 or more creditors who are together owed at least£1500 can petition jointly);
2. a trustee under a trust deed granted by the debtor; or
3. the debtor.

There are requirements specific to each type of petition and others that are common to all petitions for sequestration.

Common requirements

The common requirements are:

1. The court must have jurisdiction.
   The Sheriff Court has jurisdiction if, at any time in the year immediately preceding the date on which the petition is presented, the debtor either:
   1. had an established place of business in the Sheriffdom; or
   2. was habitually resident within the Sheriffdom; or
   3. was a partner in a firm which the Sheriff has jurisdiction over and which has been sequestrated or is currently subject to sequestration proceedings.
2. The Court of Session also has general jurisdiction.
   A creditor's petition maybe presented either to the Court of Session or the Sheriff Court. A debtor's petition will normally be presented to the Sheriff Court.
3. The debtor must owe at least £1500.

Sequestration and the Debt Arrangement Scheme (DAS)

Restrictions are placed on creditors from extending credit or petitioning for sequestration whilst a debtor is in the Debt Arrangement Scheme. If a creditor presents or concurs with a debtor in presenting a petition for their sequestration, they must aver that:

• the debtor does not have an approved debt payment programme under DAS; or
• they are in a debt payment programme under DAS but they are entitled to present or concur in said petition, the debt being found upon is not covered by section 4(5) of the Debt Arrangement and Attachment (Scotland) Act 2002.

Further, on the day of the court hearing, in a creditor's petition the creditor must sign a declaration that the debtor is entitled to proceed with the petition as above. If you need more information, please refer to creditor guidance on DAS which can be found at www.moneyscotland.gov.uk

back to top

Petitions by Qualified Creditors

1. The debtor must be apparently insolvent
   The most common grounds of apparent insolvency are:
   1. a charge for payment has been served on the debtor in the carrying out of a decree and the days of charge have expired without payment having been made.
   2. a summary warrant has been granted by the court for unpaid rates and taxes, some of your goods have been attached (or someone has attempted to attach them) and 14 days have passed.
   3. a statutory notice has been served on the debtor, the debt has not been denied and 21 days have passed without payment being made.
   4. 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.
      
   Other less common grounds of apparent insolvency are contained in section 7 of the Bankruptcy (Scotland) Act 1985 and in booklet AB6.
2. Petitions must be made on the specified Form 3 as prescribed in Rule 3(2) of the Sheriff Court Bankruptcy Rules 1996. A copy of Form 3 is included in this booklet as Appendix B.
3. It is essential that the petition states clearly the name of the individual or entity against whom sequestration is being sought. It is also essential that the debtor's names are spelt correctly, any aliases should be included; and that the debtor's address is current, any previous addresses should also be included if known. Its hould be kept in view that sequestration of one or all of the partners of a firm does not sequestrate the estate of the partnership and vice versa.
4. A copy of the petition must be sent to the Accountant in Bankruptcy on the day it is lodged in court. It would also be helpful, when the Accountant is to be appointed as interim trustee, if the petitioning solicitor would fax to the Accountant the form containing information relevant to the creditor's petition, completed as far as possible. A copy of the form is included in this booklet as Appendix (iv).

back to top

Petitions by Trustees under Trust Deeds

1. A trustee acting under a trust deed granted by a debtor on behalf of his creditors can petition for the sequestration of the debtor if either:
   1. the debtor fails to co-operate or to comply with any obligations or undertaking required in the terms of the trust deed,
   2. the trustee is able to satisfy the court that it will be in the better interests of the creditors that the debtor's estate be sequestrated.
2. A petition by a trustee under a trust deed must be made using Form 4 as prescribed in Rule 3(3) of the Sheriff Court Bankruptcy Rules 1996. A copy of Form 4 is included in this booklet as Appendix C.

back to top

Petitions by Debtors

A debtor may petition for his own sequestration on the grounds that either:

1. they have the concurrence of a qualified creditor or creditors; or
2. they are apparently insolvent; or
3. they have granted a trust deed which was eligible to become a protected trust deed but which the majority of the creditors have objected to; or
4. 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.

A debtor may also petition with the concurrence of a qualified creditor or creditors. In this case the debtor does not have to be apparently insolvent.

The petition must be made using the form prescribed as Form 1 in the Sheriff Court Bankruptcy Rules and a copy of the petition form must be sent to the Accountant in Bankruptcy on the day the petition is lodged in court. The court will require proof of this, and a receipt or certificate of posting must be obtained.

The petition form must also be signed by the concurring creditor(s). The Oath(s) required in terms of the Bankruptcy (Scotland) Regulations 1985 must be lodged along with the petition form.

A debtor may also petition for his own sequestration without the concurrence of a qualified creditor if he is apparently insolvent (see booklet AB6). For this purpose the usual grounds of apparent insolvency available to a petitioning debtor are:

1. a charge for payment, for any amount, has been served on the debtor and14 days have expired without payment being made.
2. a summary warrant is granted by the court on application by a government department or local authority, in respect of unpaid rates or taxes. Once this has been granted the creditor may immediately arrest the debtor's salary or wages.
3. the debtor has received a statutory notice and 21 days have passed without him either paying the debt or returning the denial slip attached to the notice.

A debtor petitioning on the grounds that he is apparently insolvent must use the form prescribed as Form 2 in the Sheriff Court Bankruptcy Rules. A copy of the petition form must be sent to the Accountant in Bankruptcy on the day the petition form is lodged in the court. The court will require proof of this in the form of a receipt or certificate of posting. The court will also require proof of apparent insolvency, that is, the original charge for payment or statutory notice.

A debtor who does not have the concurrence of a qualified creditor may also petition for his own sequestration on the grounds that he granted a trust deed which was eligible to become a protected trust deed but which was objected to by a majority of the creditors (see also booklet AB7).

A petition on this ground must also he made using Form 2. The court may require evidence:

1. that the trust deed was properly advertised in the Edinburgh Gazette;
2. that a copy of the notice and the trust deed was sent to all the creditors; and
3. that a majority in number or not less than one third in value of those creditors objected in writing.

back to top

Nomination of the Interim Trustee

All petitioners have the right to nominate an interim trustee of their own choice. The interim trustee must be an authorised insolvency practitioner and he must sign an undertaking that he will accept the office if appointed and that he will also act as permanent trustee if no other person is elected to that office.

Before accepting a nomination, an insolvency practitioner will wish to be satisfied that:

1. either there are likely to be sufficient funds or realisable assets in the estate to meet the costs of administration, or
2. that the petitioner will underwrite these costs.

It is not necessary to nominate an interim trustee and if no nomination is made, the court will automatically appoint the Accountant in Bankruptcy.

back to top

Costs

1. Petition Costs
2. Costs of the Sequestration Process
   Unless an undertaking has been given to an insolvency practitioner nominated as interim trustee, neither petitioning creditor or debtor, nor a creditor who concurs in the petition of a debtor, incurs any liability for the costs of the sequestration process.

These costs will be met out of the realisation of the assets in the sequestrated estate. In any case where there are insufficient funds to cover these costs and where the Accountant in Bankruptcy is appointed as permanent trustee, the Accountant will meet any shortfall from public funds. Public funds are not available to meet the costs of an insolvency practitioner acting as interim or permanent trustee.

back to top

Appendix A - 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.

back to top

Appendix B - Form 3 - Petition by qualified creditor

Download Appendix B (PDF / 437Kb)

Appendix C - Form 4 - Petition by trustee under trust deed

Download Appendix C (PDF / 455Kb)

Appendix D - Fax message: Information relating to a creditor's petition for sequestration

Download Appendix D (PDF / 405Kb)

PDF downloads require the Adobe Acrobat Reader - get it HERE

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