Recall of Sequestration

• Introduction
• Legislation
• Seeking advice on recall procedure
• Presentation of a petition for recall
• Continued administration of the sequestration
• Co-operation between the debtor and the trustee
• Information on all debts
• Debtor trading
• Notification of sequestration
• Payment of claims
• Advance arrangements for payment of claims
• Contractual or statutory interest
• Other debts
• Payment of trustee's fees
• After recall
• Appendix - Sections 16 & 17 of the Bankruptcy (Scotland) Act 1985
• Further Information

Introduction

This booklet is to help you if you have been made bankrupt but know you could have avoided it. One reason might be that you overlooked the petition or the court summons. Or perhaps you offered to pay the petitioning creditor too late for the court to be notified. In other words, if you are not really insolvent as you can pay your creditors.

Being made bankrupt is a very serious situation to be in. The sequestration can be recalled but the process is not straightforward and if a petition for recall is to succeed, it is essential to go about it in the right way.

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Legislation

We have printed Sections 16 and 17 of the Bankruptcy (Scotland) Act 1985at the end of this booklet. This is the part of the law which talks about presenting a petition for the recall of a sequestration. This booklet highlights some of the practical issues involved so that the process is as quick and inexpensive as possible.

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Seeking advice on the recall procedure

In most cases the debtor petitions for recall. The procedure is complicated and you must instruct a solicitor. Few solicitors are expert in this field and the procedures will be unfamiliar to many. The Law Society of Scotland can give you the name of a solicitor who specialises in insolvency matters and we can give non-legal advice.

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Presentation of a petition for recall

You must present a petition for recall of a sequestration in the Court of Session and if you employ a local solicitor, they must instruct an Edinburgh agent. This is expensive and usually you will have to pay. The solicitor must also a place a notice of the petition for recall in the Edinburgh Gazette.

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Continued administration of the sequestration

Even after you present a petition for recall to the court, the law says that your interim or permanent trustee must continue with your sequestration. In other words, your trustee will carry on as normal in the sequestration, running up more fees, while you are petitioning for recall. At best, if they think the chances of the sequestration being recalled are good, the trustee will avoid taking any drastic or irrevocable action like selling your assets or business.

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Co-operation between the debtor and the trustee

It is particularly important for you to co-operate fully with the trustee while waiting for your petition to be dealt with because it is in the trustee's powers to object [lodge answers] to the petition for recall. They can do this either on their own behalf or on behalf of your creditors. It is unlikely that the court will grant a recall if the trustee objects.

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Co-operation between the debtor and the trustee

You must inform the trustee about every debt you have because usually they will all have to be paid before the recall of sequestration. However, it is possible that one or more of your creditors may agree that you pay off your debt after the recall of sequestration. If this happens, ask these creditors to write and tell your trustee this has been agreed.

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Debtor trading

If you are trading at the date of sequestration and decide to petition for recall, your trustee may allow you to continue trading. They will probably set a time limit for the presentation of the petition so that the risk of trading losses is kept to a minimum. It is extremely unlikely that they will allow trading to goon indefinitely. They might also only allow trading if a third party underwrites any trading losses.

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Notification of sequestration

Even if a petition for recall has been presented, your trustee must still place a notice of the sequestration in the Edinburgh Gazette. They must also write to your creditors telling them of the sequestration and asking them to submit claims.

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Payment of claims

If you have paid your creditors the money you owe them, you must ask them to give written confirmation as proof of payment.

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Advance arrangements for payment of claims

Where you have presented the petition for recall because you can pay all your creditors, the money or adequate security must be lodged in advance. If this doesn't happen your trustee will object to the petition and will not withdraw the objection until their own fees and expenses and all your creditors' claims have been paid in full. In other words, it is not sufficient to wait until after the recall has been granted to lodge funds for the trustee or a solicitor to pay out, you must do it beforehand.

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Contractual or statutory interest

You must add to your debts the contractual or statutory interest due until the date of payment. If you don't, some of your creditors will probably object as they will want all the interest due.

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Other debts

Some creditors will probably object to the recall if you have run up more debts after your sequestration. For example, the Inland Revenue and Customs & Excise have insisted on all outstanding debts being settled, not just the debt due at the date of sequestration.

While the Act doesn't specifically say you must make these payments, failure to do so may result in the petition for recall being refused. You would then need to present another petition, and that would cost you more.

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Payment of trustee's fees

In the vast majority of cases, the trustee's fees and outlays will be paid from the funds in your estate or from any money someone else gives so that you can petition for the recall of your sequestration. Even if you haven't been sequestrated for long, your trustee may still have done a lot of investigative and procedural work. We cannot give an average cost, but you (or whoever has agreed to pay) must expect that the trustee's fees and outlays will be high. The longer a case goes on, the higher those fees will be, so you should try to get the case recalled as soon as you can. If these costs are not agreed between you and your trustee before the recall being granted, the Accountant in Bankruptcy will decide what they will be. We will charge you for this.

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After recall

When your sequestration has been recalled, you will get back all the assets and property left after your creditors' claims and the trustee's fees have been paid.

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Appendix - Sections 16 and 17 of the Bankruptcy (Scotland) Act

Petitions for recall of sequestration

1. A petition for recall of an award of sequestration may be presented to the Court of Session by?
   1. the debtor, any creditor or any other person having an interest (notwithstanding that he was a petitioner, or concurred in the petition, for the sequestration);
   2. the interim trustee, the permanent trustee, or the Accountant in Bankruptcy.
2. The petitioner shall serve upon the debtor, any person who was a petitioner, or concurred in the petition, for the sequestration, the interim trustee or permanent trustee and the Accountant in Bankruptcy, a copy of the petition along with a notice stating that the recipient of the notice may lodge answers to the petition within 14 days of the service of the notice.
3. At the same time as service is made under subsection (2) above, the petitioner shall publish a notice in the Edinburgh Gazette stating that a petition has been presented under this section and that any person having an interest may lodge answers to the petition within 14 days of the publication of the notice.
4. Subject to section 41(1)(b) of this Act, a petition under this section be presented?
   1. within 10 weeks after the date of the award of sequestration; but
   2. at any time if the petition is presented on any of the grounds mentioned in paragraphs (a) to (c) of section 17(1) of this Act
5. Notwithstanding that a petition has been presented under this section, the proceedings in the sequestration shall continue (subject to section 17(6) of this Act) as if that petition had not been presented until the recall is granted.
6. Where?
   1. a petitioner under this section; or
   2. a person who has lodged answers to the petition, withdraws or dies, any person entitled to present or, as the case may be, lodgeanswers to a petition under this section may be sisted in his place

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NOTE

As amended by the Bankruptcy (Scotland) Act 1993 (c. 6), Sched. 1, para. 5 (effective 1st April 1993: S.I. 1993 No. 438).

Recall of sequestration

1. The Court of Session may recall an award of sequestration if it is satisfied that in all the circumstances of the case (including those arising after the date of the award of sequestration) it is appropriate to do so and, without prejudice to the foregoing generality, may recall the award if it is satisfied that?
   1. the debtor has paid his debts in full or has given sufficient security for their payment;
   2. a majority in value of the creditors reside in a country other than Scotland and that it is more appropriate for the debtor's estate to be administered in that other country; or
   3. one or more other awards of sequestration of the estate or analogous remedies (as defined in section 10(5) of this Act) have been granted.
2. Where one or more awards of sequestration of the debtor's estate have been granted, the court may, after such intimation as it considers necessary, recall an award whether or not the one in respect of which the petition for recall was presented.
3. On recalling an award of sequestration, the court?
   1. shall make provision for the payment of the outlays and remuneration of the interim trustee and permanent trustee by directing that such payment shall be made out of the debtor's estate or by requiring any person who was a party to the petition for sequestration to pay the whole or any part of the said outlays and remuneration;
   2. without prejudice to subsection (7) below, may direct that payment of the expenses of a creditor who was a petitioner, or concurred in the petition, for sequestration shall be made out of the debtor's estate;
   3. may make any further order that it considers necessary or reasonable in all the circumstances of the case.
4. Subject to subsection (5) below, the effect of the recall of an award of sequestration shall be, so far as practicable, to restore the debtor and any other person affected by the sequestration to the position he would have been in if the sequestration had not been awarded.
5. A recall of an award of sequestration shall not?
   1. affect the interruption of prescription caused by the presentation of the petition for sequestration or the submission of a claim under section 22 or 48 of this Act;
   2. invalidate any transaction entered into before such recall by the interim trustee or permanent trustee with a person acting in good faith.
6. Where the court considers that it is inappropriate to recall or to refuse to recall an award of sequestration forthwith, it may order that the proceedings in the sequestration shall continue but shall be subject to such conditions as it may think fit.
7. The court may make such order in relation to the expenses in a petition for recall as it thinks fit.
8. The clerk of court shall send?
   1. a certified copy of any order recalling an award of sequestration to the keeper of the register of inhibitions and adjudications for recording in that register; and
   2. a copy of any order recalling or refusing to recall an award of sequestration, or of any order under section 41(1)(b)(ii) of this Act, to?
      1. the Accountant in Bankruptcy; and
      2. the permanent trustee (if any) who shall insert it in the sederunt book.

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Further Information

Further information may be obtained from us at:

Accountant in Bankruptcy
PO Box 8313
Irvine
KA12 2AA
LP - 4 Irvine
E-mail: helpline@aib.gov.uk
Helpline: 0845 7626171
Phone: 0845 6126 460
Fax: 0845 6126 470
(calls charged at local rates)

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