The Award and Recall of Sequestration: An Overview by Gordon Watt
Posted On: 30 October 2009
Author: Gordon Watt
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THE AWARD AND RECALL OF SEQUESTRATION:
AN OVERVIEW
GORDON WATT, ADVOCATE
SEPTEMBER 2009
1. INTRODUCTORY REMARKS
There’s a lot of sequestration about.
The Accountant in Bankruptcy’s quarterly report of 22 July 2009 recorded 3,370 sequestrations in the three months to 30 June 2009. That was an increase of 31% on the same period in the previous year.
So I give no apology for offering an overview of grant and recall.
2. SEQUESTRATION – SOME DEFINITIONS
Professor G J Bell described the process thus:
‘a judicial process for attaching and rendering litigious the whole estate, heritable and moveable, real and personal, of the bankrupt, wherever situated, in order that it may be vested in a trustee elected by creditors, to be recovered managed, sold and divided by him, according to certain rules of distribution….
the peculiarity of the contrivance [i.e. the judicial process] is, that except in those steps of proceeding in which the aid or superintendence of a court is absolutely necessary, the whole operations are extrajudicial. Thus, for the management, sale, and distribution of the estate, the creditors are formed into a united body in the nature of a corporation, acting on some occasions in general meetings, in others by functionaries … elected with certain precautions, and under the incessant superintendence of a court of law.’
Bell emphasized that, except when involvement of the court was ‘absolutely necessary’, sequestration is an extra-judicial process. Recent reforms (of which more in due course) have expanded the circumstances in which sequestration is available while, simultaneously, reducing the need to involve the courts when sequestration is sought.
The Scottish Law Commission offered the following definition in 1982:
‘Sequestration is primarily a coercive procedure initiated by a creditor by which the assets of a debtor who fails or refuses to pay his debts are made available to his creditors towards the satisfaction of their debts. The debtor may however petition the court for the sequestration of his own estate with the object of obtaining in due course a general discharge of his debts, a privilege not granted to debtors in several European legal systems unless they have paid their debts in full. It may be argued, however, that the primary purpose of sequestration is to secure the orderly transfer of the assets of an insolvent debtor – and in principle the whole of those assets – to his creditors generally. It is this transfer of assets for the benefit of creditors generally that distinguishes sequestration from other coercive measures for securing payment of debts in Scots law, notably the ordinary diligences ….’
3. THE CONSEQUENCES OF SEQUESTRATION FOR DEBTORS
Historically the consequences of bankruptcy were grave indeed. As Wilkins Micawber famously counselled:
‘Annual income twenty pounds, annual expenditure nineteen pounds six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.’
He was not referring to misery lightly since the upshot of his inability to balance the books was incarceration. King’s Bench Prison was, of course, located far away in a barbarous foreign jurisdiction, but prior to the eighteenth century Scots law dealt with bankrupts equally harshly. The remedies at the disposal of creditors included imprisonment. There was no procedure by which a debtor could obtain a discharge of his liabilities in exchange for having surrendered his estate. Debtors remained personally liable for unpaid debts and were likely to remain destitute.
Times have changed. Imprisonment for debt has long been consigned to history. The general tendency over the years has been to lessen the impact of sequestration on the bankrupt debtor. The Bankruptcy and Diligence (Scotland) Act 2007 fits into that general trend. The Act aimed to reduce the stigma associated with sequestration by reducing its duration and to encourage enterprise by permitting failed traders to return to commerce more quickly. Since the passing of the 2007 Act it has become easier, in certain circumstances, for impoverished individuals to obtain an award of sequestration (by means of an application to the accountant in bankruptcy). Moreover, debtors may now be discharged after one year rather than the previous three.
4. THE AWARD OF SEQUESTRATION – PROCEDURE
There are now two distinct routes by which sequestration can be awarded: (a) application to a sheriff (b) application to the Accountant in Bankruptcy.
(Continued. To read the full paper please click on the link at the top of the page)