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IP Briefing: Reduction of Sequestration Again!

The Background

The opinion of Lord Carloway, the Lord Justice Clerk in the reclaiming motion of Patricia Polley v (1) West Lothian Council and (2) Accountant in Bankruptcy [2015] CSIH 19 gives insolvency practitioners reassurance as to the limited circumstances when a court will (or in this case will not) consider that reduction of sequestration is an appropriate remedy. The opinion also highlights the importance of timing (i.e. it is too late post sequestration) for debtors trying to appeal summary warrants and set aside a charge for payment.

The Facts

The Debtor was the owner of a property in West Lothian ("the Property"). She was sequestrated because she had failed to meet council tax liabilities in the sum of £11,244.19. The Debtor maintained that the Property was occupied by a tenant, her son, and she was therefore not liable for the council tax. Despite producing documentation to this effect an award of sequestration was made against her on 22nd March 2010. The Debtor's position was that she had not been given the opportunity to challenge West Lothian Council's claims about her liability prior to issuing the warrants and charge for payment, and the Local Authority had failed to make satisfactory enquiries into her whereabouts, knowing that she did not reside at the Property. The Debtor maintained the position that this was serious enough to justify exceptional circumstances warranting reduction. The Accountant in Bankruptcy ("AIB") and Local Authority position was that the summary warrants and charge for payment had not been, and were not challenged in any competent legal process. The Pursuer appealed but the Sheriff Principal rightly held that it was not competent to appeal an award of sequestration. The Pursuer then sought to recall the award of sequestration but it was held in this case that an award of sequestration could not be recalled without first seeking a reduction of the warrants and charge upon which it was based.

The Decision

The Lord Justice Clerk held that a remedy of reduction does not exist as a right and made it clear that it is not to be used as a remedy just because other remedies have either prescribed or have been used unsuccessfully. The Debtor here failed to take the opportunity to appeal the alleged liability to the valuation committee at the time. She could also have sought suspension of the warrants and charge but she failed to do this. Therefore there was no basis for challenging the sequestration, as apparent insolvency had been established. The Debtor did not make any satisfactory averments in relation to exceptional circumstances. The Lord Justice Clerk was clear that regardless of the merits of the Debtor's liability it was too late to challenge the underlying procedures which led to the award of sequestration. Interestingly no award of expenses was made against the Debtor in respect of the AIB involvement. The Lord Justice Clerk held that where two parties are of substantially the same position (i.e. the two Defenders) it would be inequitable for a party to bear the expenses of both parties.

Advice

This case shows that once an opportunity to challenge the underlying cause leading to the sequestration has passed (or failed) there is little that can be done to challenge the inevitable award of sequestration (regardless of the merits of the liability); unless exceptional circumstances can be proved. This decision provides reassurance to Trustees about the limited circumstances where their appointment can be unpicked.

Contact BBM Solicitors: Insolvency Specialists

BBM Solicitors specialise in advising Insolvency Practitioners in both contentious and non-contentious matters (including transactional work). Contact Eric Baijal or Alasdair Baijal, or click here to fill in our online contact form.

This briefing note is current as at 13th March 2015 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).

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