IP Briefing : Accountant in Bankruptcy v Davies

A recent judgement by Sheriff McCrossan made observations on section 39A of the repealed Bankruptcy Scotland Act 1985, now replaced by section 112 of the Bankruptcy (Scotland) Act 2016 (“the 2016 Act”).

Background

The Accountant in Bankruptcy sought formerly section 40 consent from the court in relation to a sale of the debtor’s property.

There was no dispute the property was a “family home”, as defined in the legislation. Much of the judgement considered section 39A(3) which states the automatic reinvestment of the family home into the sequestrated estate under section 39A(2) does not apply if, “at the end of the period of 3 years beginning with the date of sequestration” the trustee has taken one or more of the actions listed in paragraphs (a) to (f). In this case the AiB submitted they had complied with subsections 39A(3)(c) and (e)(iii), meaning the debtor’s family home remained vested in the sequestrated estate and, accordingly, the current application under section 40(1)(b) was competent.

Sheriff McCrossan found that the trustee complied with section 39A(3)(c) but not section 39A(3)(e)(iii).

Section 39A(3)(c) states subsection 39A(2) shall not apply “if during the period mentioned in that subsection the trustee sends a memorandum to the keeper of the register of inhibitions under section 14(4).” The AiB sent the memorandum on 3 July 2013, before the expiry of the 3 year period. Sheriff McCrossan disagreed with the debtor’s interpretation that section 39(A)(3)(c) requires the trustee to send a memorandum on the expiry of every subsequent three year period. Instead, she held that, “section 39A(3) is only concerned with whether the trustee has sent a memorandum within that period – and thus dis-applied the automatic reversion effected by subsection (2). It is not concerned with whether the trustee sends any future memoranda.”

Section 39A(3)(e)(iii) states subsection 39A(2) shall not apply “if during the period mentioned in that subsection the trustee commences proceedings in an action for the purpose of obtaining vacant possession of the family home”. Whilst the AiB had commenced proceedings for recovery of possession of the property, crucially, they were not proceedings in respect of a “family home” with an averment specifically stating, “The property is not a family home in terms of section 40 of the Bankruptcy (Scotland) Act 1985.”

Observations

Whilst the case was dealt with under repealed legislation, the provisions of section 39A are largely identical to those in section 112 of the 2016 Act. Sheriff McCrossan observed the purpose of 39A is to ensure that the trustee deals with the debtor’s family home within a reasonable period and that indefinite delays “offend” the underlying intent of parliament. She noted the following: “The purpose of section 39A may be better served by the trustee being required to take a different route if he finds himself unable by the third anniversary to take a proactive step towards realising the debtor’s family home. Rather than seeking to dis-apply section 39A(2) by the rather blunt instrument of the memorandum, section 39A(7) [now 112(6) of the BSA 2016] could be utilised to request the court to substitute a longer period in subsection (2) before the family home automatically reverts to the debtor”.

The case is useful to Insolvency Practitioners of the court’s interpretation of the provisions now covered by the 2016 Act, specifically 112(6), but is also a challenging reminder of the 3 year provision affecting the debtor’s estate.

BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb@bbmsolicitors.co.uk).This briefing note is current as at 29 April 2021 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).