IP Briefing – More Issues with the Family Home

The Sheriff Appeal Court recently considered two key questions in connection with the sale of heritable property by a Trustee in bankruptcy. Firstly, could an application to recover possession of a family home under the 1985 Act be dismissed if more than 3 years had elapsed from the date of sequestration; and secondly, when would the Debtor’s family home reinvest in the Debtor? The relevant provisions have been superseded by the Bankruptcy (Scotland) Act 2016.

Insolvency Practitioners should pay careful attention to this recent decision, proactively ensuring that the interests of creditors are protected and that appropriate steps are taken to raise applications in a timely manner.

Background

The Debtor was sequestrated in December 2012. However, between 2015 until proceedings to recover the Property were raised in 2021, there was no communication between Trustee and Debtor. During this period, the Debtor continued to live in her family home without a mortgage and made no payment to the Trustee or creditors.

At the initial Sheriff Court hearing, the Summary Sheriff granted orders allowing the sale of the Family Home. The Summary Sheriff concluded that the Debtor’s arguments to refuse the order were largely irrelevant.

Making reference to Accountant in Bankruptcy v Davies 2022 SLT (Sh Ct) 136, the Summary Sheriff agreed that hardships faced by the Debtor needed to be considered. The Summary Sheriff did however disagree with the Sheriff in that case regarding the need for the Trustee to make an application within 3 years of the date of sequestration.

The Decision:

Agreeing with the Summary Sheriff, Sheriff Principal Pyle re-iterated that the primary purpose of a sequestration is the “ingathering of the debtor’s estate by the Trustee and the payment of the creditors in so far as the ingathered funds allow and after settlement of the costs of the sequestration itself.”

The Sheriff expressed his concerns about the actions of the Trustee, stating that the delay was “unwarranted.” He outlined that the duty of a Trustee was to “proceed diligently to protect the interest of the creditors.” The Sheriff commented that for unknown reasons the Trustee took no steps at all to progress matters, other than to protect his rights to proceed at a later date by sending a memorandum to the keeper of the register of inhibitions.

Whilst the Sheriff concluded that blame for the delay could not be placed with the Debtor, he found no basis for her Appeal as no error of law had been identified. He further held that it would be difficult, if not impossible, for a Court to refuse an application due to delay as this would jeopardise the position of the creditors.

Sheriff Principal Pyle ultimately rejected the Appeal, highlighting that an application would only be refused on the basis of the Debtor’s hardship in “exceptional circumstances.”

Our Advice:

The opinion is helpful in confirming when applications should be granted. However, it contains a warning. Practitioners may experience legitimate delays in raising actions. This however, should not result in an uninformed Debtor. Clear communication and diligence are paramount for a successful application.

 

 

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 13 May 2024 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).