Sequestration: Who Owns Property?

Introduction

The decision of the Sheriff Appeal Court in Drummond’s Trustee v Drummond from January 2024, is worth reading for practitioners. It is the latest in a long line of attempts by debtors to thwart a Trustee in realising heritage for the benefit of creditors. In this case the defence was successfully resisted.

Decision

In this case the Trustee pursued the sequestrated debtor for recovery of possession of the property, presumably so the property could then be sold. A complicating factor was that this was actually the debtor’s second sequestration. In the first sequestration, the earlier Trustee had accepted a payment from the debtor’s mother in satisfaction of their interest in the Estate. This of course is entirely proper and common.

A defence was then run in these proceedings that, following the payment by the debtor’s mother in the first sequestration, the heritable property was held in trust by the debtor for her. The Sheriff rejected that argument. Before the Sheriff Appeal Court the debtor’s representatives argued that the property had been sold to his mother, esto that was not the case, the title to the heritage was held in constructive trust for his mother. The Sheriff Appeal Court disagreed. The Appeal Court pointed out that the whole of the Estate vested in the Trustee. The debtor’s mother did not acquire a real right in property. The equity had not been sold in the way suggested. The debtor’s mother had no more than a personal right to acquire ownership. The Court held that there were no pleadings to support a constructive trust argument, and this was a different scenario to the context in authorities such as Heritable Reversionary Co Ltd v Mackay’s Trustee. The debtor in this case did at some point possess a real right to the property themself. For a real right in land to be transferred, varied or created, this required to be in writing. There were no averments that any such real right had been transferred or created. The Appeal was therefore refused.

Comment

As the number of sequestrations increase again it is likely that we will see further attempts to thwart Trustees as they attempt to realise assets pursuant to their obligations. This is a helpful decision in reinforcing the general position that if the Title is in the name of the debtor, heritage will have vested in the Trustee (assuming the heritage not subject to revesting because of a failure to take timeous action in the case of the debtor’s home).

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 23 January 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).