Trustees in Scotland: Can you summarily apply for a debtor's sequestration under a trust deed?

A Sheriff has answered this question in the affirmative and given reasoning which will be helpful for trustees (under a trust deed) in considering whether to raise sequestration proceedings against the debtor.

Background

The Sheriff Court at Airdrie was asked in April 2019 to comment on the ability of a trustee under a trust deed to summarily apply for a debtor's sequestration in the case of David Mond v Craig Booth.

Mr Booth was the debtor under a trust deed which was initially entered into in July 2006. There were some historical changes to the identity of the trustee but Mr Mond has been in office since July 2010.

Whilst acting as his trustee, Mr Mond raised a petition for Mr Craig's sequestration – this was on the following bases: 1) Mr Craig had failed to comply with an instruction which had reasonably been given by the trustee (in terms of s2(7)(a) of the Bankruptcy (Scotland) Act 2016 (the "2016 Act)") and 2) Mr Mond had asserted that it would be in the best interests of the creditors if sequestration was granted (in terms of s22(5)(d)(ii) and s2(7)(b) of the 2016 Act), and Mr Mond appointed trustee in Mr Craig's sequestration.

Given the passage of time since i) the inception of Mr Craig's trust deed; and ii) Mr Mond's appointment, it could not be said that the petition was raised without giving Mr Craig ample opportunity to comply with the request or, at the very least, cooperate with his trustee.

Mr Mond looked to rely on the second basis referred to above – his averment that it would be in the best interests of the creditors if he was appointed Mr Craig's trustee in sequestration. What followed was a debate on whether Mr Mond was entitled to rely on his averment without proving the veracity of it – and whether the court was required to insist on such proof.

The court ultimately held that the terms of the 2016 Act did not require a petitioning trustee to demonstrate the veracity of his averment but there was an interesting discussion on the following points:

1. Did an interpretation of the language used by Parliament demonstrate that proof was required to back up an assertion by the trustee that it would be in the best interests of the creditors to appoint a trustee in sequestration?

The Sheriff answered this in the negative – the ordinary meaning was to be given to the legislation and if Parliament had intended specific evidence to be produced in relation to the trustee's averment, that would have been made clear. A clear route to sequestration has been provided on a summary basis, so long as the procedural requirements (for instance, proper citation of the debtor) have been met.

2. Given the number of changes to bankruptcy legislation, could it be interpreted that Parliament had intended to include a requirement of proof?

The Sheriff said no – given the vast number of changes and consolidations of bankruptcy legislation in Scotland, Parliament had clearly intended that an averment was sufficient (in certain cases) when balancing the needs of creditors and debtors. Ensuring an adequate balance in the interests of creditors and debtors was the subject of the most recent consolidations and so Parliament had clearly looked at this in detail.

3. Did allowing an award of sequestration without proof of the averment breach the debtor's human rights, specifically with regards to loss of his family home

The Sheriff said no – there were protections built into the legislation (specifically s113 of the 2016 Act) that would be engaged at the relevant stage of the process.

The case is a welcome statement of the law for trustees under trust deeds looking to raise sequestration proceedings in respect of a debtor. However, the trustee should keep a detailed record of the decision making process and the grounds for making this averment, in the unlikely event that it is ever challenged.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2019. Specific advice should be sought for specific cases. For more information see our terms and conditions.