Arrestment Flashcards
What is arrestment mainly used for?
Arrestment is used mainly against incorporeal moveables:
⁃ 1) Arrestment of money and other incorporeal moveable (like debts and shares)
⁃ 2) Arrestment of goods in possession of third party
⁃ 3) Arrest of ships and cargo
⁃ 4) Arrestment of earnings
Usually what is seised are bank accounts (where in credit). So where your account is in credit the bank is under an obligation to pay you. The personal right you have against the bank can be seized.
Where are the rules on arrestment codified?
The rules were amended and codified in the BAD Act 2007 inserting part 3A into the Debtor’s (S) Act 1987.
⁃ These rules are set out in s 73A onwards.
What can you arrest?
⁃ s 73A identifies what you can arrest:
⁃ “funds due and other moveable property of the debtor”
- Debts owing to the debtor and other incorporeal moveables belonging to the debtor.
Does arrestment catch future debts?
The arrestment only catches the assets there at the time of arrestment, so not future debts or after acquired assets.
You can transfer the right to payment subject to the conditions which exist, if the right already exists.
How does arrestment work?
⁃ Arrestment (s73E) attaches a fund.
- Example: Creditor and Debtor. Debtor owes money to creditor and creditor gets decree from court to enforce, creditor then looks at what assets D has. C might have various rights against other Debtors the creditor wants to seize these rights to payment. To do this, they carry out a right of arrestment (“in the hands of the debtor’s debtor”). So must serve an arrestment on D’s debtor’s, which says you are no longer holding debt for D but for C. You must individual notify the debtor’s of the debtor to serve each of them separately.
- If there is a creditor who has a right of enforcement against a debtor, this right of enforcement is held in the creditors patrimony - it is an asset of the creditor. The assets held by the creditor can be seized by that individual’s creditors in diligence. Rights to payment can be seized by arrestment.
- “The arrestment will be laid in the hands of the parties who would have been defenders in an action for payment of the sum arrested”.
- Example: if the debtor is a partner in the firm then the partners rights to the profits in the firm are potentially one of the most valuable assets (one you would want to arrest). It is competent to arrest this “in the hands of the firm” because the firm is the entity (partnership is contract), and the firm owes the obligation to the partner. But you cannot get [see Stair Encyclopaedia].
What are the three parties in arrestment?
There are three parties in arrestment (Tripartite in nature):
⁃ Creditor (the arrester) - person who carries out the arrestment.
⁃ The debtor (the common debtor) (middle man - person who is the creditor’s debtor but the debtor’s debtor’s creditor).
⁃ The third party owing the obligation to the debtor (the arrestee)
***NB make sure you do a diagram to be clear on the contractual relationships. If you serve arrestment on the wrong person you catch nothing. You can only seize the asset owned by your debtor. This is what diligence is.
What is the procedure of arrestment?
⁃ Arrestment can be done in execution[ This is at the end of the action - on decree.] or on dependence[ This is an interim procedure at the beginning of the action - before the court has determined whether the money is due. It is very common - procedure where you initiate court action and apply at that instant for arrestment of the dependents. This is in order to spur the debtor for payment. ].
- Arrestment in execution will follow a decree (s 73A). A schedule of arrestment is to be served (or the decree if arrestment in dependence preceded the arrestment proper) together with debt advice and information in the prescribed form.
⁃ The schedule of arrestment is served by officer of court on the arrestee along with notification being given to the common debtor with a debt information and advice package.
⁃ The officer of the court will also take someone with them to witness the serving of the arrestment.[ The serving must be done in person and witnessed.]
⁃ The officer of the court will then notify the court that this has taken place.
⁃ At this stage the arrestment:
⁃ Stops the common debtor from transferring the right to someone else (it makes the property litigious, so it is partly a freeze diligence)
⁃ The arrestment creates a real right in security over the right to payment.[ This is the one instance in the law at the moment that creates a real right over a personal right.]
⁃ From the perspective of the arrester, what does the real right in security give them?
⁃ What happens is that a judicial assignation takes place - so the arrester receives the right to payment. Thus the arrester becomes the creditor in the obligation.
⁃ [Old law][ [[Up until the 2007 Act the arrester had to raise an action of forthcoming. This action required the creditor to go to the court who would grant it - this completed the judicial assignation and the arrester becomes the creditor in the obligation.]]]
⁃ After the changes in the 2007 Act, after a period of 14 weeks has passed, this right to payment transfers automatically to the creditor (s 73J).
What are the rules for arresting banks and building societies?
⁃ Scots law makes it as easy as possible in relation to banks with their Head Office in Scotland.
⁃ If you serve an arrestment of a bank which has its head office in Scotland to the head office then this serves to catch EVERY BRANCH OF THE BANK WITHIN SCOTLAND.
⁃ This means that even if the arrester doesn’t know if the debtor has an account at any particular bank they will go to the head office of RBS, BoS, Clydsedale Bank, Lloyds etc and serve an arrestment at each. This means that if the debtor has an account at any of these banks then it will be caught. If they serve an arrestment at one of these banks and the debtor doesn’t have any account then the arrester has only lost the cost of the arrestment.
- In an arrestment when the creditor gets the court to serve an arrest, they go to the head office of each bank, and this catches all the accounts in Scotland within those individual banks.
⁃ If you know that the debtor has an account at a particular branch then you can arrest at that particular branch. If the bank account DOES NOT have its HEAD OFFICE IN SCOTLAND then you would have to go to that individual branch and serve the arrestment there.
- The schedule of arrestment has to be served in person.
- You seize the bank accounts of the debtor at the time that you start the court action provided you comply with the rules of diligence. This acts as an incentive for the debtor to pay.
- NB you only arrest the value of the debt, not the entire value of the account.
- If you do not arrest at the head office you are simply seizing assets at that particular bank.
- Many companies use banks with head offices in England in order to better protect their position.
- Stair, para 272, Vol 8. If need more information.
Why does the bank have to be in credit to be arrested?
If the account it is overdrawn then the bank does not owe any money to the common debtor and thus the arrestment cannot arrest anything.
⁃ Thus the arrester would have to wait until the account is in credit.
What can be arrested?
Debts and incorporeal moveable property can be arrested.
What is Tantum et tale?
This principle applies a bit like the assignatus utitur jury auctoris rule. It means that if there is a defence that the arrestee would have had against the common debtor then this defence will be equally good against the arrestor.
What is acquirenda?
⁃ This is rights which are acquired after a particular event takes place.
⁃ When you have a bank account which is in debit (overdrawn) then nothing is caught. If money is then paid into that account, is this caught by the arrestment?
⁃ No - the arrestment seizes what is there at the particular time when arrestment takes place. You must rearrest if you wish to catch something which enters later.
⁃ This rule can create some problems in relation to future rights since, if a right does not yet exist it cannot be arrested.
⁃ So if you know that someone is going to enter into a contract, but there is no contract yet, this right cannot be arrested. But if you have entered into a contract that you will e.g. Pay the price in 10 months, this right to payment CAN be arrested, but it can’t be enforced until the debt falls due.
What happens during the arrestment of shares?
⁃ 1) Shares
⁃ If S is a shareholder in A Ltd, the share is a piece of incorporeal moveable property - it is a right to share in the dividends of the company. So if S owes money to a creditor C, then the creditor can arrest the share from A Ltd.
⁃ If the sum due by S to C is not paid in the 14 weeks then C will receive the shares.
⁃ This can ONLY be done if the company is registered in Scotland - if not then the share is an English etc asset which cannot be caught by arrestment.
⁃ Also in many circumstances there is a nominee[ E.g. fund managers etc.] who holds the shares for the shareholder. If you are creditor of S, in these circumstances who do you arrest? Since you arrest in the hands of the debtors debtor, the creditor must arrest the nominee. In this case the creditor would not receive the shares themselves but would receive any obligations to pay dividends which are owed by the nominee to S.
**SEE DIAGRAM
DO DIAGRAMS IN EXAMS TO IDENTIFY THE CORRECT PERSON AS THE ARRESTEE
What happens during the arrestment of a partnership?
⁃ The firm is a separate legal entity. Each partner has a right in that firm. So a creditor of an individual partner could arrest in the hands of the firm requiring the firm’s obligation to account for a share of profits owed to the partner to be transferred to the arrester.
How much can be arrested?
⁃ Old law[ It used to be the case that arrestment seized the whole account. But this led to the situation where a massive company owed around £300 to a small business in Edinburgh who made various attempts to obtain its money. The small business obtained warrant to arrest on the dependence and seized the company’s bank accounts in ALL THEIR SCOTTISH BANKS - therefore the company had to stop trading and report it to the stock exchange etc.]
⁃ The 2007 Act introduced a new set of rules providing that the amount arrested is the less of the:
⁃ sum due from the arrester to the debtor, or
⁃ the sum due from the debtor to the arrester (plus expenses) [s 73E (I think)]
⁃ So if you have a sum due from the debtor to the arrester of £100,000 and there is a right to payment from the arrestee to the debtor of £1m, the arrester cannot seize the whole £1m - they can only seize £100,000 of it.
⁃ For bank account there is a prescribed minimum that you cannot arrest under s 73F. So you cannot clear the bank account out entirely (this is handy for consumer debt).
