Dealing with Financial Difficulties III

Question 1

What is dilligence?

Answer 1

Dilligence is the attaching of a debtor’s property due to inability to pay a debt. By attaching property we mean a legal process which stops a debtor dealing with their property.

Question 2

Why do bankers need to understand diligence and the relevent law and practice?

Answer 2

• They are often in the position of arrestee when they hold funds or effects of a customer and an arrestment naming the customer as defender is served on the bank
• Customers may discuss the possibility of using diligence when faced with problems of unsettled accounts
• They may require to use dilligence where a customer defaults in repayment of an advance

Question 3

What are the types of property against which diligence may be used?

Answer 3

1. Diligence against moveables
2. Diligence against heritable property

Question 4

What are the types of diligence against moveables?

Answer 4

1. Poinding - impounding i.e. seizing assets and selling them
2. Poinding of the ground - seizing land
3. Suquestration for rent - landlord can seize their tenants property and sell it
4. Maills and duties - a heritable creditor can attach rents due by tenants of the subject over which the security extends
5. Arrestment - e.g. an arrestment notice is presented on a bank which in this instance is obligated to freeze the customers funds until either a settlement is effected or the creditor has raised a successful action by way of the courts

Question 5

What are the main types of arrestment?

What are the newer forms of arrestment?

Answer 5

1. Arrestment in execution - strongest form of dilligence, where debt has been established in law
2. Arrestment in security - used where creditor has not yet established debt in law, it is used from the start of court action to establish a debt in law. At the end, the court action will either be successful or not, in which case this arresement ceases
3. Arrestment on averments - used when creditor can show that the debtor is bordering on insolvency and considering flight
4. Arrestment to found jurisdiction - used when there is doubt as to whether the person comes under Scottish juristriction
5. Earnings arrestment - arrestee (bank) must pay sums e.g. earning to creditor
6. Current maintenance arrestment - comes into effect on service of employer
7. Conjoined arrestment orders - enables more than one debt to be enforced against the debtors earnings

Question 6

What must a creditor do if they wish to employ diligence against heritable property?

Answer 6

First register an inhibition and then follow this with a court action for adjudication.

An inhibition is a diligence that prevents the debtor from dealing with heritable property.

Question 7

During the procedure at a branch when an arrestment is served:

What happens when funds or effects are to be attached?

What about the situation where nothing is attached?

What must be done about enquiries about effects attached?

Answer 7

• The customer should be advised that the arrestment has been served together with the effect on the accounts and other items held by the bank
• If the accoun is overdrawn and there’s no security or right of set-off, there is nothing to attatch and in law the customer could continue to lodge funds since these are reducing the debt due to the bank. In practice the bank would be concerned as the implication is that the customer is not paying debts as they fall due
• If the arrestment is one in execution, the bank must reply but care must be exercised and disclosures given should be limited to simply stating whether or not a sum sufficient to meet the debt has been attached. In other cases no info should be given without the customer’s consent.

Question 8

During the procedure at a branch when an arrestment is served:

How can arrestment be loosed?

What should be done if none of these things happen?

Answer 8

• The defender may obtain an interdict if he can prove malice or oppression. If the defender pays the debt from some other soure or consigns monies to meet it, again the arrestment may be loosed
• The arrester has to raise an action of forthcoming

Question 9

What is sequestration?

Answer 9

The process IN SCOTLAND (it is not used in England and Wales - instead the term bankruptcy is used) whereby an insolvent person is divested of their estate which is then vested in a trustee for the benefit of the creditors

Question 10

What are the main stages in full sequestration procedure?

Answer 10

1. Establish apparent insolvency
2. Creditors or the debtor petition the court for award of sequestration
3. Advert in the Gazette and entry made in register of inhibitions and adjudication
4. Interim trustee appointed
5. Statutory meeting called
6. Permenant trustee appointed
7. Ingathering, realisation and ditribution of estate to creditors
8. Debtor discharged
9. Permanent trustee discharged and accounts audited