Careful attention is needed to the new provisions in the Home Owner and Debtor Protection Act, and related regulations, covering sequestration and trust deeds, especially where a house is excluded
In “An orchestra of instruments” (Journal, October, 22) Mark Higgins examined Part 1 of the Home Owner and Debtor Protection (Scotland) Act 2010. We now examine Part 2, which deals with sequestration and trust deeds and introduces some much needed, and some controversial, changes.
Section 9 introduces the certificate for sequestration. This addresses the longstanding problem of constituting “apparent insolvency” as defined in s 7 of the Bankruptcy (Scotland) Act 1985. The option of a debtor application for sequestration with creditors’ concurrence is abolished. On application by the debtor, an authorised person may grant a certificate that the debtor is unable to pay debts as they become due, if the debtor can demonstrate that is the case. The Act is supplemented by the Bankruptcy (Certificate for Sequestration) (Scotland) Regulations 2010 (SSI 2010/397), in force from 15 November 2010. An authorised person is an insolvency practitioner (or someone working for an IP and authorised to grant certificates on his behalf), or certain money advisers, provided they are not an associate of the debtor.
The debtor has to be given a debt advice and information pack before the certificate is granted, and has to be advised on the options open and the consequences of sequestration.
The certificate is to be in the form annexed to the regulations and issued at no charge, and is valid for a debtor application for sequestration within 30 days of the date of the certificate.
Excluding the home
Section 10 amends the 1985 Act on trust deeds. The effect is to allow the exclusion from the estate conveyed to the trustee of the whole or part of a debtor’s dwellinghouse where a secured creditor is excluded from the trust deed arrangements in respect of any debt for which that creditor holds security. In this context, the debtor’s dwellinghouse is a house which on the day preceding the date of the trust deed was owned (either alone or in common with others) by the debtor and was the sole or main residence of the debtor, irrespective of whether it was used to any extent for any profession, trade or business. The powers of a trustee in sequestration in s 40 of the Act in relation to the debtor’s family home contained are extended to the trustee acting under a trust deed, and the sheriff’s power to postpone the granting of an application for right to sell is extended from 12 months to three years. Trustees are also obliged before commencing proceedings before a sheriff to give notice of the proceedings to the local authority.
The requirement to advertise the award of sequestration in the Edinburgh Gazette and the requirement to give notice in the Gazette of the appointment of a replacement trustee are both abolished.
The Protected Trust Deeds (Scotland) Amendment Regulations 2010 (SSI 2010/398), also in force from 15 November 2010, make further and consequential amendments to the provisions relating to trust deeds and prescribe additional conditions for protected status for a trust deed which excludes a dwellinghouse, stipulating the form of the consents required from the debtor and the secured creditor. A new requirement is introduced for the debtor to agree to acquirenda going to the trustee.
Where a dwellinghouse is excluded, provision is also made for other creditors to receive additional information, including the effect of the exclusion on any dividend, the value of the excluded dwellinghouse and the debt owed to the secured creditor.
One of the controversial areas of debate on these changes is the question of what happens in the event of a sale of the excluded dwellinghouse. The advice received by the Accountant in Bankruptcy is believed to be that any equity after payment of the secured creditor would be acquirenda; there is, however, a school of opinion which holds that as the dwellinghouse has been excluded, the proceeds of sale cannot be acquirenda as they are not property acquired by the debtor after the date of the trust deed but merely the excluded property in a different form. It is not clear which result accords with the legislative intent of the Act or amendments, but practitioners receiving instructions from a debtor still subject to a trust deed with an excluded dwellinghouse will require to consider very carefully the advice they give a debtor intending to sell that excluded dwellinghouse.
Alistair Burrow, Head of Recovery and Insolvency Team, Tods Murray LLP