Sequestration

Sequestration is the bankruptcy process for individuals and other non company entities in Scottish Law. This includes partnerships, trusts, and the estates of deceased individuals.

Apparent Insolvency
In order to start a sequestration proceess, the debtor must be apparently insolvent. This can be determined through a number of criteria


 * The Debtor informing a creditor in writing that he is unable to continue to pay his debts in the ordinary course of business.
 * The Debtor is served with a charge which expires without payment, has an adjudication leveled against them, has a debt payment programme revoked, or grants a trust deed.
 * If a debt exceeds £750 and a formal notice requiring payment has been made, and no payment (or denial of the debt) has been made after 3 weeks.

The Process
In addition to the Creditor, the Debtor can also apply for sequestration. Upon acceptance the court will appoint a trustee to establish what assets and liabilities are in the estate. The trustee will "realise" (sell) those assets and distribute this to creditors.

This will be overseen by the Accountant in Bankruptcy, and the trustee might actually be the AiB.

Restrictions
A debtor must apply to the AiB rather than the court directly to be sequestrated, although "entities" (non persons) must do so with the concurrence of a creditor.

For a debtor to apply for sequestration, the person must have debts greater than £3000, and no sequestration order has been made in the last 5 years.

A qualitifed creditor who is owed more than £3000 (or group of creditors) can also apply for sequestration. If the debtor is a person, a Debt Information and Advice pack must be issued between 2 and 12 weeks before the petition is made. If the debtor is dead the creditor must wait 6 months unless apparently insolvent at some point in the preceeding 4 months.

The correct court to petition is the one local to the debtor, and a copy should be sent to the AiB.

Debtors subject to sequestration cannot leave Scotland, cannot obtain credit greater than £500 without informing the creditor, or act as a company director.

Equalisation of Diligences
Sequestration prevents indivudual creditors using diligence rights. Any diligence started in the 60 days prior to the petition acts as if it was done for the benefit of all creditors, and any dividend must be handed over to the trustee.

Challenging transactions
Graititous transaction in the last 2 years can be challenged and reversed, transactions of the with family members and other "Associates" can be challenged for 5 years.

Defences to these challenges include showing that the debtor was solvent at some point between the transfer and the date of petition, that the transfer was not gratuitous but fair consideration in a contract, or that it was a permitted gift (christmas present, charitable donation, etc).

Challenged transactions can have the transfer of heritable property reduced, have movable property restored to the estate, or some other equitable order given.

If one debtor has been unfairly preferenced, these transactions can be challenged if they fall within 6 months of the date of the petition. This can include paying a debt before its due.

Excempt from challenges are "payments in teh ordinary course of business" (paying as it is due), contracts, or paying arrested funds.