In Scotland if you or your company is owed money, there are various options open to you to recover the debt.
Often a simple lawyer’s letter to the individual/company owing the money (the debtor) will be enough to make them pay. If this is unsuccessful, other options will need to be considered.
This blog offers a brief run through of some of the procedures which may be available to you.
A Statutory Demand can be served on either an individual or a company. Certain prescribed content must be included in the form. Once served with a Statutory Demand the debtor has 21 days to pay the debt or come to an agreement. The debtor can also deny that the debt is due. If the debtor fails to pay or deny that the debt is due then they are deemed apparently insolvent and an application may be made to sequestrate them if they are an individual, or liquidate them if it is a company.
A Short Form Demand is another procedure available against a company. Rather than the usual 21 day period, the debtor is given 48 hours to pay the debt, make an arrangement or deny that the debt is due. Failure to do so will allow the creditor to initiate liquidation proceedings.
Often, a Court Action will be required to recover the debt owed to a creditor. The type of Court Action will be dependent on the amount of debt due.
For sums up to £5000 the relatively new would be used. This replaced the Small Claims Court and is set up to be a quick way of resolving matters. If the value of the claim is below £3000 then caps apply on the amount of expenses which the claimant is able to retrieve if successful.
For claims above £5000 the procedure is normally required.
The is also available for claims with a value of £100,000 or over, although tends to be used for complicated contractual matters, rather than simply debt recovery cases. An Advocate/Solicitor Advocate (solicitor with extended audience rights) is instructed to present the case.
If the debtor fails to respond to the claim made in any of the above forums then the court is likely to grant decree (a formal court order confirming the amount which the debtor requires to pay, together with expenses and interest). If the action is defended then the debtor will require to state the reasons for denying the claim. The Court will then determine further procedure, which might include an evidential hearing.
If the Court grants decree against the debtor, then it will need to be enforced if the debt is not paid voluntarily. There are numerous options available and some of the most common methods are discussed below:
Before many enforcement options are available to the creditor a Charge has to be served on the debtor. This is served by Sheriff Officers and is a formal request for payment of the principal debt, interest and other outlays incurred. A Debt Advice and Information Pack is also served alongside a Charge. This provides the debtor with information about potential ways of managing their debt. The debtor has 14 days from the date of service of the Charge to pay the debt, otherwise further action can be carried out as discussed below. Often this leads to the debt being paid.
Where a Charge is served and the 14 day period has expired, if the debtor is in employment, an Earnings Arrestment can be served by Sheriff Officers on the debtor’s employers. When served, the employer is instructed to deduct a percentage of the debtors wages, which is then paid to the creditor. There is a minimum amount which is protected from the debtor’s wage which cannot be touched by an Earnings Arrestment. The amount which is deducted depends on the earnings of the debtor.
A debtor’s bank or building society accounts may also be arrested. Sheriff Officers are instructed to serve a Bank Arrestment on any accounts which the debtor holds funds. The bank accounts will then be frozen until the debtor signs a mandate or comes to an agreement to settle the debt. If the debtor fails to sign a mandate then further steps can be taken by the creditor in order to release money from the bank accounts. Again, there is a protected minimum balance which cannot be touched.
Serving and registering an inhibition allows the creditor to stop a debtor from selling or dealing with any heritable property which is held in their name. This is often an effective way of ensuring that the debtor pays the debt owed. In certain circumstances, is also possible to obtain an inhibition on the dependence, meaning that it can be sought at the same time as raising a Court action.
This form of enforcement allows a creditor to seize moveable property owned by a debtor. Once the Sheriff Officer has carried out the attachment, a report is submitted to the Sheriff within 14 days. The Sheriff Officer is thereafter able to remove the attached items and sell them at auction if required. There are certain items which cannot be attached, including goods within a debtor’s dwellinghouse (unless authority is granted by the Court). Attachment is often an effective way of obtaining payment from a business.
When a Charge has expired, sequestration (an application for bankruptcy) in respect of an individual or liquidation (winding up) in respect of a company may be a solution in order to retrieve the debt due. It is important that enquiries should be carried out to establish whether the debtor is likely to be able to pay, as Court proceedings are required which can be expensive. Secured creditors, such as the holders of a standard security, will rank above unsecured creditors when it comes to distributing any funds retrieved.
The above is a brief summary of some of the most common ways to recover a debt in Scotland. At Jones Whyte, we have experience and expertise in all areas of debt recovery and enforcement procedures. We can advise you of your best options and guide you through the process.
Should you require any advice or assistance then one of our team would be happy to discuss your options with you.
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