Scottish Court of Session Decisions

On 2nd December 1912 this note of suspension and interdict was presented to me at the instance of the bankrupt and the trustee acting under a deed of arrangement between the bankrupt and his creditors dated 18th, 20th, 25th, 26th September and 9th October 1912, as complainers against the said creditor as respondent, in which the complainers ask that the respondent be interdicted from taking any further or other proceedings in the petition for sequestration of the estates of the complainer,and in particular from advertising or instructing advertisement of the said first deliverance on said petition for sequestration in the “Edinburgh Gazette,” and generally from taking any other proceedings in the said petition for sequestration.

From the statement of facts for the complainers it appears that the estates of the complainer were sequestrated on 13th August 1912 by the Lord Ordinary officiating on the Bills under and in terms of the Bankruptcy (Scotland) Act, 1856, and Acts explaining and amending the same. The first deliverance in the petition for sequestration was pronounced on 19th July 1912. The meeting of creditors for the election of a trustee or trustees in succession and commissioners on the said sequestrated estate was appointed by said deliverance to be held on 27th August 1912.

At this meeting of creditors it was unanimously resolved that the estates of the debtor should be wound up under deed of arrangement. Application was accordingly made to the Sheriff, who granted an order confirming the deed of arrangement on 19th October 1912. The other complainer is the trustee acting under that deed of arrangement.

The complainers maintain that the petition for sequestration at the instance of the respondent is incompetent in respect that the bankrupt under the sequestration before narrated is completely divested of the whole estate presently belonging to him or that may hereafter be acquired by him prior to the date of his discharge.

They found upon sections 18 and 38 of the Bankruptcy Act 1856. By the first of these sections it is provided that no sequestration shall be awarded by any Court after production of evidence that a sequestration has already been awarded in another Court and is still undischarged.

Section 38 of the Act provides, as regards a deed of arrangement, that if the Sheriff be satisfied that it “has been duly entered into and executed, and is reasonable, he shall approve thereof, and declare the sequestration at an end, and such deed shall thereafter he as binding on all the creditors as if they had all acceded there to—provided always that the sequestration shall receive full effect in so far as may be necessary for the purpose of preventing, challenging, or setting aside preferences over the estate.”

In accordance with the provision in this section, the Sheriff in this case, on 19th October 1912, not only confirmed the deed of arrangement but declared the sequestration of the complainer awarded 13th August 1912 (the first deliverance being dated 19th July 1912) to be at an end. That judgment was duly recorded in the Register of Sequestrations and the Register of Inhibitions.

The complainers, however, maintain that, in view of the proviso in section 38, the sequestration granted on 13th August is undischarged, and that therefore section 18 of the Act precludes another award of sequestration. It was maintained that if an award of sequestration were now to be pronounced there would be two officials managing the same estate, and that the interests of the creditors for whose benefit the estates of the bankrupt are being wound up under the deed of arrangement would be prejudicially affected. The trustee under the deed of arrangement is not however in any sense an officer of Court, and the deed itself is in reality in the nature of a private arrangement between the bankrupt and his creditors sanctioned by statute. As is pointed out by Mr Goudy in his work on Bankruptcy (p. 454) a deed of arrangement is more properly a mode of annulling a sequestration process than of winding up. A creditor in the position of the present respondent, whose debt was incurred subsequent to the date of the former sequestration, takes no benefit under the deed of arrangement. It may of course be said that in any case of sequestration a creditor whose claim has arisen subsequent to the award of sequestration has no claim against the estate of an undischarged bankrupt. In the latter case, however, an undischarged bankrupt who has obtained credit to the extent of £ 20 without disclosing the fact that he is an undischarged bankrupt, is by the Act of 1884 (47 and 48 Vict. cap. 16) guilty of a crime and offence and liable to a sentence of imprisonment. I do not think that a debtor whose sequestration has been terminated by a deed of arrangement exposes himself to this penalty. By the granting of sequestration the creditor may not derive any immediate benefit because the trustee in the sequestration will, I apprehend, be bound to respect the rights of the creditors under the former sequestration, and the trustee under the deed of arrangement will only be bound to denude subject to such rights as he may have acquired on behalf of those creditors. I cannot, however, hold that this is a ground for refusing an award of sequestration if the statutory requisites are present.

I have expressed my view upon this point because both parties asked me to do so. I am not, however, prepared to affirm that the present is a competent method of staying statutory procedure following upon my interlocutor of 30th November. Assuming competency, I refuse the note on the grounds I have stated.

The Lord Ordinary refused the note of suspension and interdict.