Scottish Court of Session Decisions

[1] The first petitioners are a firm who were engaged in construction work and its partners are the second and third petitioners. They all petition for recall of sequestrations granted on 24 March 2000 quoad the firm and 28 April 2000 quoad the second and third petitioners as individuals.

[2] These sequestrations were granted despite attempts to prevent them. The petitioning creditor in each was the Clydesdale Bank and sequestration of the first petitioners was granted on 24 March 2000 after a hearing by Lord Nimmo Smith. His Opinion is reported in 2000 SLT 1369. There was also a summons at the instance of inter alios the petitioners against the Clydesdale Bank seeking to prevent the bank from issuing calling up notices in respect of their standard securities and for damages of £3,000,000. That action had been before Lord Eassie who issued an Opinion on 28 January 2000 refusing to interdict the defenders from proceeding with the calling up notices. That action was a feature of the discussion before Lord Nimmo Smith and still partly subsists, in that the conclusion for damages remains.

[3] Lord Nimmo Smith granted sequestration, although the action was extant and despite one consequence of the granting of sequestration being that the petitioners would be prevented from personally continuing their action against the bank. The second and third petitioners were sequestrated by Interlocutor of Lord Prosser on 28 April 2000.

[4] This present petition seeks recall of the sequestrations on the grounds, stated broadly, that there are no assets in the estates of the sequestrated parties saving the action against the bank and that the trustee declines to take any action thereanent and no creditor is willing to take up the action. Since, according to the trustee, there are no free assets in any of the estates, he has not proceeded to adjudicate the claims in the sequestrations.

[5] It requires to be noted that the bank is both a secured and ordinary creditor. The firm Grantly Developments Ltd, of which the second and third petitioners are directors, is alleged to be the principal creditor of the first petitioner. The trustee has not opposed this petition, and although not all the creditors apart from the bank have consented, neither have they intimated opposition to the present petition.

[6] When this petition first appeared before me in July 2001, I was moved to grant an adjournment so that the petitioners could consider whether some scheme could be put forward to the Court which would indicate that creditors would not be prejudiced by the sequestrations being recalled. The result of that was a draft assignation which was put before the Court. The petitioners proposed that they would assign the whole proceeds of the action against the bank to professional persons so that they could distribute those proceeds amongst the creditors entitled thereto.

[7] The bank continued to oppose recall of the sequestration and continued to insist upon their attack upon the relevancy of the petition.

[8] The bank's attack in general was that the petition did not disclose with sufficient specification the state of the sequestrated parties' assets, the trustee having done nothing to ascertain either the assets or liabilities of any of them and that no provision had been made for the protection of non-consenting creditors. The bank's position appeared to be to put the petitioners to their proof that there was in fact no estate in any of the sequestrations but the broad proposition adopted was that it was not appropriate for the sequestration to be recalled in the exercise of the Court's discretion.

[9] Both parties accepted the reasoning of Lord Prosser in the unreported petition Button v The Royal Bank of Scotland Plc dated 22 July 1987. He held that in terms of Section 17 of the Bankruptcy (Scotland) Act 1985 the Court had a broad discretion in the whole circumstances to decide whether to grant recall. The only other authority on recall argued by the parties, was Gardner v Woodside 24 D 1133 where a sequestration was in fact recalled where there were no assets in the sequestration. Lord Prosser's view expressed at page 3 of his Opinion was that he was satisfied that if a recall of sequestration can be granted without apparent prejudice to creditors, sequestration should in general be recalled. He said,

I would respectfully agree.

[10] Sir Crispin Agnew for the petitioners urged upon me the case of Gardner cited above. In that case the Court on the petition of the bankrupt, recalled the sequestration which had been awarded on the petition of the creditor who, it had been accepted by the Court, had instituted the sequestration in order to prevent a claim being made against him by the bankrupt.

[11] Superficially therefore, the case of Gardner bore on the petitioners' view a strong resemblance to the present. However in my view it does not. In Gardner there were no assets at the time the sequestration was awarded. In the present case, there certainly were. The petitioner in Gardner had a very small debt due to him as opposed to the other creditors who did not seek sequestration and the Court held that the sequestration was an unfair use of the process and in mala fide. In my view Gardner was a very special case indeed and its ratio depends upon that view of the petitioning creditor's conduct. For the Court to hold that a substantial creditor such as the bank in the present case, was in mala fides in seeking sequestration, it would require to be established by more than the mere "say so" of the petitioners. In the present case, sums, according to the calculations put before me, will be due to the bank even after it has taken the benefit of standard securities. It is accordingly, an ordinary creditor. Further, in considering the case of Gardner, attention should be closely paid not only to the views of Lord Deas but also to the Opinion of Lord President McNeill. The Lord President was not prepared to say that there being no visible estate was in itself a sufficient ground for recall of sequestration. Lord Deas said,

In Button it was stated that the parties, including the petitioning creditor, thought that there would be a surplus in the estate, but even so sequestration was not recalled.

[12] It was strongly urged before me by Mr Howlin that the bank had no fears that there would be any success in the litigation against it. Sir Crispin expressed the view that the action against the bank did have prospects of success.

[13] The difficulty that Sir Crispin's view places the petitioners in, is that through their counsel they are asserting that the claim against the bank is a valuable asset. That for aught yet seen does not appear to be the view of anyone else although it was stated by counsel that there were parties who were prepared to continue with the action, but only if sequestration was recalled and not otherwise. I do not think that that is a proper consideration. If the action is of value, then it is of value to all the creditors. In these circumstances the trustee can either pursue the action himself, which he declines to do, or he can assign it for value, again, for the benefit of the general body of creditors, or he can abandon the action so far as the sequestrated estates are concerned and allow the bankrupts to pursue it for the benefit of creditors. In such circumstances the bankrupts could either continue with the action themselves, or they could assign it for value to any person whom it is alleged is prepared to back an action, but not in a sequestration. I do not see it as essential for the action to be pursued that sequestration be needed.

[14] In the whole circumstances, as disclosed to me, I am not prepared to exceed to the motion to recall the sequestration. I am not on the other hand however prepared in hoc statu to dismiss the petition as irrelevant. I consider that the petitioners have averred enough to entitle them to a proof in an attempt to persuade the Court that sequestration should be recalled, either on the basis that no purpose can be served by the sequestration, or else that in some way the bank is barred from objecting to recall because it is truly using the sequestration as a means of blocking the action against it. While I consider that to succeed in such a proof would be exceedingly difficult, I am not prepared at this stage to prevent the petitioners from making the attempt. It is for consideration by the trustee, despite what has been reported to me as his views, whether he should either sell the action to some interested purchaser, or to allow the bankrupts to pursue it themselves, by abandoning all interest he may have. Such a pursuit would be course, for the benefit of the creditors as a whole, but it would remain the overall concern of the trustee and any sums obtained would be for the benefit of the creditors. I did not consider that the proposed assignation as presented to me, could meet the essential requirement of the creditors being protected in all the circumstances which is the essential feature of sequestration.

[15] I shall accordingly refuse to recall the sequestration in hoc statu and allow the petitioners a proof reserving the respondents' first plea-in-law.