Scottish Sheriff Court Decisions

Case reference no: SQ187/10

 

 

 

JUDGMENT OF

SHERIFF NIGEL MURRAY PATON MORRISON, QC

 

in the cause

 

 

advocate general

Petitioner

 

against

 

WALTER DICKIE

 

Respondent

 

____________________________________

 

 

 

Act: Campbell

 

Alt: Glennie

 

 

 

 

 

EDINBURGH, 28th August 2010

 

 

 

 

The issue

The Advocate General sought sequestration of the respondent for unpaid tax due to HM Revenue and Customs. At the hearing it was argued for the respondent that sequestration should not be granted because there was sufficient security available. The issue was what is meant by showing that there is sufficient security for payment of the debt under section 12(3A) of the Bankruptcy (Scotland) Act 1985.

 

The relevant facts

The petition of the Advocate General was in respect of unpaid tax of a total of over £28,000 which was due for the tax years 06/07, 07/08 and 08/09. A summary warrant was granted on 8 April 2010 and a charge was served on 27 April. The respondent, a painter and decorator, owned two houses. One was said to be valued at £235,000 with an equity of £70,000 and the other at £425,000 with an equity of £100,000. The latter was for sale at offers over £395,000. It had been on the market since 21 May 2010. No offers had been received and no closing date had been fixed. The valuation was lodged as a production and was part of the pack that sellers were now required to provide when selling a house. Also lodged was a search from the Land Register showing that there was one standard security for £271,495 for the house purchase loan. The balance of the loan on the first property was said to be £162,435.

 

The statutory provision and submissions

Section 12(3A) of the 1985 Act, inserted by the Bankruptcy (Scotland) Act 1993, so far as relevant, is in these terms:-

"Sequestration shall not be awarded in pursuance of sub-section (3) above if - ...

(b) the debtor forthwith pays or satisfies, or produces written evidence of the payment or satisfaction of, or gives or shows that there is sufficient security for the payment of -

(i) the debt in respect of which he became apparently insolvent; and

(ii) any other debt due by him to the petitioner and any creditor concurring in the petition."

 

For the respondent it was submitted that there was sufficient security available in that there would be sufficient equity to cover the debt to HMRC. There were two properties available although only one was on the market. The petition had been served on 14 July and an offer of security had been made on 26 July. When the case called on 28 July, Miss Campbell for the respondent lodged an inventory of productions including the valuation and Land Register search. The maximum equity available was £155,000 which was sufficient to cover the debt. Mr Matheson from HMRC informed me that the offer of security had been previously refused but he had not seen the productions. I continued the case until the next day. On 29 July Miss Campbell repeated her submission and informed me that the respondent's business had suffered. Furthermore the respondent's father had died last Friday and that HMRC would not get its money any quicker by sequestrating the respondent.

 

Mr Glennie, who appeared on 29 July, indicated that the liability in respect of three years unpaid tax could have been met by the respondent obtaining a loan. Any security had not yet been given; it was only offered, which was not enough. Until recorded some other event could occur which affected the security. In the current economic situation, with falling house prices, one could not know that the security would be enough. He referred me to Advocate General v Zaoui 2001 SC 448 for the proposition that the offering of the security was not the giving of a security and that it must be available forthwith.

 

The meaning of sufficient security for payment

In contrast to the ground for refusing sequestration that the debtor forthwith pays or satisfies the debt, the ground under section 12(3A) of the 1985 Act of showing sufficient security appears out of step. Is it really the case that the debtor may obtain further postponement of payment of a debt by adding a petitioning creditor to the list of secured creditors where there appears to be sufficient security or equity?

 

One begins with four important principles. The first is that the question of whether someone should be sequestrated must be dealt with quickly. Where a petition is presented the hearing must be held between 6 and 14 days of citation of the debtor: see section 12(3). The second point is that sequestration is, subject to sub-sections (3A) to 3(C), to be granted "forthwith". This means that justification for not awarding sequestration should be readily identifiable. The third factor is that when awarded on the petition of a creditor, sequestration dates from the date on which warrant to cite the debtor was granted. Any delay between that date and the award of sequestration could prejudice creditors or potential creditors unaware of the petition. I am aware that the Scottish Parliament has provided the court with the discretion to continue consideration of sequestration for a time under sub-sections (3B) and (3C) without any protection of such creditors in two specific situations. These two provisions do not detract from the principle that the debt is to be paid, in the first case within a maximum of 42 days and in the second by way of a debt payment programme. Finally, these proceedings are, for the above reasons, summary proceedings.

 

The case of Zaoui makes the following propositions clear:-

(1) The words "or shows" in the phrase "or shows that there is sufficient security" resolves a previous ambiguity as to whether the security provided could be a pre-existing one, or only a new one, in favour of the petitioning creditor: it may be either. That was the effect of the 1993 amendment.

(2) In the interests of both the debtor and his or her creditors there should be objective and readily ascertainable criteria for an award (para.[12] at p.453B); or, I would add, and as the case subsequently makes clear, the refusal of sequestration.

(3) The proof of the sufficiency of any security justifying refusal of sequestration must be shown forthwith (para.[19] at p.456C).

(4) The offering of security is not the giving of security: para.[20] at p. 456F. No security exists until it is recorded. In that case, a statement was produced showing sufficient equity and a signed security was in court and available for acceptance.

The court held that there was no security in existence, it would be wholly uncertain whether a sheriff could ever be satisfied that there was sufficient security, and the requirement of showing sufficient security forthwith had not been met.

 

Section 12(3A) must mean more than the petitioner simply being added to the list of secured creditors. It seems to me that the wording of sub-section (3A), against the background of the principles of sequestration to which I have referred, envisages that the security is for payment of the debt and not merely security for the debt. This point was made in Bank of Scotland v Mackay 1991 SLT 163, 165D-E under the old law. Although I was not referred to it, that case is referred to in Zaoui. It seems to me that the statutory provision envisages payment of the debt and not merely postponement with security.

 

In the case before me the respondent had gone no further than offering, not giving, security. It could not be known, by the time the security was recorded, that there was sufficient security. Furthermore, in view of the fact that there were no offers for purchase of the house and no closing date, it could not be said that payment of the debt was in prospect. Accordingly, I granted sequestration on 29 July.