Scottish Sheriff Court Decisions

SHERIFFDOM OF LOTHIAN AND BORDERS AT EDINBURGH

SQ538/07

Appellant: Party

Respondent (Accountant in Bankruptcy): Lloyd, Harper McLeod

27^th September 2010

The sheriff, having heard the appellant personally and the agent for the Accountant in Bankruptcy, refuses the appeal; reserves all questions of expenses and assigns Friday 8^th October 2010 at 9.30 am in the Sheriff Court 25 Chambers Street, Edinburgh as a diet therefor.

[1] This is an appeal brought pursuant to section 3(7) of the Bankruptcy (Scotland) Act 1985 ("the 1985 Act"). The appellant was unrepresented. The trustee in the sequestration of the debtor is the Accountant in Bankruptcy ("the AIB"). The debtor was sequestrated following proceedings at his own instance. Put broadly, the debtor declared assets and liabilities both in the original documentation submitted in support of his application for the sequestration of his estates and by way of a statement of affairs submitted to the trustee. The appellant challenged these figures as being incorrect. The appellant says that, as a result of his actions, the monthly contributions payable by the debtor have now increased. The appellant avers that the debtor has or may have committed offences pursuant to sections 5(9)(c) and 19(3)(c) of the 1985 Act ( the making of material misstatements). The AIB declined to report the matter to the Lord Advocate because she was of the opinion there were no reasonable grounds to suspect that any offence had been committed by the debtor. Although not put in quite these terms what the appellant seeks is an order from the court directing that the AIB takes steps to report the matter to the Lord Advocate for prosecution of the debtor.

[2] When the matter called before me it became clear that there are two principal issues in this appeal: (1) the interpretation of certain parts of the 1985 Act in relation to the functions and duties of trustees and the AIB; (2) the interest (in law) of the appellant to pursue his appeal.

[3] In relation to the first issue I begin by setting out the terms of section 3(7) which provides:-

"Where the debtor, a creditor or any other person having an interest is dissatisfied with any act, omission or decision of the trustee, he may apply to the sheriff and, on such an application being made, the sheriff may confirm, annul or modify any act or decision of the trustee or may give him directions or make such order as he thinks fit."

[4] Section 3(7) was inserted into section 3 by paragraph 1 of Schedule 1 to the Bankruptcy (Scotland) Act 1993 ("the 1993 Act"). It is also that Act which imposed certain supervisory functions upon the AIB to which I shall return later. Section 3 sets out the functions of a trustee in bankruptcy. Section 3(1) lists the general functions of the trustee and includes, in general terms, a list of responsibilities such as the recovery of assets, the ascertainment of the debtor's assets and liabilities and the distribution of the estate among the debtor's creditors. Section 3(3) provides:-

"If the trustee has reasonable grounds to suspect that an offence has been committed in relation to a sequestration -

(a)    by the debtor in respect of his assets, his dealings with them or his conduct in relation to his business or financial dealings;

... he shall report the matter to the Accountant in Bankruptcy"

Section 3(5) provides, inter alia, that the obligation imposed upon the trustee by section 3(3) shall not apply where the trustee is the AIB. Section 1A(3) provides:-

"Where the Accountant in Bankruptcy has reasonable grounds to suspect that an offence has been committed -

(a)    by a person mentioned in paragraph (a) of subsection (1) above in the performance of his functions under this Act or any other enactment... or any rule of law; or

(b)   in relation to a sequestration, by the debtor in respect of his assets, his dealings with them or his conduct in relation to his business or financial affairs; or

(c)    in relation to a sequestration by a person other than the debtor and that person's dealings with the debtor, the interim trustee or trustee in respect of the debtor's assets, business or financial affairs

he shall report the matter to the Lord Advocate"

This case raises the short but not unimportant point as to the interaction amongst sections 1A(3), 3(3) and 3(5) and how, in turn, these provisions sit with section 3(7). The point is more easily illustrated if one considers the position which might arise were the trustee someone other than the AIB. If the trustee has reasonable grounds to suspect that the debtor has committed a criminal offence in relation to the sequestration, such as, for example of the type complained of by the appellant in the present case, then section 3(3) imposes upon the trustee a duty to report the matter to the AIB. Once the matter has been reported to the AIB, if the AIB has reasonable grounds to suspect that an offence has been committed then she has an obligation to report the matter to the Lord Advocate. Parliament has decided that the ultimate decision as to whether to report a matter to the Lord Advocate is one vested in the AIB acting in a supervisory capacity and not as trustee. Furthermore, although both sections 1A(3) and 3(3) use the words "shall report" they are qualified by the requirement that there be a conclusion on the part of the decision maker that there are "reasonable" grounds" for suspicion that an offence has been committed. Accordingly, any question of obligation or duty on the part of either can only arise once a judgement as to the existence as to reasonable grounds concerning the commission of an offence has been reached. On the facts of this case the AIB has reached a conclusion that there are no such reasonable grounds. I note that section 1A(3) is not limited to offences committed by the debtor: it includes a range of persons, including the trustee himself. Section 3(3) is somewhat narrower in scope than s1A(3). Section 1A is headed "Supervisory functions of the AIB". In my opinion a decision made by the AIB pursuant to section 1A(3) is the exercise of the statutory power of supervision conferred upon the AIB acting in that capacity. In the present case it so happens that the AIB is also the trustee on the estates of the debtor. It would make no sense for the AIB qua trustee to be under an obligation to report reasonable grounds to suspect the commission of criminal offences to herself in one capacity, to herself in another, which is no doubt why section 3(5) was enacted. However, it does appear to me that section 3(5) supports the interpretation that the function of the AIB qua trustee in terms of section 3(3) is different from the function of the AIB qua supervisor in terms of section 1A(3). That the AIB happens to be trustee makes no difference to the issue of interpretation. The issue is the capacity in which the AIB is exercising her function. That leads me back to section 3(7). In my opinion, section 3(7) is directed to any act or omission of a trustee. Properly analysed what the appellant complains of is not a decision of the AIB qua trustee but the decision of the AIB qua supervisor and, more particularly, acting pursuant to the terms of section 1A(3). If that is correct then it must follow that the decision of the AIB is not a class of decision which falls within the terms of section 3(7). Whether it would be open to the appellant to seek the remedy of judicial review of the decision of the AIB (see McBryde, Bankruptcy (2^nd edition) at para 2-09) was not explored in detail and I express no view on that issue. It follows that, in my opinion, the appeal must fail on that ground alone.

[5] However, if I am wrong on that issue, there remains the issue of interest. The appellant has elected not to submit a formal claim in the sequestration. In the course of his submission to me he informed me it was his understanding there was little, if any, prospect of a dividend becoming payable to ordinary creditors. He further informed me that the AIB had replied to his correspondence and had treated him as if he were a creditor. Only latterly had the AIB told him that the absence of any claim in the sequestration put in issue his interest to pursue the appeal. In the light of certain observations he made, I gained the impression the appellant believes that, by not submitting a formal claim in the sequestration, once the debtor is discharged it might yet be open to the appellant to pursue the debtor for payment of the debt. This point was not developed before me and I express no view as to its correctness.

[6] Mr Lloyd submitted that the appellant has failed to aver an interest to pursue the appeal. All the appellant says is that "he will be directly affected by the outcome of the sequestration" without saying what that effect will be. In support of his submission, Mr Lloyd referred me to a Note by Sheriff Deutsch in the Sequestration of Linda Wallace (7^th August 2006), unreported, Glasgow Sheriff Court and to Tinlin v The Accountant in Bankruptcy 2000 SLT (Sh Ct) 57. In the latter case (a bankruptcy appeal) Sheriff McPhail said (at page 59) that a debtor must have a sufficient interest to pursue an appeal and whether he does depends upon the circumstances of the particular case. I respectfully agree. I do not consider that those dicta are limited to the provisions of section 53(6) pursuant to which the appeal in that case was brought. The argument in that case was that the general rules as to interest apply to appeals in sequestration cases. (I note that section 53 has now been amended by the 2007 Act to include a provision that the appellant must have a pecuniary interest to pursue an appeal. This case predates these amendments). The appeal before Sheriff Deutsch was brought pursuant to section 62(1) of the 1985 Act and similar comments were made. Section 3(7) confers a right of appeal upon "the debtor, a creditor or any other person having an interest". The definition of "creditor" in section 73 is of no assistance in determining who is a "creditor" for the purposes of section 3(7). I have no doubt that the appellant, who presented his argument persuasively and moderately, feels strongly about what he perceives to be an error on the part of the AIB. Assuming it were open to me to grant the remedy he seeks, it is difficult to see what benefit or purpose such a disposal would have. It would not lead to any improvement in the prospects of a dividend for the appellant or anyone else or indeed would alter the outcome of the sequestration. The absence of a claim in a sequestration, for whatever reason, must have the consequence that the appellant can have no pecuniary interest in the outcome because he would not be eligible for payment of a dividend. I have come to the conclusion that it is neither necessary nor appropriate for me to attempt any general definition of "creditor" or "person having an interest" in section 3(7). (I do not go as far as to say that a "creditor" must always necessarily be a person who has submitted a claim in the sequestration.). I base my decision upon the particular facts of this case. As I have said, the appellant has not submitted a claim, nor would it seem that he intends to do so. He will not be eligible for payment of any dividend. I consider I am also entitled to take into account the nature of the matter against which he appeals. It involves the exercise of a statutory function by the AIB in deciding not to report a matter to the Lord Advocate. Although I understand the appellant feels strongly about this matter, as a matter of law I have difficulty in seeing what interest the appellant can properly be said to have in such a decision. Accordingly, on the facts of this case, for the purposes of section 3(7), I am not inclined to hold that he is either a "creditor" or "a person having an interest".

[7] Mr Lloyd also advanced a number of issues as to the framing of the appellant's crave and pleas in law. Given my conclusions on the principal points all I need say is that I accept there is force in his criticisms of both. I shall accordingly refuse the appeal and reserve all questions of expenses.