Court Ref : SQ80/02

Judgement of Sheriff George Alexander Way

In Appeal in terms of Section 58A(5) of the Bankruptcy (Scotland) Act 1985

MICHAEL MARCUS YOUNG

residing at 51 Torrance Terrace Dunfermline KY12 0LY

Noter and APPELLANT

Against

Rosemary Winter-Scott, THE ACCOUNTANT IN BANKRUPTCY, 1 Pennyburn Road Kilwinning KA13 6SA

RESPONDENT

Dunfermline 15^th January 2010

The Sheriff having resumed consideration of the cause, dismisses the Appeal and finds the Noter and Appellant liable to the Respondent in the expenses of the cause as the same shall be subsequently taxed and allows an account to be made up and lodged with the Auditor of Court; decerns accordingly.

Sheriff

NOTE:

1. This case called before me on 12^th January 2010 initially as a discrete Summary Appication seeking to oppose the final discharge of the Accountant in Bankruptcy who had acted as Permanent Trustee on the sequestrated estate of the Noter and appellant. This was presented in terms of Section 58A(5) of the Bankruptcy (Scotland) Act 1985. A plea to the competence of the cause had been taken. At the commencement of the hearing Mr Lloyd for the respondent advised me that the basis for that plea in law rested upon the requirement within the 1985 Act that an appeal of this kind should be by Note within the original bankruptcy process. This procedural point was resolved by the parties moving, of consent, that I remit the application to the sequestration process ( which the Clerk of Court had helpfully made available) to be held as a Note therein. This was a pragmatic approach which I agreed to facilitate.

2.  The 1985 Act provides, at section 58A as follows :

" (5) The debtor and any creditor may appeal to the sheriff against-

(a) the determination of the Accountant in Bankruptcy mentioned in subsection (2)(c) above;

(b) the discharge of the Accountant in Bankruptcy in respect of his actings as permanent trustee; or

(c)    both such determination and discharge.

 

(6) An appeal under subsection (5) above shall be made not more than 14 days after the issue of the notice mentioned in subsection (4)(b) above; and the decision of the sheriff on such an appeal shall be final. "

 

I was advised by Mr Hunter, the solicitor for the Noter and Appellant, that his client opposed the discharge of the resposndent as permanent trustee on his estate because he challenged the accuracy of the account of intromissions. Bankrupts rarely have much interest in the intromissions of their trustee as such but in this case, unusually, there was a surplus which fell to be repaid to the Mr Hunter's client. Mr Hunters submission, as set out in some detail in his Note of Appeal, was that payments had been made by the trustee which were not properly due and therefore the sum to be repaid to his client had been wrongly depleted. The trustee should not, therefore, be discharged so that she could be held to account for the deficit.

 

3.  The payment which Mr Hunter challenged was that of £6222.77 made to the petitioning creditor in the sequestration, Fife Council. The debt was for Council Tax together with statutory interest which had accrued since the original liability had been incurred. The legal basis for the appeal was to be found in section 55 of the 1985 Act which Mr Hunter set out for the assistance of the court. The section states :

" 55.

Effect of discharge under section 54.

 

(1) Subject to [^F1 subsections (2) and (3)] below, on the debtor's discharge under section 54 of this Act, the debtor shall be discharged within the United Kingdom of all debts and obligations contracted by him, or for which he was liable, at the date of sequestration.

(2) The debtor shall not be discharged by virtue of subsection (1) above from-

(a)

any liability to pay a fine or other penalty due to the Crown;

(aa)

any liability to pay a fine imposed in a district court;

(ab)

any liability under a compensation order within the meaning of section 249 of the Criminal Procedure (Scotland) Act 1995;]

(b)

any liability to forfeiture of a sum of money deposited in court under section 1(3) of the ^M1 Bail etc. (Scotland) Act 1980;

(c)

any liability incurred by reason of fraud or breach of trust;

(d)

any obligation to pay aliment or any sum of an alimentary nature under any enactment or rule of law or any periodical allowance payable on divorce by virtue of a court order or under an obligation, not being

[^F3 (i)] aliment or a periodical allowance which could be included in the amount of a creditor's claim under paragraph 2 of Schedule 1 to this Act; [^F4 or (ii) child support maintenance within the meaning of the Child Support Act 1991 which was unpaid in respect of any period before the date of sequestration of-

 

(aa) any person by whom it was due to be paid; or

(bb) any employer by whom it was, or was due to be, deducted under section 31(5) of that Act.]

(e)

the obligation imposed on him by section 64 of this Act.

(3) The discharge of the debtor under the said section 54 shall not affect any right of a secured creditor-

(a)

for a debt in respect of which the debtor has been discharged to enforce his security for payment of the debt and any interest due and payable on the debt until the debt is paid in full; or

(b)

for an obligation in respect of which the debtor has been discharged to enforce his security in respect of the obligation.]

[ ^F6 (4) In subsection (2)(a) above the reference to a fine or other penalty due to the Crown includes a reference to a confiscation order made under Part 2, 3 or 4 of the Proceeds of Crime Act 2002.] "

 

With all due respect to the detailed submissions made by Mr Hunter I believe I can sum up his position quite shortly. The Noter was discharged on or around 25^th July 2005. The respondent took action to realise the bankrupt's interest in heritable property at Victoria Terrace Dunfermline in December 2007. The result of that action was a payment raised from a member of the appellant's family of some £15,000.00. At that point, on his submission, there was no debt due to Fife Council as the Noter and Appellant had been discharged of all debts by operation of section 55. That section did provide for the survival of some obligations (as set out above) but Council tax was not one of those. The respondent had accordingly paid a debt that was already discharged by operation of law. She was bound to account for the disbursement of the £15,000.00 ingathered and the accounts prepared to date were not correct. I should grant the appeal.

 

4.  The submissions made by Mr Lloyd were short and to the point. The appeal was without any legal merit and should be dismissed. The respondent, as permanent trustee, became vested in the assets of the Noter and appellant when sequestration was awarded in terms of section 31 of the 1985 Act. The Act and Warrant vested heritable estate with the same effect as a decree of adjudication. Section 55 was irrelevant. That section dealt with the discharge of the bankrupt and had no effect upon the administration of the sequestrated estate. The bankrupt could not be pursued personally for debts incurred prior to sequestration after the date of his discharge save for those specifically saved by the section such as child support. A trustee in bankruptcy must continue the administration of the sequestration process until discharged either under section 57 or as in this case section 58A of the 1985 Act. The trustee had taken action to realise an asset. In the event that the Noter and appellant believed that his discharge in terms of section 55 had extinguished the debts in the sequestration then he should have defended the action taken in December 2007. This had not been done. Equally, if the Noter and appellant did not accept that the petitioning creditors claim for Council tax should have been adjudicated and ranked as a claim by the respondent then he should have challenged that in terms of section 49(6) of the 1985 Act. This had not been done. The Noter and appellant was simply wrong in law when he asserted that section 55 had any relevance to the duty of the respondent to realise the assets of the bankrupt; adjudicate and rank creditors claims; prepare the statutory documents and records; pay such dividend to the ranked creditors as the accounts whether interim and final justified and finally to seek discharge from office. The assertion that a trustee had only three years to complete the administration of a sequestrated estate was simply wrong in law and should be rejected. The trustee had paid the petitioning creditor the sum due to them as ranked and adjudicated in the sequestration process. There was no evidence before the court to suggest otherwise and in these circumstances the appeal was without merit and fell to be dismissed.

 

5.  I regret that, with all due respect to the careful and detailed presentation of the appeal by Mr Hunter I have no hesitation in preferring the submissions of the respondent. The appeal was misconceived. Section 55 provides a mechanism for a bankrupt to move on in life free from the spectre of being pursued for past debts save for those (largely alimentary) continuing obligations that that section preserves. The basis for this timely relief rests upon the obligation of the trustee in bankruptcy to deal with pre-sequestration creditors in accordance with the procedures prescribed in the 1985 Act. The submission made by Mr. Hunter, if sound, would put a coach and horses through the 1985 process. There is no three-year debt liability cut off for the trustee under the 1985 Act which is, effectively, what the Noter and appellant suggests nor would this accord with common sense. Trustees can and do take many years to complete the administration of estates. Heritable property may require to be realised which is owned in common with others. Co-proprietors may resist the trustee's efforts and defended litigations of that nature can take years to resolve. Indeed, if Mr Hunters submissions were taken to a logical conclusion a trustee could, theoretically, collect in some funds, collude with a bankrupt to spin out the administration of the sequestration for more than three years; hold that all the debts were discharged in terms of section 55; pocket their fees and pay any surplus arising back to the bankrupt. This would be, as Mr Lloyd submitted, nonsense. The 1985 bankruptcy process obliges the trustee to discharge the adjudicated and ranked debts from the funds ingathered. This is what the respondent has done in this case and cannot be criticised for so doing.

6.  The trustee did take her time in seeking to realise the Noter and appellant's interest in the family home in Dunfermline but that was a common practice at the time in question. The provisions of section 19 of the Bankruptcy and Diligence (Scotland) Act 2007 have addressed this by requiring trustees to resolve the question of the family home more swiftly but that provision was not in force at the time. I consider however, that this reform assists here by highlighting that the mischief lies in trustees failing to decide the future of crucial assets, such as a family home, within a reasonable time and that this is not addressed by penalising qualifying creditors by deeming their claims discharged by operation of section 55. I have no doubt that the Noter and appellant was vexed to be compelled by the threat of court action to raise funds from his wider family to, as Mr Hunter put it, "keep a roof over his head" more than five years after the date of his sequestration (and thereby two years after he had been personally discharged in terms of section 55) but the present action is not a remedy for that complaint.

7.  The appeal conflates debts with qualifying claims made within the sequestration process and is accordingly, in my opinion, wholly inept and without any merit in law. Section 55 did not extinguish the claim of Fife Council or indeed any other qualifying claim, and the respondent was obliged to pay such dividend against claims as the funds in her hands allowed. The Noter and appellant did not appeal against the ranking of claims in terms of section 49(6) and the action to realise the Noter's interest the house was settled extra-judicially by a third party payment. I, accordingly sustain the respondents second and third Pleas in law and dismiss the appeal. I can see no reason why expenses should not follow success and I find the Noter and Appellant liable in the expenses of the appeal as taxed.

 

 

George Alexander Way

Sheriff of Tayside Central and Fife