Fri 13 Nov 2015

Reduction of sequestration is possible - but in exceptional circumstances only

Every now and again we see attempts to have awards of sequestration reduced by the Court of Session.  A recent case from the Court of Session reminds us that it is possible - but only in very limited - or exceptional - circumstances.   This should provide comfort to insolvency practitioners once the 10 week period (being the time a petition for recall of sequestration can be presented, unless the debtor is offering to pay all of his debts in which case it can be at any time) following the award of sequestration has elapsed. 

Garg v Donald McNaught and others

In this case the pursuer sought reduction of an order granted for his sequestration.  The petition for sequestration followed on an expired charge for payment which in turn was based on an English judgment which had been registered in Scotland.  The pursuer took no steps in response to service of the charge although did contest the sequestration petition, with a friend appearing on his behalf and arguing that the pursuer had left for India and that she had no way to contact him (in contrast to an affidavit from a  sheriff officer who confirmed that a neighbour had seen the pursuer at the address in the petition a matter of days prior to the sequestration hearing).  Sequestration was granted.

The pursuer did not attempt to recall his sequestration and claimed only to have found out that he had been made bankrupt one year after the award was made.   He then sought to reduce the decree.  He accepted that he had to demonstrate exceptional circumstances existed and sought to rely upon his assertions that: (1) the petitioning creditor should have known he was out of the country so shouldn't have gone ahead with the petition, (2) there was an outstanding counterclaim in respect of the underlying debt, (3) the petitioning creditor should have been aware of the pursuers "poor physical psychiatric health" and (4) at the time of presentation of the petition to pursuer had more than enough cash available to settle the outstanding debt.

The court gave short shrift to each of these.  Lord Boyd emphasised that apparent insolvency had been constituted by the expiry of the charge for payment and that the factors relied upon by the pursuer -even if proved - could not amount to exceptional circumstances.

This case follows on from the Inner House case of  Polley v West Lothian Council and another.  That was another unsuccessful attempt at reduction of an award of sequestration where the Lord Justice Clerk said:

"The remedy of reduction to set aside a sheriff court decree does not exist as of right.  It is not a remedy which is granted when other methods of review are prescribed and these have either been utilised unsuccessfully or the pursuer has failed to take advantage of them".

Lessons to take

For debtors who are on the receiving end of a charge for payment the clear lesson is that if you challenge the validity of the debt then you should do something about when you receive the charge.  If you don't apparent insolvency will be established and by then it may be too late.   Even if sequestration is granted there is still the possibility of recall and this should be the standard way in which your bankruptcy should be challenged (if appropriate). 

For insolvency practitioners, this confirms that the ability to unpick an appointment as trustee outwith the recall procedure is extremely limited and, in all likelihood, an impossible task for most debtors.

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