KNOWLEDGE

Sequestration: The discretion of the court in granting a warrant to cite the debtor

MortonFraser_Jen Andrew
Author
Jennifer Andrew
Associate
PUBLISHED:
15 August 2019
Audience:
Business
category:
Blog

A recent judgment of Glasgow Sheriff Court has considered whether the court has discretion in granting a warrant to cite a debtor in a sequestration petition and found that there is no discretion available to the sheriff unless there has been incompetent procedure or there is a lawful impediment. 

Background

The debtor was due to pay in excess of £370,000 to the petitioner in terms of a personal guarantee. The debtor had made allegations of fraud and claimed that the guarantee had been misrepresented to them at the point of signing. The debtor had raised an action for reduction of the personal guarantee in the Sheriff Court and sought interim interdict to prevent the petitioner taking further payment enforcement action. The interim order was refused. The debtor then raised an action for reduction and interim orders preventing the petitioner lodging a liquidation petition in the Court of Session. Again, interim orders were refused.

The petitioner then lodged a sequestration petition with the court and sought a warrant to cite the debtor. The debtor had lodged a caveat with the court. A hearing took place in June 2019.

Relevant legislation

The Bankruptcy (Scotland) Act 2016 provides that:

"Where a petition for sequestration of the estate of a debtor is presented … the sheriff must grant warrant to cite the debtor to appear before the sheriff to show cause why sequestration should not be awarded."

Arguments

The petitioner argued that the correct procedure had been followed (a charge for payment had been served on the debtor and expired without payment), the debtor was not challenging the competency of the sequestration petition, and the requests for interim orders preventing the petition had been refused. The petitioner submitted that if the warrant to cite was granted, a sequestration hearing would be fixed on a later date at which the debtor could attend and address the court on why sequestration should not be awarded.

The debtor argued that warrant to cite should be refused as there were exceptional circumstances. The debtor suggested that the circumstances were exceptional as (1) the circumstances in which the debtor signed the guarantee had been reported to the police and the alleged fraud was being investigated, and (2) action had been raised to reduce the personal guarantee and whilst the interim orders had been refused the action had been served and commenced. The debtor also noted that the effect on the debtor of warrant to cite being granted would be substantial as the date of the warrant to cite will be the date of sequestration if the debtor is subsequently sequestrated.

Decision of the court

Sheriff McCormick found that given the wording of the 2016 Act the court must grant warrant to cite unless the action is incompetent or there is a legal impediment preventing a petitioner moving for the warrant. The Sheriff noted that "issues of equity, fairness, motive or consequence are not relevant considerations."

As there was no challenge to the competency of the petition and the Sheriff did not consider there to be any issue with competency, and there were no interim orders preventing the petitioner proceeding with the petition the sheriff considered that he had no discretion and therefore granted warrant to cite.

Conclusion

It appears that debtors have little to gain (other than a potential expenses award against them) from insisting on a caveat hearing with a view to asking the court to refuse to grant a warrant to cite unless there's a challenge to the competency of the procedure or a legal impediment, such as an interim order, to the petition. 

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