Agents for Angus Council were seeking warrants to cite three debtors as respondents in the sequestration petitions. The petitions followed the grant of summary warrants for unpaid council tax and the expiry of charges for payment served on the back of the summary warrants. The summary warrants served on two of the debtors stated that they were in relation to the total sum of £2,331.22. The summary warrant served on the third debtor stated the total sum of £1,235.93.
Debts at this level would not be sufficient to make someone a qualified creditor for the purposes of the Bankruptcy (Scotland) Act 2016 (the 2016 Act) which is necessary to entitle them to seek sequestration of the debtor. Debts at the level of £3,000 are required for this. It was however stated in the creditor's oaths which were lodged along with the petitions that the total amount owed by each of the three debtors was greater. For the first two debtors it was £4,602.85, and for the third it was £7,262.41.
The sheriff considered that this was a novel approach and fixed a hearing so that he could be addressed on the petitions.
Requirements under the Bankruptcy (Scotland) Act 2016
The sheriff highlighted the various relevant sections of the 2016 Act which included the following:
- Sequestration can be on the petition of a qualified creditor if a debtor is apparently insolvent - section 2.
- A qualified creditor will have relevant debts amounting to not less than £3,000 - section 7.
- Apparent insolvency of the debtor must be constituted within 4 months before the date of the petition - section 13.
- Apparent insolvency can be constituted by the expiry of a charge for payment without payment being made - section 16.
- Petitioning creditors must produce an oath, vouching which constitutes prima facie evidence of the debts and evidence to demonstrate the apparent insolvency of the debtor - section 19.
The problems with the petitions
The sheriff was satisfied that it had been demonstrated that the debtors were apparently insolvent. However there were two issues with the petitions which were problematic.
Issue 1 - lack of sufficient evidence of debts
There was no evidence produced to demonstrate that the debts not covered by charges for payment were owed. Evidence produced in relation to summary warrants was not sufficient. Although it showed that summary warrants were granted on particular dates and these conferred an entitlement to recover council tax from a list of people, there was no evidence to show the inclusion of the debtors within those lists. A certified copy of the relevant page of the list accompanying the summary warrant would have been sufficient for this.
Issue 2 - the charges were served for less than £3,000
The sheriff disagreed with submissions made on behalf of the petitioner that it was competent to seek sequestration even when a charge was served for less than £3,000 as long as the petitioner was owed a debt of £3,000. There were three different reasons why he reached this view. These included looking at the intention behind the legislation relating to summary warrants (under the Local Government (Finance) Act 1992) and the definition of qualified creditor and relevant debts. He also considered that, based on the wording of the charges which were served, the debtors could be forgiven for thinking that their sequestration was impossible and therefore not taking steps to avoid it because the total debts stated in each charge did not exceed £3,000.
As a result of these two issues the sheriff took the decision to refuse to grant warrants to cite the debtors. This case highlights the importance for creditors of taking steps to ensure that they can meet the statutory requirements before seeking the sequestration of a debtor.