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HMRC internal manual

Debt Management and Banking Manual

Summary Proceedings (Sc): Claims for costs in sequestration cases

Under the provisions of the Debtors (Scotland) Act 1987 (Paras 93(4) & (5) wherediligence is in effect before the date of sequestration, the costs incurred by thatdiligence will remain payable by the defender.

The Bankruptcy (Scotland) Act 1985 advises that where an ordinary arrestment or anattachment has been executed prior to the date of sequestration but no Action ofFurthcoming has been completed or no sale of the goods has taken place, the assetsarrested must be handed over to the permanent trustee appointed in the sequestration.However because the diligence may have preserved an asset for the benefit of thecreditors, you as the arrester are entitled to the expenses of your diligence out of thearrested estate.

A claim for expenses of diligence will be treated as a “secured” debt and paidin priority to all other claims including the trustee’s claims for outlays and hisremuneration. You should note however that your claim for costs in these circumstances isonly secured to the extent of the amount caught by the arrestment or the sheriffofficer’s valuation of the attachment.

There are two exceptions:

  • where either an earnings arrestment or a conjoined arrestment is in effect, the costs remain payable by the defender so form part of the claim. Any unpaid tax etc should be claimed in the normal manner
  • in accordance with the terms of Sections 37(4) and (5) of the Bankruptcy (Scotland) Act 1985 any diligence executed within the period of 60 days before the date of sequestration is ineffectual and any arrested or attached estate must be handed over to the permanent trustee for the benefit of all the creditors.

Even if you have

finalised your diligence the proceeds ofthat diligence must be handed over to the permanent trustee. However,there are exceptions to this. These are

  • where diligence has been executed within the relevant “60 day period” you need only hand over the proceeds if you have received payment following an auction or as the result of a decree of furthcoming.
  • if following an attachment, the defender redeems the goods attached before the auction or, payment of the monies arrested has been obtained by a mandate signed by the defender all monies received may be retained. Any balance of costs and unpaid tax etc should be claimed in the normal way.