We've put together a list of questions we frequently get asked by intermediaries about sequestration. If you can't find the answer you're looking for, please give us a call on 0845 60 60 661.
What is Sequestration?
Sequestration is the Scottish equivalent to Bankruptcy. Although very similar, there are some differences. Sequestration should only be considered as a last resort debt solution.
If your client is Sequestrated their estate must be handed over to a Trustee. The Trustee is legally obligated to realise their estate for the benefit of the creditors. Sequestration lasts for 1 year however your client's ability to obtain credit may be affected for a longer period.
If your client owes at least £1,500, and their apparent insolvency can be demonstrated, they can make an appointment to the Accountant in Bankruptcy for the Sequestration of their Estate. If your client owes a creditor at least £3,000 and their apparent insolvency can be demonstrated to the Court, a qualifying creditor can petition the court for their Sequestration. This would mean that your client would have to realise all assets they have including equity in their home, cars or any other assets.
What are the consequences of Sequestration for my client?
The principal effect of Sequestration is that your clients' estate must be handed over to a Trustee. The Trustee is appointed to realise your clients' estate for the benefit of their creditors. If applicable, your client will be expected to contribute any surplus income generated from their employment over the period of Sequestration, which will be a minimum of 1 year.
When the Trustee has realised your clients' estate, and provided that they have complied with any request to contribute surplus income, your client's Trustee will settle the fees and expenses of the Sequestration process, pay any surplus funds as a dividend to your client's creditors and apply to be discharged as their Trustee.
How much does sequestration cost?
Your client will have to pay £100 for the administration of their sequestration, plus court fees. There are no exemptions or waivers from the administration fee but in certain circumstances, the court fees may be covered by legal aid.
How long will my client be sequestrated?
The minimum period for Sequestration is 1 year and, as long as your client has complied with their Trustees requests during this period, they will automatically be discharged on the first anniversary of the commencement of their Sequestration.
Will my clients get to keep their home if they are sequestrated?
Generally speaking, if they have equity in a house (i.e. it has a value in excess of any mortgages on the property), even if it is jointly owned, it may have to be sold.
What is apparent insolvency?
Apparent insolvency means that your client is unable to pay their debts, and that at least one of their creditors has taken legal action against them.
Generally, this means at least one of the following will apply:
- Having obtained a decree in respect of a debt due to them, one of your client's creditors has served a Charge for Payment of the debt and your client has failed to make payment within the 14 days allowed by the charge
- One of your client's creditors has served a statutory demand for payment and your client has not paid the sum due within the 21-day time limit allowed by the demand
In addition, apparent insolvency also arises where your client has given written notice to their creditors that they have ceased to pay their debts in the ordinary course of business or by the granting of a Trust Deed.
What are my next steps?
If you think your client may benefit from sequestration, call our team on 0845 60 60 661 who would be happy to discuss any cases with you.
