Commentary on Provisions(1) Modification of the Bankruptcy (Scotland) Act 2016 Section 12 – Failure of debtor to co-operate with trustee in sequestration
36.This section inserts new sections 147A, 147B, and 147C into the 2016 Act.
37.Section 147A introduces a new route for a trustee to resign office due to the debtor’s failure to cooperate in the sequestration by applying to AiB to take over as trustee. It applies where AiB is not the trustee in the sequestration, the case is at least five years old (beginning from the date of sequestration of the debtor’s estate), and the debtor has not been discharged from the sequestration (subsection (1)). The trustee may apply to AiB for authority to resign office due to the debtor’s failure to cooperate under subsection (2). Subsection (3) sets out the information that the application must include: the nature and extent of the debtor’s failure to cooperate, the actions taken by the trustee to secure the debtor’s cooperation, any other matters the trustee considers relevant, and the details of every creditor known to the trustee. Under subsection (4), before making an application, the trustee must notify the debtor and all known creditors by sending them an intention to resign notice. An intention to resign notice must be in the prescribed form and include a statement that the recipient of the notice has a right to make representation to AiB in relation to the application within 14 days (beginning on the day that the application is made).
38.On receiving an application under section 147A(2), AiB must take into account any representations made by the debtor or a creditor (subsection (6)) and make a decision on whether to issue a notice granting the application, if satisfied of the matters in subsection (7). Those matters are that the debtor has failed to cooperate with the trustee to such an extent that the trustee is prevented from carrying out the trustee’s functions under the 2016 Act, the failure is likely to continue, and the trustee has taken all reasonable steps to secure the debtor’s cooperation. In making a decision, AiB may request further information from the trustee and must notify the trustee, the debtor, and every known creditor of its decision (subsection (8)).
39.If a section 147A(2) application is granted, subsection (9) sets out the consequences, all of which apply after a period of 14 days. The 14 day delay is to allow for any application under section 147B for a review of a decision (and the suspension of the decision on such an application) to happen before AiB becomes the new trustee. The main consequence of an AiB decision to grant an application is that, under subsection (9)(a), AiB is deemed to be the trustee, with notification requirements in paragraph (b) and a requirement to update the register of insolvencies in paragraph (c). Subsection (9)(d) deals with the treatment of outlays and remuneration for former trustees, in line with the position where a trustee resigns under section 142 on the grounds that a debtor cannot be traced. The remainder of subsection (9) (paragraphs (e) and (f)) and subsection (10) make modifications to the 2016 Act in these circumstances, so as to provide for the administration of the sequestration by AiB as trustee. Section 69(9) to (13) of the 2016 Act are applied in order to deal with the transfer of documents from the former trustee and the fixing of the former trustee’s outlays and remuneration. Section 116(2) of the 2016 Act is modified where AiB is the new trustee to require the debtor to give an account in writing of their current state of affairs when requested, rather than at 6 monthly intervals. Finally, subsection (9)(g) applies section 138 of the 2016 Act (discharge of debtor where Accountant in Bankruptcy is the trustee) with the modifications set out in subsection (10) to allow for the subsequent discharge of the debtor, if the debtor later cooperates.
40.Section 147B provides a process for review and appeal against decisions to grant or refuse an application under section 147A. The trustee may apply to AiB for a review of a decision to refuse an application (subsection (1)), and the debtor or any creditor may apply to AiB for a review of a decision to grant an application (subsection (2)). An application for review must be made within 14 days, beginning on the day of notification of the decision being reviewed (subsection (3)). As noted, section 147A(9) provides that the effect of a decision to grant an application happens after 14 days, so AiB would not have taken over as trustee when an application for review of such a decision was made. If an application for review is made, the grant of the application is further suspended until AiB makes a determination (subsection (4)). Subsection (5) sets out what AiB must do if an application for review is made, requiring AiB to take into account any representations of an interested person which are made within 21 days after the application was made (paragraph (a)), and to confirm or revoke the decision within 28 days after the application was made (paragraph (b)). Subsection (6) deals with the consequences of AiB’s review decision, including at paragraph (c) allowing for a further 14 day delay of AiB becoming the new trustee for a review decision to grant an application, in order to allow for any appeals to the sheriff before the actual transfer of trusteeship occurs.
41.Section 147B(7) allows the debtor, the trustee, or any creditor to appeal the review decision of AiB to the sheriff within 14 days after the day of the decision under subsection 5(b). If an appeal relating to a decision to revoke a decision to refuse an application or a decision to confirm a decision to grant an application is made, the grant of the application is suspended until the determination of that appeal (subsection (8)). If the sheriff determines that an application which was refused should have been granted, the sheriff must order AiB to issue a notice granting the application (subsection (9)), with the transfer and the consequences of the transfer under section 147A(9) happening immediately. Alternatively, if the sheriff determines an application which has been granted should be refused, under subsection (10) the sheriff must order AiB to revoke the notice granting the application. Subsection (11) requires the sheriff clerk to send AiB a copy of the sheriff’s decree, and subsection (12) makes the sheriff’s decision final.
42.Section 147C provides a process parallel to section 147A for cases where AiB is already the trustee. It applies where AiB is the trustee in the sequestration but not as a result of appointment under section 147A, the case is at least five years old (beginning from the date of sequestration of the debtor’s estate), and the debtor has not been discharged from the sequestration (subsection (1)). AiB may make a determination under subsection (2) that the debtor has failed to cooperate, as long as AiB is satisfied that the matters in subsection (3) apply: that the debtor failed to cooperate with AiB to such an extent that AiB is prevented from carrying out the AiB’s functions as trustee, that the failure is likely to continue, and that AiB has taken all reasonable steps to secure the debtor’s cooperation. Under subsection (4), if AiB determines that a debtor is uncooperative, it must notify the debtor and every known creditor. Subsection (4) also makes modifications to sections 116 and 138(6) of the 2016 Act, so that these apply in the same manner as when AiB becomes trustee under section 147A. Subsection 116(2) of the 2016 Act is modified to allow AiB to require the debtor to give an account in writing of their current state of affairs, when requested, rather than at 6 monthly intervals. Section 138(6) is modified to allow for AiB to subsequently discharge the debtor if the debtor later cooperates with AiB to such an extent that AiB is able to carry out its trustee functions.
43.Section 214 of the 2016 Act deals with grounds of appeal for certain provisions in the 2016 Act. All appeals under the listed provisions may be made on a matter of fact, a point of law, or the merits. Subsection 12(3) of the Act adds new section 147B(5) (confirming or revoking a decision to grant an application to resign office and appoint AiB as new trustee) to the list of provisions, allowing the appeal to be on a matter of fact, a point of law, or the merits.
44.Finally, section 12(4) of the Act provides a transitional provision clarifying that for the purposes of calculating the five year periods referred to in new sections 147A(1)(b) and 147C(1)(b) of the 2016 Act, any part of that period which is before the commencement of those sections may be included.