Sequestration is the legal process where a person, partnership or trust is formally declared insolvent, almost always arising because they cannot pay their debts.
Post-sequestration, financial affairs are generally managed by a trustee for the benefit of creditors. If there is any money remaining at the end of that sequestration process, it is returned by the trustee to the bankrupt party. In all other ways, unsecured debts incurred before sequestration (subject to certain limited exceptions) are written off.
At the point of sequestration almost all the debtor’s assets, including those unlawfully transferred to others, are entrusted to an insolvency practitioner (the trustee appointed to administer the sequestrated estate). For most of their/its sequestration a debtor is subject to a Debtor Contribution Order which collects a percentage of a bankrupt party's income for around four or more years.
The trustee then takes their fees and outlays for administering the estate from the bankrupt party's assets. During sequestration the bankrupt party will have to, for example, complete (financial) questionnaires, be interviewed by the trustee and provide updates on their assets and liabilities and income.
The straightforward routes to sequestration generally stem from court orders, expired 14-day charges for payment, expired 28-day statutory demands or (powerful) documents of debt that allow summary diligence.
It remains possible for a creditor to ask a court to bankrupt a Scottish debtor when the sum due is for a few thousand pounds. That sequestration process is generally swift.
Bankruptcy applications can be based on an expired charge for payment or statutory demand; also note that the whole bankruptcy process is largely administrative, meaning that there is little room for a debtor to argue against their bankruptcy and a court judge has little discretion as to whether or not to grant bankruptcy, meaning that if all the sequestration paperwork has been properly prepared and served on the debtor, then the court has very little discretion as to whether or not to grant a sequestration court order.
In Scotland many creditors are now aware that sequestration offers a cost-effective route to ensure that they recover their debt particularly where the debtor owns land and heritable property that can be sold to pay off the debt.
Sequestration and Debt Recovery
Understanding the Sequestration Process
Learn how sequestration helps creditors recover debts by declaring debtors insolvent and managing their assets.
