Access to land is the key to a fairer system, says Andrew Stevenson
The lender whose debtor grants a standard security knows there is that protection on default. But what of that unintended rather than willing creditor, the holder of a court decree for payment?
Pursuers often assume, understandably, that a decree is a panacea. This is a mistake; if the debtor is poor, the pursuer will simply have thrown good money after bad in obtaining the decree and would continue to waste money in relation to the subsequent process designed to enforce it. This latter form of procedure, known as diligence, is a crucial but often overlooked area of law.
Diligence is particularly deficient in enabling the unsecured creditor to compel the sale of the debtor’s land. She has no effective way of taking possession herself or forcing her debtor to sell. I recall one creditor whose ex-husband, the owner of shop units and prime building land, sat comfortably in his large house refusing to pay the financial provision the court had ordered him to pay.
Short of sequestrating him, there was no effective way of parting him from his substantial holding of land and buildings. The remedy of inhibition merely stops the debtor from alienating or burdening the property. It remains in the debtor’s ownership.
In 2001, the Scottish Law Commission said radical reform was long overdue. This need was recognised when the Scottish Parliament enacted the Bankruptcy and Diligence (Scotland) Act 2007. Royal Assent was given in January 2007. Part 4 of the Act created the diligence known as land attachment. However, four months later, before this provision had been implemented by commencement order, Labour was ousted and Alex Salmond became First Minister.
The SNP was not supportive of land attachment. Its solution, once in government, was to refrain from granting the order that would have brought Part 4 into effect. Over 12 years later, we are no further forward. So, what is the current mechanism for an unsecured creditor to compel the sale of her debtor’s land? An antiquated procedure from the reign of the Stuarts.
In 1672 the parliament of King Charles II passed the Adjudications Act. An action of adjudication for debt may be raised only in the Court of Session and although it affords a security akin to inhibition the creditor must wait a decade (known as “the legal”) whereupon, if she remains unpaid, she may petition the court for a declarator of the expiry of the legal.
If, at this point, the debtor fails to pay, ownership of the land passes to the creditor. During her ten-year wait, the impatient creditor may find solace and consolation in her entitlement to recover rent from the property by means of another diligence known as maills and duties. But the efficacy of this means of generating an income is dependent upon the land being tenanted. The SLC thought that “adjudication is an archaic and cumbersome diligence”. A rare example of an action for declarator of expiry of the legal was in 2011 where Lord Turnbull observed that it was a “remedy unheard of in modern times”.
If it ever sees the light of day, Part 4 of the 2007 Act will abolish adjudication for debt and in its place introduce land attachment. An application may be made to the sheriff for a warrant to sell the attached land once six months have elapsed from the date of registration of the attachment. If granting the warrant would be unduly harsh the sheriff may suspend its effect for no more than a year or refuse it altogether.
There have been valid criticisms over the lack of debtor protection in Part 4. The solution must be to introduce a reasonableness test, as in England.
The counterpart there is the charging order, where judicial discretion determines whether an application is granted and in relation to a warrant to sell. Unsecured creditors in Scotland are entitled to expect the Parliament here to put in place a modern, effective, fair system of diligence against land, and this lacuna should be tackled now, rather than by mothballing completely a major portion of a statute that our MSPs already saw fit to enact. It is misconceived to regard all debtors as victims and all creditors as being in a position of strength.
Andrew Stevenson is a Council Member, Scottish Law Agents Society