Wednesday, 13 May 2020

Covid-19 and creditor petitions



(Image by Neal Nisbet from Pixabay)

A second Coronavirus (Scotland) Bill was introduced at Holyrood this week.  Parliament agreed yesterday to treat it as an Emergency Bill and it is now therefore on an accelerated timetable, with the third and final stage of its progress towards being passed as law due to take place on 20 May.

For businesses, one of the Bill's key provisions will be the proposal to raise the threshold for creditor petitions for sequestration of debtors from the current £3,000 to £10,000 (in England the threshold is already £5,000).  This higher hurdle for creditors is intended to provide an additional protection for debtors, meaning that fewer will face the threat of personal bankruptcy, and follows on from the increase in the length of the statutory moratorium, from six weeks to six months, that was introduced in the first 2020 Coronavirus Act. Scotland's Government has explained that the principal purpose of these measures is to give adequate time to those debtors who will be able to repay their debts, once they have recovered from the immediate financial shock caused by the economic impacts of the coronavirus outbreak. These measures will inevitably greatly reduce the number of creditor petitions proceeding through the courts, which ought to have the additional benefit of relieving some of the administrative burden upon both the courts and the Accountant in Bankruptcy.

The increase in the threshold for creditor petitions, if passed, will expire automatically on 30 September 2020, unless extended by the Parliament for no more than two periods of six months – so 30 September 2021 at the latest. The Scottish Ministers could bring the provisions to an end earlier than the expiry date if those are deemed no longer necessary.  The Scottish Ministers would also be required by the Bill to report on the continued need for the measures, and on the use of powers in the Bill, every two months.

Nevertheless, and despite the explicitly temporary nature of these proposed changes, we still don't know what the overall economic impact of the coronavirus outbreak will be nor how long it will last. The curve may be L-shaped, rather than V or even U.  The policy considerations underlying the change in the law are, expressly, those of debtor protection. Much law from Holyrood, not just provisions relating to Covid-19, has had similar underlying aims. Our Parliament does not have much of a history of removing protections like this. It may yet be that in the end it's felt sensible to keep the new limit and that it quietly becomes a permanent feature of our insolvency law. As with so much today, only time will tell.

Wednesday, 22 April 2020

The first virtual court hearing in Scotland - a practitioner's view


Yesterday, we acted for the appellant in the first ever virtual court hearing to take place in Scotland, in response to the COVID-19 pandemic.  The hearing was an appeal to the Inner House of the Court of Session, from a decision of the Sheriff Court in the case of Stuart Campbell v Kezia Dugdale.  The appeal was heard by The Lord President, Lord Carloway, sitting with Lord Menzies and Lord Brodie.  Craig Sandison QC appeared for the appellant and Roddy Dunlop QC for the respondent. 

The hearing had originally been scheduled to take place last month, the day after the nationwide lock-down was announced.  The new virtual hearing date was arranged in consultation with the clerk of court and Senior Counsels’ diaries on three week’s notice and it was agreed that parties would submit full written submissions in advance of the hearing, to assist with the smooth running of proceedings and to ensure that the court stipulated duration of three hours could be adhered to.

Following a brief training session on the video conferencing software by a member of the IT team at Scottish Courts and Tribunals Service a week beforehand, there was then a “dress rehearsal” with judges and counsel, to make sure everything was in place for the hearing proper, and issues, from echoey microphones to who to contact if there should be technological glitch during the hearing, were discussed.

The video conferencing software used by the courts worked extremely smoothly.  “Panellists” – the judges, counsel and the clerk of court - were provided with log-in details that allowed them to be viewed on screen and to be heard.  “Attendees” - such as agents, clients and members of the press -  were provided with a different link that allowed only viewing of the proceedings, with device cameras and microphones automatically muted.  Viewing proceedings in “gridview” allowed all panellists to be seen at once, much like a more cerebral version of  the “House Parties” those of us with a wide enough social circle are becoming accustomed to during this period of social distancing.

The hearing itself, once started, very quickly became indistinguishable from one proceeding in a physical courtroom.  We had arranged with Senior Counsel beforehand to contact each other by text message, should any issues arise where that would be required.  Judges appeared to have both hard copy and electronic papers to refer to, and were easily able to interrupt counsel where necessary to pose any questions they had.  There was only one brief moment of panic, when Senior Counsel for the Respondent failed to appear back on screen after a brief mid-morning break,  but that was quickly remedied.  The court made avizandum (that is, will consider matters and announce its decision at a later date) but then, rather than “court rise”, the video feed of each participant eventually unceremoniously flickered off screen, as each “left meeting”. 

In all then, a quietly historic moment in the provision of justice in Scotland. Our thanks go to everyone who worked so incredibly hard to make this happen and to make it ultimately seem so effortless.

[For some of the press and official comment on the hearing see:

Virtual court hears Kezia Dugdale defamation appeal and The virtual world is new normal in Scottish courts (BBC)
Court reports successful first virtual hearing (Law Society of Scotland)
Legal history as 'virtual court' hears Kezia Dugdale appeal case (Scotsman)
A small piece of Scottish legal history  (Scottish Review)] 

Insolvency and the dual patrimonies – how not to repay a gratuitous alienation




We recently acted for the successful pursuer and respondent in the case of Yvonne Quinn as Trustee in the sequestrated estate of John O’Boyle v Karen Brennan [2020] CSIH 3. The case proceeded to a reclaiming motion before the First Division of the Inner House of the Court of Session against an earlier decision of Lord Doherty, in which he had also found in favour of the pursuer.

Background
The facts of the case were not particularly complicated, nor was there any material dispute between the parties about them.  The pursuer was the trustee in sequestration of Mr O’Boyle. Mr. O'Boyle was sequestrated, at his own instance, on 11 February 2015.  Some six months prior to that, he sold a property he owned in East Kilbride, and transferred part of the net free proceeds of the sale, namely £190,960, to his partner, Ms Brennan.  Ms Brennan used the funds to purchase another property in East Kilbride.  Title was taken in her sole name.  After Mr O’Boyle’s sequestration had ended in May 2016, that property was sold, and in January 2017, Ms Brennan gave Mr O’Boyle a cheque for £197,462.20.

Gratuitous Alienation
Any insolvency practitioner reading that factual summary will immediately be jumping up and down, shouting “ gratuitous alienation”, for that is clearly what it was.  There was no dispute about that either from the defender.  Instead, the dispute centred on the narrow point of whether or not the payment of £197,462.20 by the defender to the debtor in January 2017, several years later and after the intervening sequestration, constituted “adequate consideration” for the alienation. The majority of cases in this area of law tend to focus on the “adequacy” of the consideration in question. This case turned on the meaning of “consideration” itself.