In recent weeks we’ve been looking at some of the terms that are used in the debt recovery industry and explaining what they are and how they work. Bankruptcy in Scotland is of course governed by Scots Law.
Insolvency can often be a fast method of recovering cash – particularly if your debtor wants to continue in business.
Insolvency can be instructed at different stages, either when using the Statutory Demand Procedure, or after judgment in a court action, where no payment has been made following the first stage of enforcement.

Bankruptcy
We can bankrupt individuals, sole traders or partnerships.

What do we do?
After we receive your instructions we prepare a bankruptcy petition and send it to the court for processing.  Once the court has done this we then serve the petition on the debtor.  This entire procedure should not take more than 2 weeks.
If the debtor is serious about carrying on in business - or for other reasons does not want to be declared bankrupt – we will be contacted with settlement proposals.  We’ll contact you immediately when this happens. 
If we do not hear from the debtor we’ll just proceed with a bankruptcy order.  This will not involve you in further expense.
Liquidation in Scotland

The emphasis should always be to spend money only where recovery prospects are good.

We can liquidate Limited companies.

What do we do?

We present a Petition for the appointment of a Provisional Liquidator.  This will take one-two weeks following receiving your instructions. 

The Provisional Liquidator will attend the company’s premises to assess whether the debt can be discharged by third party funds – usually cash injected personally by a company director or shareholder.

If the Provisional Liquidator is unable to get settlement he will assess whether it’s financially worthwhile taking the liquidation further – we’ll not proceed to the next stage without discussing the options with you.

A brief summary of the Procedure:
i.If the debtor company discharges the debt in full via funds from a third party then we will have the petition dismissed.
ii.If the debtor company is unable to discharge the debt but has sufficient assets to settle the liquidator's fees then we will proceed with the liquidation.
iii.If the debtor company is unable to discharge the debt and has insufficient assets to satisfy the liquidator's fees then we will have the petition dismissed.

Often Scottish businesses are reluctant to use the legal system, unless it is the only place left to turn. Scottish businesses, and people doing business in Scotland, need to use Scottish law obviously. One of the options open to you in Scotland is an Enforcement Option. In this blog we explain a little more about what an Enforcement Option is and why it can be of benefit to Scottish business.

Charge
This is the first stage of the enforcement process. Once decree (judgment) is granted, Sheriff Officers visit the debtor, leaving a formal demand for payment for the sum due with interest and expenses within fourteen days. If no satisfactory proposals are made further enforcement can proceed.

Arrestment
Third Party Arrestment  This process prevents a third party from making over money to your Debtor. An arrestment can be placed on these funds to settle your outstanding debt.

Bank Arrestment: If the debtor’s bank account details are known then an arrestment may be placed on the account to secure funds to satisfy the outstanding debt.

Earnings Arrestment: If the debtor is in employment one of the most effective procedures is ‘Earnings Arrestment’, which is the equivalent of the English ‘attachment of earnings’. An arrestment is placed in the hands of the debtor’s employer, meaning that a regular amount may be deducted from the debtor’s salary to satisfy the debt.  However, we should highlight that creditors will have to know the identity of the debtor’s employer.

If property is outside of a house, the process involved in the disposal of the debtor’s assets is known as ‘Attachment and Sale’. This is very similar to the English equivalent of ‘Execution against Goods’.

If the goods are in the debtor’s house the far more cumbersome process of having to persuade the court to grant an ‘Exceptional Attachment Order’ means this measure is not often used.

Inhibition

Of particular interest to creditors is ‘Inhibition’. In an effort to secure your debt, we may be able to inhibit the debtor from granting security or selling their heritable (fixed) property. This will include a house or commercial property if registered in the land register.

Both Arrestment and Inhibition can be used prior to judgment, although the creditor has to show that the debtor is in financial difficulty and possibly attempting to deplete assets.

Very often businesses are daunted by the legal system. Yet when it comes to recovering monies owed or trying to collect legitimate payment for work done often the law is the only place left to turn. Scottish businesses, and people doing business in Scotland, need to use Scottish law obviously. One of the options open to you in Scotland is a Statutory Demand. In this blog we explain a little more about what a statutory demand is and why it can be of benefit to Scottish business.

Statutory Demand

You should consider this option if you’re particularly concerned about payment of a large debt.  For individuals, we are able to issue a statutory demand for payment, though debts have to be greater than £3000.  The statutory demand procedure is also available for limited companies, though in this case the debt has to be greater than £750.

Subject to the debtor not denying the debt, or there being a genuine dispute, then we are able to proceed with an insolvency process.  You should supply invoices or a statement of account supporting the debt.

What we do

We prepare a formal demand in terms of either the Insolvency or Bankruptcy legislation and instruct court officers to serve it on your debtor.

If there is no denial within 21 days after service we are able to institute insolvency proceedings.

If there is a denial and you want to take the matter further then you still have the option to instruct a court action.

Scotland has its own legal system, quite separate from the rest of the UK. As such it is important that Scottish businesses and those outside Scotland but doing business within in are aware of this. We felt it might be beneficial to go over some of the area’s any business operating in Scotland might expect to encounter in relation to bad debt prevention and collection. 

Enforcement of Decrees
The responsibility for enforcing sheriff court decrees falls on sheriff officers.
The generic term for Scottish enforcement is known as ‘diligence’. Different measures are employed depending on whether the defender’s moveable property is situated either outwith or within a dwellinghouse. The effectiveness of diligence can best be described as a ‘filtering process’ with the slow payers settling earlier on in the enforcement regime.
Judgement enforcement in Scotland was radically reformed by the Debt Arrangement and Attachment (Scotland)Act 2002 and will be enhanced following implementation of the Bankruptcy and Diligence (Scotland) Act 2007. The legislation deals more sympathetically with individual consumer debtors. Commercial debtors have less protection.

THE DEBT ARRANGEMENT SCHEME
A central feature of the 2002 Act is the Debt Arrangement Scheme available to individuals and sole traders, allowing them the opportunity of repaying their debts in a managed way over a given period of time without the threat of enforcement. Such individuals should have surplus income to repay their debt by instalments.
During the existence of a DAS judgement enforcement and applications for the debtor’s bankruptcy will be prohibited. Also, it will be incompetent to carry out judgement enforcement whilst an application is being considered. 

A lot of what we’ve written about up to now has been aimed at keeping Scottish businesses out of court. Court should always be the last option. However from time-to-time you may find you have no option but to go to court. So we’d like to give you a little introduction to that side of the business.

In Scotland there are three different types of court action depending on the debt value:

Small claims - debts up to £3,000
Summary Cause – debts £3,001 to £5,000
Ordinary Actions – debts over £5,000

The small claim is, in fact, a species of the summary cause.
Generally all straightforward debt actions will be taken in the Sheriff Court of the defender’s residence or the court where the defender trades.

If court action has to be taken it should be taken as soon as possible.  This is because if the debt is less than £5000, it can take between 6-8 weeks to get to judgment.  For debts greater than £5000, the period should be 4-5 weeks. 

Summary Cause Actions
A court action is commenced by the claimant preparing a summons on a pre-printed form. Supporting invoices or a statement of account should be produced to the court along with the summons.
A copy of the summons will require to be served (issued) on the defender.  This is done by the claimant’s lawyer – usually by recorded delivery post – and thereafter by sheriff officer if postal service is unsuccessful.
With any summons there will be two critical dates, being the return date and calling date.  Generally the return date is the day when the defender must return any document to the court whilst the calling date (always 7 days after the return date) is the date the case will call in court for a hearing.
What happens if the claim is undisputed?
If in response to the summons the defender does nothing the pursuer can ask for judgment (known as minuting for decree) by completing a pre-printed form.  Judgment will be granted at the ‘calling date’. The court takes about three weeks to send the judgment to the claimant’s lawyer. However, where appropriate (in cases where the defender is an individual or small trader) the defender may admit liability and offer to make payment of the debt by instalments or by a deferred lump sum – known as a Time to Pay Direction or Time to Pay Order.  

Ordinary Actions
Unlike summary cause there are no pre-printed forms.  The writ will drafted and forwarded to the court. The defender has 21 days after service of the writ to decide what action to take. 

Defender’s responses
There are various ways the defender can respond to the service copy writ. The defender does nothing – the claimant can, on the expiry of 21 days, minute for decree. If the defender admits the claim and makes a payment offer the claimant completes an appropriate form and sends it to the court. If the offer is unacceptable the case will call in court and the court will decide if the application should be granted. The court takes about three weeks to send the judgment to the claimant’s lawyer.  

The past few years have been challenging for debt recovery.  There is no doubt that achieving settlement when an account is delinquent is more difficult.  The key requirement for all organisations is to have an effective credit control policy in place and to stick to it.  Typically this should ensure that accounts are rendered quickly, accurately and addressed to the correct person.  Thereafter the creditor should ensure follow up measures are taken.  The idea here is to expedite payment by writing to the debtor, phoning and possibly a visit to their premises.  These measures may well lead to settlement.

Once the creditor’s own procedures have been exhausted then the account should be passed to a third party for collection. Typically a specialist Debt Recovery Lawyer will be able to accelerate the recovery process to meet a particular creditor’s requirements.  Some debt recovery specialist lawyers have online case management systems allowing clients to look at their cases and instruct them “24/7”.  What will a lawyer do?  This will all depend upon the client’s instructions.  Typically, as a starter, the lawyer will send a letter to the debtor demanding payment.  And remember if the debtor is a business interest at 8% above the Bank of England base rate as well as collection costs can be added to the debt.  This often produces a positive result.  If further action is needed then the lawyer may well suggest taking the debtor to court followed by Sheriff Officer enforcement.  Insolvency proceedings may also be used as an alternative.

However it is important for creditors to act quickly.  And remember you cannot get blood out of stone.  If the debtor has no assets it is unlikely creditors will be successful.  But if the debtor is a slow payer a letter before legal action followed by litigation should do the trick.

Yuill + Kyle have been based in Glasgow city centre since 1908. In the past the firm has offered a broad spectrum of services, however for almost a decade now the firm has been entirely focused on the provision of debt recovery services.

Not Standing Still
Although Yuill + Kyle have been around for 100 years, we are continually evolving to find new and innovative ways to add value to our clients’ experience. We have invested heavily in new technologies to make sure we are able assist clients in the most efficient manner, allowing for favourable outcomes in terms of recoveries. 
Our extranet, www.ykonline.co.uk  allows clients to log on and view their cases in ‘real time’ so that they are always kept up to date with any new developments. This enables decisions to be made more quickly, resulting in clients recovering their debts sooner rather than later.

Yuill + Kyle can assist organisations with volume debts, as well as helping individuals with just the occasional need. Flexibility is the cornerstone of our operations, enabling us to deal with the particular issues of each case in a customised fashion.
Our approach has proven a success with international and local companies, along with Debt Collection Agencies and English firms of Solicitors specialising in this area.  The financial services and building industry are among important client sectors.

Once again we are focusing on some of the commonly asked questions regarding late payment charges. For Scottish businesses this can be a key tool in avoiding bad debt.

Can My Purchaser Avoid Paying Interest?
Basically if your purchaser says the Late Payment legislation does not apply the court will declare this to be void.
If this happens you will still be entitled to take advantage of all the remedies the Act provides. This is because the intention behind the legislation will be avoided if purchasers were to say the late payment of interest legislation did not apply at all, or that some sort of lesser remedy should be substituted. If allowed this would completely circumvent the legislation.

Can Your Purchaser Offer An Alternative To Interest Under The Act?
It is not unlawful for your purchaser to provide their own remedy if payment is late but if they do it must be "substantial". If a court finds the remedy not to be "substantial" then it will be declared void and the late payment legislation will apply.
The contractual term will be void if it:
• fails to provide a contractual right to interest which is not a substantial remedy for late payment of the debt; or
• varies the right to statutory interest which fails to provide for a substantial remedy for late payment of the debt.
How will the court decide if the purchaser's remedy is substantial?
Basically the court will want to ensure the seller has, in all the circumstances, a substantial remedy in the event of a purchaser failing to settle their account on time. The following are non-exhaustive examples which will be deemed unfair. In these examples the late payment legislation will apply:
• Credit periods which avoid the possibility of late payment.
• Credit periods which greatly differ from established practice in a particular industry.
• Variations in credit periods offered to other suppliers by the same purchaser.
• Interest rates lower than the statutory rate the effect of which means the supplier does not receive from the purchaser interest for a sufficient amount to over the theoretical cost of borrowing the cash.

How Can Representative Bodies Help?
If you are a small to medium enterprise a representative body can question whether a purchaser's terms give the effect of undermining the purposes of the late payment legislation.
What they can do is take the issue before the court on your behalf. Indeed in certain circumstances they can do this on your behalf without your even having to make the request. For this to happen the representative body will have to demonstrate a relevant link with you such as acting for similar organisations such as yours; for a particular industry sector or geographical area.

Can you Charge for Interest Retrospectively?

This is a question we are asked a lot and not just by the many Scottish businesses we work with. The answer is "Yes" although you will have to watch limitation periods – this is 6 years in England and 5 years in Scotland.

When will your purchaser be "late" in paying?
Again we are asked to clarify what actually constitutes ‘late payment’ regularly and for all businesses operating in Scotland it really is something you should know. Payment will be late in the following circumstances:
•If you have agreed a credit period with the purchaser, their payment will be late if made after that agreed date. The agreement can be made orally or in writing.
•If no credit period has been agreed interest will commence 30 days after the later of the following:- 1.You have delivered the goods or performed the service; or 2.The day on which your purchaser has received notice of what is owed to you.
This 30 day period is known as "the 30 day default period". The moral is to both invoice accurately and as soon as possible. If you do not invoice at all or your invoice is inaccurate the default period will not start and you will lose some interest.

What if your contracts provide for advance payment?
•If your contract provides the whole price has to be paid before the goods are delivered or service performed and payment is not made then interest will commence as soon as you have performed your part of the bargain.
•If you have an instalment contract then interest will commence on the day after the instalment is due.

Unlike previous legislation which differentiated between different types and sizes of organisation all businesses, notwithstanding their size, including public sector bodies, can use the law. So if you are a Scottish business trading with another business, government or local authority you will be able to use the Act and benefit from being able to recover interest as well as reasonable recovery costs.
Are you obliged to use the Act?
The answer is "no" although it is hoped the more often the Act is used the greater businesses will be aware they will have to pay their bills on time leading to a new culture of payment being required within credit periods.

Can You Use An Alternative to the Legislation?
There is no reason why you cannot contractually agree the amount of interest you wish to charge your customers in which case the late payment legislation will not apply.
So, for example, your terms and conditions may stipulate you are entitled to an agreed defined rate in the event of your account being overdue by 21 days following delivery of goods or performance of services.

Note: (1) If you do make your own provisions for contractual interest then the late payment legislation will not apply.

(2) If you do not make any arrangements for interest then the legislation will apply and you can use it.

The Yuill + Kyle website at www.debtscotland.com gives users the option to download free demand letters. These letters provide the option to:
1.Charge no interest;
2.Charge contractual interest or
3.Charge Interest under the legislation.
4.Add collection cost, where appropriate.
These can be found in the ‘DIY Toolbox’ part of the site at http://www.debtscotland.com/recover.cfm