The New Diligences - The Bankruptcy & Diligence Etc (Scotland) Act 2007

The Bankruptcy & Diligence etc (Scotland) Act 2007 (the

"BAD" Act) will radically reform the law of bankruptcy

and diligence as it is implemented in phases over the course of

2008 and 2009. This article looks at the three key new diligences

introduced by the Act and the impact they are likely to have on

both creditors and debtors.

The objective of the BAD Act is to modernise the laws of

personal bankruptcy and diligence, to strike a better balance

between the rights of creditors and debtors, and to support

business risk. The Act, so far as it relates to diligence, is based

on the Scottish Law Commission's proposals to systematise and

codify the law. Its objective is to make all types of assets

susceptible to diligence. The Act itself is substantial, extending

to 17 Parts and 6 Schedules. Despite its volume, much of the

mechanics of the Act will be set out in secondary legislation. It

is hoped that the Act will create a fair, effective and, crucially,

unified system of debt recovery.

Not surprisingly, the content of the Act has been the subject of

much debate and speculation, most of which has centred on the

provisions in relation to bankruptcy. However, this article focuses

on the Act's provisions in relation to diligence and

specifically, the three new diligences: Land Attachment, Money

Attachment and Residual Attachment.

Land Attachment

Land attachment is the most controversial of the new diligences,

as it allows creditors effectively to force the sale of a

debtor's land, including his principal dwelling house, in order

to recover a debt of £3,000 or more. The Act provides certain

safeguards for debtors, however, and a Sheriff will not sanction

this course of action if he considers it would be "unduly

harsh" to do so. Nonetheless, it is potentially a very useful

debt recovery tool for creditors.

Essentially, Land Attachment is a two-stage process - attachment

of the land followed by a Court process to secure the sale of the

land.

The first step for the creditor is to register a Notice of Land

Attachment in both the relevant land register and register of

inhibitions as soon as a Charge for Payment for a sum of

£3,000 or more has expired without payment. The Land

Attachment comes into effect 28 days after it has been registered.

At that stage, the Land Attachment operates in the same way as

Letters of Inhibition, that is, the debtor is effectively prevented

from selling his land, as he will not be able to exhibit a clear

title. Six months...