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22 May, 2018

Court’s power to halt sequestration proceedings

When sequestration proceedings have been commenced by a Sheriff granting warrant to cite the debtor, can a debtor take action to halt them? This important question has been resolved by the Inner House with its decision in Peart v Promontoria (Henrico) Limited [2018] CSIH 35.

In Peart, the debtors had been served with a charge for payment and the days of charge had expired. Sequestration proceedings were commenced by the creditor in Edinburgh Sheriff Court and warrant to cite the debtors was granted. The debtors maintained that they did not, in fact, owe the sums demanded in the charge for payment. The debtors brought a separate action for interdict in the Court of Session, and were successful in obtaining interim interdict, preventing the creditor from proceeding with their sequestration. The creditor appealed to the Inner House.

The Inner House has confirmed that bringing such proceedings is competent. The Inner House’s opinion provides important guidance to debtors and creditors faced with a similar situation. The Inner House recognised that in certain circumstances, the Court of Session may use its equitable powers to intervene to bring bankruptcy proceedings in the Sheriff Court to a halt, for example when the debt which is the basis for the sequestration is disputed. This can be done by a debtor seeking suspension of a charge for payment or, where the days of charge have expired, reduction of the charge or interdict of the sequestration proceedings. Such a remedy will only be granted, however, where a debtor can show ‘exceptional circumstances’ and where the debtor can meet the usual test for the grant of interim orders.

Giles Reid of Ampersand was junior counsel for the debtors in the Inner House. Usman Tariq acted for the debtors in obtaining interim interdict.

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