A judge was entitled to gant interim interdict to halt sequestration proceedings where the debtors' regular solicitors for some reason failed to act following service of the charge for payment, the debtors acted promptly to instruct new solicitors when a petition for sequestration was presented and the creditor held a standard security in relation to the debt, appeal judges in the Court of Session have ruled.

Lady Paton, Lord Brodie and Lord Glennie in the Inner House further observed that although the Bankruptcy (Scotland) Act 2016 was a consolidating measure, it did not, as argued for the creditor, lay down a complete and exhaustive code regulating bankruptcy procedure, to the exclusion of any equitable discretion in the court, but left open the common law remedies of suspension, reduction and associated interim remedies in appropriate circumstances.

The court gave its decision in an action by the Firm of Barry and Susan Peart, and the two principals in the firm, against Promontoria (Henrico) Ltd, who had applied for the pursuers' sequestration following apparent insolvency constituted by charges for payment served on the pursuers. The defenders were assignees of Clydesdale Bank, which had financed the pursuers' scheme to refurbish a property as their home and re-establish a working hydroelectric scheme there to provide income.

Loans were also secured over another property which the pursuers intended to sell, but the pursuers' case was that the bank in effect had a veto on whether any offer should be accepted and that offers were refused on the bank's advice. At a meeting the bank had however undertaken not to call up the loans until that property had been sold. After the debt was assigned, the pursuers received intimation that the loans would be called up; they made a complaint to the Financial Ombudsman alleging mis-selling by the Clydesdale Bank, and when charges for payment were served, petitioned for suspension and interdict. Promontoria undertook not to take further steps until the complaint had been dealt with.

The complaint was rejected in mid-2017, and Promontoria intimated that fresh charges would be served. The pursuers' solicitors pointed out that negotiations were continuing with Promontoria's agent, and requested no action meantime. However charges were served. The pursuers' solicitors initially said a meeting should be arranged with counsel, but failed to set this up within the days of charge. The petition for sequestration was presented, and warrant to cite was granted despite opposition from the pursuers' current solicitors, who had been instructed on the day on which the charge expired. On the following day the present action was raised. Interim interdict was granted following a hearing.

The Lord Ordinary, Lady Wise, considered that the pursuers had made out exceptional circumstances (which it was accepted had to be established where it was no longer possible to suspend the charge), as they had been "badly let down by their previous agents", and that the tests for interim interdict of prima facie case and balance of convenience had also been met.

On appeal Promontoria argued that the Lord Ordinary had failed to take account of the summary nature of sequestration, including the "fundamental policy" that once apparent insolvency had been constituted, the debtor's property had to be managed in such a way as to protect the general body of creditors; and that the court could only intervene at common law if that was consistent with the underlying policy and the 2016 Act: only then could exceptional circumstances arise. If the court did have a general equitable discretion, it still had to be exercised in the context of the fundamental policy of sequestration, and required a cogent and convincing justification for intervening.

Lady Paton, delivering the opinion of the court, accepted that the policy of the law was "to ensure that the procedure following upon an award of sequestration is summary and expeditious, taking the management of the estate out of the debtor’s hands and protecting the interests of the body of creditors". But the various consequences of sequestration did not occur until sequestration was actually awarded, and even then an action of reduction was competent as an exceptional remedy. The argument that the Act set out an exhaustive code failed to take the court's power to intervene into account – nor did it provide what was to happen in the event that the debt was disputed.

The present action was competent as "the court retains a general equitable discretion at common law, in exceptional circumstances, to grant interdict in terms such as are sought in the present case". Although it would only be in exceptional circumstances that the court would intervene, that test was not affected by the fundamental policy underlying sequestration. The Lord Ordinary had approached this in the correct way and had been entitled to conclude as she did.

As regards interim interdict, cases such as this were highly fact-sensitive and would require the hearing of evidence. The Lord Ordinary had been "entitled to take the view that a prima facie case, although not the strongest, had been made out", and to conclude that the balance of convenience also favoured the pursuers.

Click here to view the opinion of the court.