Creditors and Coronavirus

As the scale of the economic impact on businesses and individuals of the Coronavirus pandemic becomes apparent, the Scottish and UK governments have sought to protect companies and individuals from creditor led insolvency events.


In implementation of this policy the Scottish Government has increased the level of debt required before a creditor can petition for an individual's sequestration from £3,000 to £10,000, extended the moratorium period protecting any debtor from a petition for sequestration being lodged from 6 weeks to 6 months, and the Accountant in Bankruptcy (who is Trustee in the majority of Scottish bankruptcies) has ceased any property sales and evictions and encouraged other Trustee's to follow suit. For more details on the changes to the moratorium period please see my colleague Lucy McCann's blog from 16 April 2020.


Across the UK the Corporate Insolvency and Governance Bill returned to Parliament from the House of Lords on Wednesday, 24 June and will receive Royal Assent soon. The provisions of the Bill restrict the use of statutory demands and winding up petitions and introduces a significant new insolvency process known as a Moratorium. The Moratorium is a director led process that provides a 20 day protection period to companies from their creditors and appoints an Insolvency Practitioner to "monitor" events during this process, which in actual fact is likely to last 40 days, as a further 20 day extension is automatically granted upon application.

Access to the Courts:

These measures firmly cement the "rescue" culture prevalent in Scottish and UK insolvency processes; however they introduce significant new, and potentially long lasting hurdles for creditors seeking to recover a debt. The problem for creditors is compounded by the fact that these new measures have been introduced a time when normal Court processes have slowed to a crawl or ceased altogether.

With the easing of the lockdown and reopening of Sheriff Courts, many of which are operating at only 30% capacity due to social distancing, creditors seeking to wind up a debtor company or sequestrate an individual also face the practical hurdle of simply having their action dealt with and processed by the Courts.

The Lord President, Lord Carloway, recently commented that widespread reform was needed to deal with this ever increasing backlog of cases. In response, the Scottish Government are considering amongst other things, opening temporary courts and bringing back retired members of the judiciary to assist.

All of this is unlikely to assist many creditors at this moment in time, that require to ingather funds to protect their business or stave off other creditors. It is laudable to protect those made vulnerable as a result of the unprecedented economic impact of the Coronavirus: however, clearly further innovative solutions will be required to overcome this crisis and perhaps restore the balance between creditor and debtor.