Developments in debt enforcement in Scotland

When looking to enforce a debt, it is important to be aware of the debtor's assets that can be sold. Both the law and the assets that hold value are always evolving. Recent decisions by the Scottish and English courts have looked at whether certain types of assets are available for debt enforcement (called diligence in Scotland). It is also now increasingly likely that debtors may hold wealth in the form of crypto assets and pensions. Those seeking to enforce debts in Scotland should be aware of these developments.

Crypto assets

In 2023, the FCA estimated that 4.97 million UK adults held crypto assets. This was double the number who held crypto assets in 2021. The market for such assets is volatile and their value fluctuates regularly, but many of these will be worth large sums. A creditor may want to enforce against these.

In England, there is a debate on the status of crypto assets, but it appears that the current law allows a creditor to enforce a debt against a debtor's crypto assets. In Scotland, the position is not so developed.

As crypto assets are not physical, the law of attachment is probably not useful. Only if the crypto are stored in a physical item (such as a laptop) would attachment be useful. It may be that the law of arrestment can be used if the crypto assets are held on an exchange, but these exchanges are unlikely to be based in Scotland. Where property is not subject to another form of debt enforcement, the law of adjudication for debt is available. But this is archaic and unsuited to digital assets.

It is likely that the law will develop over the coming years, and it is important to keep up to date with such developments.

Pensions

Pension wealth has been increasing over recent decades. If a debtor is an individual, much of their wealth may be in a pension. When seeking to enforce a debt against a debtor's pension, it will be important to check whether the debtor is already receiving their pension or not. If they are, an earnings arrestment may be possible. If the debtor could start to take their pension, the position is far from clear. English courts have required debtors to draw down their pension and the sums used to pay off their debts. But this uses a power unique to the English courts and separate advice on the position in Scotland is recommended.

Bank accounts

The arrestment of a bank account is probably the most common form of debt enforcement. This allows a creditor to take money from their debtor's bank account. However, a recent sheriff court decision (McKenzie v City of Edinburgh Council) prevented the arrestment of a bank account when it contained benefit payments from the government. This decision was based upon the interpretation of social security legislation. It raises questions on how to separate funds in a bank account which contains both benefits and money from other sources. It also remains to be seen whether the decision can equally be applied to bank accounts that contain money from public sector pensions since the legislation for those pensions often uses the same wording as that seen in McKenzie.

Land

Whilst houses and land may store much of a person's wealth, the law of diligence against land remains old and difficult to use. An inhibition freezes a debtor's land. This makes sure that the debtor does not sell the land or use it as security for other debts. An inhibition previously gave a creditor priority over any debts contracted after the date of the inhibition, but this was removed in 2009. Inhibition remains useful to protect the debtor's assets, but the only way to sell the land outside of insolvency proceedings is adjudication for debt. When using this method, the land can only be sold after 10 years. Legislation replacing adjudication was passed by the Scottish Parliament but has never been brought into force. Changes in the future remain a possibility.

Conclusions

When deciding whether to enforce a debt, it is important to assess the debtor's assets and the procedure for realising such assets, especially as both the value of the assets and the law evolves.

Our Commercial Disputes, and Debt & Asset Recovery Teams are on hand should advice be needed.