They do things differently in Scotland: Inhibition

In the context of debt recovery litigation, the obtaining of a decree (judgment) should not be an end in itself and this is particularly true in relation to volume debt recovery litigation. The purpose of a court decree is to enable the creditor obtain payment from his debtor of the sums of principal, interest and expenses (legal costs) due in terms of the decree. To achieve payment, either in full, or by instalments over a period of time, it is important that the creditor has a clear and defined strategy in relation to, firstly, the selection of accounts for litigation, to ensure that they are appropriate to be litigated on and, secondly, the enforcement of decrees to maximise the prospects of repayment.

An inhibition is sometimes stated to be similar to a charging order in England and Wales and while both are generally obtained after the creditor has obtained a decree or judgment, there are significant differences. For example, a charging order is recorded against the debtor's home or other property and entitles the creditor to thereafter apply to the court for an order to sell that property. An inhibition, however, is registered personally against the debtor and is a passive diligence (method of enforcement) in that an inhibition does not entitle the creditor to sell or to apply to sell the debtor's heritable property (land or houses).

As an inhibition is registered in the Register of Inhibitions against the debtor and not a particular property, it inhibits or prevents the debtor from selling any land or houses he may own in Scotland. While an inhibition does not entitle the creditor to sell the debtor's land or house, it prevents the debtor from selling or re-mortgaging his heritable property, without the consent of the inhibiting creditor. Where a creditor has registered an inhibition against his debtor but has been unable to enforce his decree and get payment, it is not uncommon for the debtor, sometimes several years later, to try to sell his house, only to find that he is unable to do so, as there is an inhibition registered against him. In this situation he must arrange to pay the inhibiting creditor before he can sell the property affected by the inhibition.

Inhibition: Some Key Points

• On obtaining the extract decree from court, a creditor does not require to make a separate application to court for an inhibition but does require to instruct Sheriff Officers to serve the inhibition on the debtor and register it in the Register of Inhibitions.
• An inhibition is personal to the debtor and applies to all land or houses owned by the debtor in Scotland. The creditor does not need to specify a particular property to register an inhibition.
• An inhibition only applies to heritable property (land and houses) already owned by the debtor. It does not apply to heritable property acquired by the debtor after the inhibition has taken effect.
• An inhibition prevents the debtor from voluntarily dealing with any heritable property affected by the inhibition, without the consent of the inhibiting creditor.
  • If the debtor's house is repossessed by his bank or his building society the inhibition does not prevent the bank or building society from carrying out the repossessing which would defeat the inhibition. This is because the repossession is not a voluntary action by the debtor.
  • If the debtor has concluded missives (a contract) to sell property before the inhibition has taken effect, the inhibition will be defeated as the conclusion of missives would place the debtor under a binding legal obligation and his selling the property in terms of the missives would not be a voluntary action by the debtor.
• An inhibition is effective for a period of five years but can be re-recorded before the expiry of 5 years if the debt has not been paid.
• While an inhibition is generally obtained after decree has been granted, it can, in certain circumstances, be applied for before decree has been granted. This is known as applying for inhibition on the dependence of the action.

Inhibition in Scotland can be a valuable legal tool but understanding its legal effect and its limitations, is critical in enabling a creditor to use inhibitions effectively as part of its debt recovery strategy.