Corporate insolvency – some key differences between Scotland and England and Wales

Although the law, rules and procedures governing corporate insolvency in Scotland and England and Wales are similar in many respects, Scotland has a separate legal system and there are some important differences in the provisions and rules applicable north and south of the border. The differences include:

Insolvency Rules - Scotland has its own insolvency rules. In fact, as a consequence of devolution, it has two sets: the Insolvency (Scotland)(Company Voluntary Arrangements and Administration) Rules 2018 and the Insolvency (Scotland)(Receivership and Winding Up) Rules 2018.

Official Receiver - There is no Official Receiver, and thus no liquidator of last resort, in Scotland. A private Insolvency Practitioner must be nominated and consent to act in any corporate insolvency.

Interim Liquidator - A court in Scotland must appoint an interim liquidator when a winding up order is made. The interim liquidator must within 28 days seek nominations from the company's creditors and contributories for the purpose of choosing a liquidator.

Receivership - There is no Law of Property Act (LPA) receivership in Scotland. The only type of receivership available in Scotland is under the Insolvency Act 1986 where the holder of a floating charge over all or any part of the property of a company may appoint a receiver of the charged property.

Enforcement of security over real property – The only method of creating a fixed charge over real property in Scotland is by way of standard security and the security holder itself exercises enforcement powers. As above, there is no equivalent to the fixed charge / LPA receiver which exists in England and Wales.

Partnerships - In Scotland, partnerships, trusts and unincorporated bodies are subject to personal, rather than corporate, insolvency legislation. Therefore, rather than applying to wind-up a partnership in the same way as winding up a limited company, in Scotland a creditor would apply to sequestrate a partnership under the provisions of the Bankruptcy (Scotland) Act 2016.

Fee approval - In Scottish insolvencies there is no ability to agree Insolvency Practitioners' fees in advance with creditors, rather there is retrospective approval of accounts. Fees can be approved by creditors or by the court.

Disclaimer – In Scotland there is no statutory equivalent to the statutory power available to liquidators in England and Wales to disclaim onerous property or contracts. An Insolvency Practitioner can cause an insolvent company to decline to perform its contractual obligations. However, a liquidator has no power to divest the company of a real right in land by unilateral disclaimer.

Landlord's Hypothec - Landlord's hypothec is a common law security right enjoyed by landlords under Scots law which creates a fixed security for arrears of rent over the tenant's moveable property located on the leased premises. When the tenant enters an insolvency procedure the landlord's hypothec ranks as a secured claim and the landlord requires to be treated as a secured creditor in relation thereto.

Challengeable Transactions - Whilst England and Wales have transactions at an undervalue and preferences, Scotland has gratuitous alienations and unfair preferences. Although the challenges are similar, the tests and onus of proof differ between the jurisdictions.

Caveats - Interested parties can lodge caveats with the Scottish courts, entitling them to be given notice before the court makes any interim (immediate) order against a company. A caveat is triggered when an application to appoint a provisional liquidator is presented to the court.

Please don’t hesitate to get in touch with a member of the Restructuring and Insolvency team or your usual Brodies contact if you require any assistance in relation to Scots law insolvency matters.