The recent Accountant in Bankruptcy v Peter A Davies case examines how a family home is dealt with following sequestration of an individual. The sheriff's comments about the case suggest there could be room for improvement in the Bankruptcy (Scotland) Act 1985, to make the process clearer for everyone involved.

Case background

Mr Davies was sequestrated in October 2010. In 2020, the Accountant in Bankruptcy ("AiB") brought a case before Peterhead Sheriff Court and Sheriff McCrossan, under Section 40 of the 1985 Act, to allow the sale of Mr Davies' family home. Mr Davies defended the action, on the basis that:

  • the family home had re-vested in the debtor, Mr Davies, in accordance with Section 39A(2) of the 1985 Act;
  • the AiB had failed to renew a memorandum in accordance with Section 14(4) of the 1985 Act, meaning the proceedings were not competent and should be dismissed; and
  • the AiB advised Mr Davies that recovery of possession proceedings were not in respect of a family home and he relied on this to his detriment;
  • the AiB was personally barred from maintaining the commencement of proceedings for recovery and possession prevented the operation of Section 39A of the 1985 Act.

Both parties agreed that Mr Davies' property was a family home as defined in section 40 of the 1985 Act, which states:

"any property in which the debtor had a right or interest being property which was occupied …… as a residence by the debtor and his spouse or civil partner, or by the debtor's spouse or civil partner or former spouse or civil partner (in any case with or without a child of the family) or by the debtor with a child of the family".

The definition of family home therefore does not apply where the debtor resides alone.

Section 40 cannot be considered without referring to section 39A(2), which provides that a trustee must sell a debtor's family home within three years of the date of sequestration, otherwise the property reverts to the debtor's ownership. This automatic process is triggered only by the passage of time. The reversion to the debtor does not apply, per section 39A(3) if "at the end of the period of three years beginning with the date of sequestration" the trustee has taken certain actions (listed in paragraphs a to f of that section).

The purpose of Sections 39 and 40 of the 1985 Act are to provide some protection and certainty to individuals connected to a debtor; typically family members who would be adversely affected by a trustee's actions in ingathering and realising the debtor's sequestrated estate.

Therefore, as Sheriff McCrossan explained, the issues a court has to consider under a Section 40 application are "wholly distinct from those under a straightforward action for recovery of heritable property."


"Section 39A(3) is concerned only with what the trustee has done by that date; what the trustee may or may not do on a date thereafter cannot affect what happens on the date of the third anniversary. It [the property] reverts on that date or it does not".

The AiB argued that it had complied with sub sections 39A(3)(c) and (e) (iii), and as such, 39A(2) did not apply and Mr Davies' family home remained part of the sequestrated estate.

Sheriff McCrossan concluded that while the AiB had complied with section 39A(3)(c), by sending a memorandum to the Keeper of the Registers of Inhibitions on 3 July 2013, some months before the expiry of the three-year limit on 30 September 2013 , she also noted that the memorandum was sent on 3 July 2013, before the three-year limit expiry on 30 September 2013. Therefore, the reversionary effect of Section 39A(2) did not apply and the property remained part of the sequestrated estate.

Mr Davies argued in response that AiB could not rely on the sending of a single memorandum and that Section 39A(3)(c) required the trustee to send a memorandum on the expiry of every subsequent three-year period.

The sheriff disagreed, observing:

"Section 39A(3) specifically provides: “subsection 39A(2) shall not apply if during the period mentioned in that subsection the trustee sends a memorandum to the keeper of the register of inhibitions under section 14(4).”

Sheriff McCrossan's view was that Section 39A(3) was only concerned with whether the trustee had sent a memorandum within that period and thus disapplied the automatic reversion to the debtor.

Section 14(3) provides that the inhibitory effect of sequestration expires "at the end of the period of three years beginning with the date of sequestration". Section 14(4) allows a trustee to extend the inhibition by submitting an appropriate memorandum before the expiry of the three-year period detailed in Section 14(3). The sheriff commented that the trustee had no obligation to do so and that if they did not, the inhibitory effect would be lost.

It is usual for trustees to renew the inhibition through the appropriate memorandum, so it doesn't lapse, but it did lapse in this case. From July 2016 until a date in 2019 when the AiB sent a further memorandum to the Keeper, there was no inhibition on the debtor's property. This exposed the trustee to a risk that the debtor could deal with the property and a third party acting in good faith could obtain the property. The sheriff made it clear though that this was a separate issue and did not alter the fact that during such a period, the debtor's interest in the property remained vested in the trustee.

The AIB claimed that an action raised in 2012 for recovery of heritable property was the commencement of such proceedings. The sheriff disagreed, observing that the 2000 proceedings were not as defined in Section 39A(3)(e)(iii).

While they were in relation to the heritable property which is the subject of the present Section 40 application and were proceedings for recovery and possession they were "very specifically not proceedings in respect of those subjects qua a family home".

The proceedings were raised against Mr Davies as an individual and no reference was made to him living with anyone else. The statement of claim was unequivocal in narrating "the property is not a family home in terms of Section 40 of the Bankruptcy (Scotland) Act 1985.

The sheriff commented on the clarity of Section 40 and stated that "before a trustee can sell or dispose of a debtor's interest in a family home he must either obtain the relevant consent or the authority of the court."

No consent was provided and Section 40 makes it clear that it applies to an action brought by the trustee for "the purpose of obtaining vacant possession of the debtor's family home as that sub-section applies to an application under sub-section (1)(b).

The debtor lodged a defence in the 2012 action, claiming that the property was a family home. It was not until after the end of the three-year period in section 39A(2)that the AIB sought the dismissal of that first case, prior to raising the current Section 40 application.

The sheriff's opinion was that the prior action was not a competent action under Section 40. The AiB conceded by a date in 2012 that it knew the subjects were the family home and as such could not have sought decree for possession on the basis averred in the previous summary cause action. The AiB argued that 39A compelled the trustee to provide evidence to the debtor of the intention to take action regarding the family home. The sheriff commented:

"if one considers the issue of “intent” and looks at what has been done by the trustee here: it could hardly be said that the raising of proceedings for the recovery of subjects specifically on the basis that they were NOT a family home (as clearly averred) would in any way evidence to the debtor or his family that the trustee intends to take steps to recover the debtor’s family home."


"[I]t could hardly be said that the raising of proceedings for the recovery of subjects specifically on the basis that they were not a family home (as clearly averred) would in any way evidence to the debtor or his family that the trustee intends to take steps to recover the debtor's family home".

Mr Davies also made a personal bar argument, claiming that as a result of a letter from 17 October 2012, the AIB could not claim that the proceedings under Section 40 were compliant with Section 39A(3)(e)(iii). The letter is exerted in the judgement, but quoting the key section, the AIB stated "it is deemed a family home".

The sheriff's view was that no relevant plea of personal bar could be made. The question was one of a statutory rule and had to be resolved as a matter of fact. What the trustee said to the debtor in correspondence couldn't alter whether he had taken the necessary steps and triggered an automatic consequence. The sheriff was also not satisfied that circumstances amounted to a relevant plea of personal bar at common law and that in particular, unfairness wasn't an issue.

She did, however, observe that the correspondence was not "wholly irrelevant" and could "persuade a sheriff that the content of the communication is a relevant circumstance he should have regard to when determining when to give authority to the trustee under the substantive Section 40 application."

Sheriff McCrossan concluded her judgement with two main observations:

"the purpose of Section 39A is to ensure that the trustee deals with the debtor's family home within a reasonable period. This is achieved in the first instance by a rule that it automatically reinvests in the debtor after a period of three years".

That can, of course, be disapplied by the trustee taking more of the steps set out in Section 39A(3).

However, she commented,

"The sending of a memorandum to the Keeper is not such a proactive step. It does not by itself ensure the realisation of the debtor’s interest in the family home within a reasonable time. Nor does it provide certainty to the debtor’s family."

It seems to have been the sheriff's view that there may have been an inappropriate delay here and that the purpose of Section 30A might be better served by requiring trustees to take a different route if they have not realised the family home by the third anniversary of sequestration. She proposed that instead of seeking to disapply Section 39A(2) via a memorandum, Section 39(A)(7) could be used to ask the court to substitute a longer period in sub-section (2) before the family home automatically re-vested in the debtor. If such a difficulty had been occasioned by a lack of co-operation from a debtor, an extended period could be substituted, to provide a clearer timeline and more certainty for a debtor's family.

Our thoughts

The relevant orders under section 40 are likely to be granted when this matter proceeds to proof as the legislative position is weighted in favour of the debtors' creditors and against a debtor being able to retain a property.

What is interesting about this case, however, is the sheriff's comments, which indicate that legislation could be improved to clarify matters, at the very least to provide more certainty for debtors.

Given the move towards increasing access to debt relief and modernising bankruptcy law so far adopted by the Scottish Government, this may be an area where we will see further development.

The decision also provides helpful clarification about the nature of a trustee's duties in relation to a debtor's family home, in terms of Section 40 of the 1985 Act and will be relevant to questions of interpretation of the equivalent section 112 of the Bankruptcy (Scotland) Act 2016.