The question of whether or not a trustee in bankruptcy can sell a family home to help recover the debts of an individual varies on a case-by-case basis. The law in Scotland provides protection to a debtor's immediate family, but permission can still be granted to sell the property – if five factors are considered first.

Section 113 of the Bankruptcy (Scotland) Act 2016 (the "2016 act") provides that a Trustee in Bankruptcy must obtain "relevant consent" or the permission of the court before they can sell or dispose of a debtor's interest in their family home, whether the property is solely owned by the debtor or jointly with another party. The court is entitled to delay permission to sell (or otherwise dispose of) the family home for up to three years.

Section 113 is designed to provide protection to a debtor's immediate family; ensuring a Trustee must obtain consent before removing them from their family home and selling it.

As with all things, the devil is in the detail. "Family home" is defined widely. It means any property in which the debtor, at the date of sequestration, had an interest and was being occupied by:

    • the debtor and their spouse,
    • the debtor's spouse,
    • the debtor's former spouse with or without a child; or
    • the debtor with a child of the family.

    "Relevant consent" means in relation to the sale or disposal of the debtor's interest in the family home. In a situation where the property is occupied by the debtor's current or former spouse, this refers to that individual's consent, and in a case where the family home is occupied by the debtor with a child, it would be the consent of the debtor.

    This issue was recently considered by the Sheriff Appeal Court AIB v Brooks 2020 SAC (Civ) 15 (Brooks)in which the Accountant in Bankruptcy (AiB), acting as Trustee, raised an action against the debtor and his spouse – Mr and Mrs Brooks - and sought permission to sell the family home (known as an action of division and sale).

    Mr and Mrs Brooks opposed this action. The Sheriff found in favour of the AiB at first instance, so Mr and Mrs Brooks appealed and the matter went before the Sheriff Appeal Court (SAC).

    The SAC provided a helpful summary of how the law has developed on family homes and bankruptcy, since first being introduced by section 40 of the Bankruptcy (Scotland) Act 1985. The SAC also considered the differences between the 1985 Act and section 113 of the 2016 Act. Without the protection afforded by section 113, anyone who owns property with a bankrupt individual would not be able to resist an action for division and sale of the property. The reason being that the right to division and sale is an absolute right under Scots Law.

    In the Brooks case, there was no dispute that the Trustee held the rights and interest of Mr Brooks in the property, nor that it was a family home. The right to refuse consent belonged to Mrs Brooks.

    The SAC concluded that it was doubtful Mr Brooks had any relevant defence given that his wife was the party required to provide consent in terms of the 2016 act. They also highlighted that given the debtor's status as a joint owner of the property, the Trustee had an almost absolute right to insist upon an action of division and sale.

    Section 113 (2) (a) to (e) sets out five factors to be considered within "all of the circumstances of the case":

    (a) the needs and financial resources of the debtor's spouse or former spouse;

    (b) the needs and financial resources of the debtor's civil partner or former civil partner;

    (c) the needs and financial resources of any child of the family;

    (d) the interests of the creditors; and

    (e) the length of the period during which (whether before or after the relevant date) the family home was used as a residence by any of the persons referred to in… (a) to (c),

    The SAC confirmed that the factors above are not exhaustive; there may be other issues that could be relevant such as behaviour of the debtor. However, other issues will not always be applicable. and the weight attached to those will vary case by case.

    The SAC detailed the powers of the court, being, to refuse the application, to postpone the granting for a period not exceeding three years, or to grant the application subject to such conditions as the Sheriff wishes to set. The SAC then examined the relevant historic cases that deal with outright refusal and the attachment of conditions, to inform their consideration of the situation in Brooks.

    Of the five factors set out in section 113, only one relates to the needs of others - the interest of the creditors - and none relate to the debtor. The SAC highlights that the ultimate test for the court to undertake is one of reasonableness, in light of the particular facts and circumstances of the case. In the Brooks case little information was provided about the parties' income, capital or access to alternative accommodation, particularly in comparison with previous cases. Having considered this, together with the correct approach to section 113 as set out above, the SAC concluded Mr and Mrs Brooks' written case was not a relevant defence, because they did not provide any basis on which decree could properly be refused or delayed for up to three years, nor did they give properly specific and detailed notice to the pursuer of the case they faced.

    The SAC therefore concluded that the appeal should be refused and AiB entitled to the expenses of the action.

    This case reminds us that a debtor seeking the protections of section 113 must go further than simply alleging that they will be rendered homelessness or suffer hardship. They must set out reasons for those claims and provide appropriate supporting evidence. Failure to do so means that the creditor's interests will remain paramount and the debtor's prospects of success poor.