Diligence

• Diligence describes the attachment of the debtor’s assets to force them to provide security for, or to implement, a judgment or document of debt
• judicial/involuntary security = the process of asking the court for a judicial security and its respective rights is known as diligence
• Seize diligence (eg. Attachment) — enables the creditor to transfer property out of the debtor’s patrimony without the debtor’s consent; may transfer into their own patrimony, or to a third party (proceeds of sale satisfying the debt)
• Freeze diligence (eg. Inhibition) — prevents debtor from transferring property out of their patrimony or granting subordinate real rights in respect of it without creditor’s consent
• Diligence can only be effected against assets in the debtor’s personal patrimony (does not affect trustee’s trust patrimony)
• Any right the creditor receives from the debtor as a result of diligence can be no better than the right held by the debtor in the first place
• Diligence applies on a first come first served basis = application of Prior tempore, potior jure
• Nemo plus - If the assets are not owned = no right over it; Diligence cannot be effected
• Diligence can only be used by warrant from court to enforce debts - either in execution or on the dependence
• Diligence on the dependence is used when there is a chance of the debtor selling/giving away property; allows the creditor to freeze defender's assets whilst court action is ongoing
• Diligence in execution is when the creditor is going through with the action
• The first step of the diligence process is to establish existence of debt
• Summary diligence is when the parties agree in contract to expedited enforcement procedure
• When contract clause exists stating that the parties ‘consent to registration for execution’ or ‘consent to registration for summary diligence’ = consenting to court decree coming into existence without needing to go to court
• Consent to registration for execution/summary diligence takes effect when document is registered in Books of Council and Session → registered document = proof of existence of debt equivalent to court decree
• Where the debtor is a natural person, it is usually necessary to provide them with a debt advice and information package before diligence can be enforced; DAIP is booklet prepared by Accountant in Bankruptcy on behalf of the government (Debt Arrangement and Attachment (Scotland) Act
• DAIP sets out

  • rights in relation to legal proceedings
  • advice on how debt might be managed
  • further support and guidance in debtor’s local area

  For most forms of diligence, set period must elapse after provision of DAIP before diligence can proceed
• A decree by the court authorises all lawful execution
• Moveable property is dealt with via attachment
• Property such as trade items, mobile home if main/only residence, clothes/toys, car up to 3k value, furniture/household items reasonably required are exempt from attachment
• Money attachment includes cash, postal orders, cheques;physical money
• Creditor has no right to attach articles inside debtor’s dwellinghouse without obtaining an exceptional attachment order
• Incorporeal moveables are dealt with via arrestment
• Corporeal moveables in the hands of a third party are dealt with via arrestment
• Attachment is a seize diligence
• Arrestment is likely to be considered as a seize diligence
• Heritable property is dealt with via inhibition; Also adjudication, but rarely
• Adjudication is rarely used because it takes ten years
• Inhibition is a form of freeze diligence
• Inhibition includes any heritable property owned by the debtor; person who buys would get voidable title if sold whilst inhibited
• Inhibition lasts for a period of five years
• Earnings can be arrested - minimum amount before the rest goes to creditor
• A creditor may use more than one type of diligence for the same debt eg. attachment of a car and arrestment of savings in a bank account making up the total debt
• May also use more than one type of diligence for the same item of property Eg. Freeze diligence of inhibition to prevent debtor selling the property, then use seize diligence of adjudication to transfer rent money paid for the property from the debtor’s tenants to the creditor in repayment of the debt
• Where there is several creditors, the first to effect diligence on particular asset is able to recoup debt in full before second creditor has any claim
• What is the benefit of agreeing to an expedited enforcement procedure?

  To avoid expense/inconvenience of court action by agreeing in contract that the debt exists
• Once a court decree has been obtained, the creditor must arrange for it to be served on the debtor accompanied by a ‘charge for payment’, a formal final notice demanding payment of debt.
• A ‘charge for payment’ must be completed within 14 days; This period is known as the 'days of charge'
• If the 'days of charge' passes without payment of debt, the creditor is entitled to proceed with the appropriate type of diligence; Diligence must follow within 2 years of date of service of the charge
• The Debt Arrangement Scheme (DAS) exists as protection from diligence and is available to natural persons resident in Scotland.

  • Can support debtor to apply for debt payment programme (DPP) → usually enables them to make repayments over longer period of time than initially agreed without incurring additional interest, may allow for some discount on amount to be repaid