Apparent insolvency
‘Apparent insolvency’ is constituted by any one of the following:1s16 B(S)A 2016 •an expired charge for payment; or
•an expired statutory demand; or
•granting a trust deed; or
•a decree of adjudication is granted; or
•where a debt included in a Debt Payment Programme (DPP) under the Debt Arrangement Scheme (DAS) is revoked.
The usual way to prove apparent insolvency is to have an expired charge for payment or statutory demand.
A ‘charge for payment’ can be issued to the client after a decree has been awarded in the sheriff court (or First-tier Tribunal) or a summary warrant has been issued. It gives the client 14 days to make payment, otherwise the creditor can begin diligence against them on the 15th day after service.
If your client has a charge for payment and it is near the expiry date, you could look at registering a statutory moratorium for the client. This stops the creditor from carrying out diligence for six months and prevents them from presenting a bankruptcy petition to the court against your client.
A ‘statutory demand’ is a demand for payment from the client in a prescribed form. There is no need to have a decree or other document of debt (summary warrant) before serving a statutory demand and it is usually a sign that the creditor intends to serve a bankruptcy petition on your client.
When dealing with a statutory demand, and if the client wants to avoid bankruptcy, you should advise the client to deny the debt and return the form to the creditor within the timescale, which is 21 days from the date of service.
This makes the creditor take the normal court route for debt recovery where your client will have the opportunity to defend themselves.
On the other hand, if the client wants to go through the bankruptcy process, you could ignore the statutory demand as the creditor may follow it up with a creditor’s petition and save your client the fee for applying.
See here for more information about creditor petitions.