On September 30, the limit to continue sequestration will be lowered from £10,000 to £5,000. It was initially increased from £3,000 to £10,000 after the initial onset of the Covid-19 pandemic in March 2020 to provide support for small businesses and sole traders in particular.
Unlike English law, in Scotland a creditor cannot force an individual to sell their property to repay a debt. Instead, they must pursue receivership — also known as bankruptcy — to recover the money owed to them.
Any creditor – a business, lender or in some cases a landlord – with debts of between £5,000 and £10,000 will be able from early October to take legal action by initiating bankruptcy proceedings against anyone who has far refused to repay.
Businesses without employees – sole proprietors and partnerships with only owner-managers, or companies with only the salaried director – account for nearly 70% of all private sector businesses north of the border.
Legal experts have warned that the bankruptcy of the main individual of such businesses could have a significant effect not only on their own business, but also on their customers and suppliers.
David Alexander, head of debt collection at Scottish law firm Gilson Gray, said: “The increase in the sequestration limit to £10,000 has been designed to give small businesses and sole traders financial respite at worst. of the pandemic. However, many debts have never been repaid and the reduction of the limit to £5,000 is likely to see more businesses trying to recover money which is rightfully owed to them and may well need to protect their own interests. – especially with the economy set to take a turn for the worse.
“It’s important to act now, rather than waiting for the deadline to pass, even if you already have an order or judgment allowing you to collect the debt. These processes take time and there will almost inevitably be a backlog of cases. »
Steven Jansch, head of insolvency at Gilson Gray, said: “While businesses are not directly affected by the sequestration limit change, they will want to carefully consider whether it affects their supply chain – this is particularly true. in sectors such as construction, where contractors and tradesmen are often sole traders or self-employed.
“If a project is unlucky enough to affect multiple vendors, steps can be taken now to clean up debtors’ books, mitigate potential disruptions, and research potential alternatives to preserve a project’s completion date.”
“It is also worth asking whether the action is worth pursuing. Any individual creditor can be part of a long queue, so if the debtor goes bankrupt, they may only recover a small portion of their debt and not recover the cost of the legal process, which he had to pay to get to this stage. ,” he added.
Gilson Gray Financial Management swallows East Lothian peer in seven-figure deal