Corporate insolvency is a process that has been designed to address companies that are facing financial distress. Across the United Kingdom, insolvency procedures and laws are relatively harmonised, reflecting the interconnected nature of the UK economy. However, there are distinct differences in the way corporate insolvency is approached in Scotland as compared to England and Wales. Given the unique historical and legal foundations of Scotland, it’s unsurprising that insolvency procedures carry their own nuances. This article provides an overview of these key distinctions from a Scottish perspective.

Different Legal Foundations

To begin with, Scotland and England & Wales operate under different legal systems. England and Wales follow the Common Law system, while Scotland follows a hybrid system known as Scots Law, which combines elements of Civil Law and Common Law. This foundational difference impacts many areas of law, including corporate insolvency.

Distinct Insolvency Procedures

While both jurisdictions have procedures like administration and liquidation, the way these procedures are conducted varies:

Receivership:
Historically, in Scotland, the primary procedure for dealing with company insolvency was the appointment of a receiver. Although the Enterprise Act 2002 has largely replaced receivership with administration across the UK, certain floating charge agreements made prior to 15 September 2003 might still result in a receiver’s appointment in Scotland.
Sequestration:
In Scotland, the equivalent of bankruptcy for individuals is sequestration, and some elements of this process can be relevant to sole traders or partnerships.

Terminology Differences

There are various terminological differences that might seem superficial but are important to understand in the context of legal proceedings:

In England and Wales, the term ‘creditors’ voluntary liquidation’ is used. In Scotland, it’s simply ‘creditors’ liquidation’.
The term ‘winding up order’ is used in England and Wales, whereas in Scotland it is referred to as a ‘warrant to wind up‘.

Realisation of Heritable Property

Heritable property is the Scottish term for what’s known as real property or real estate in other jurisdictions. The way in which such property is treated and realised in insolvency varies between Scotland and England & Wales. In Scotland, for instance, the appointed insolvency practitioner might have to deal with standard securities, the Scottish equivalent of a mortgage, which has its own set of rules and procedures.

Differences in Reporting

In Scotland, any money realised in an insolvency process that isn’t paid to creditors or used to cover the costs of the process is required to be paid to the Accountant in Bankruptcy (AiB), Scotland’s insolvency service. This contrasts with England and Wales where such funds are paid to the Crown.

Court Jurisdiction

In Scotland, corporate insolvency proceedings are generally dealt with by the Court of Session (in Edinburgh), although certain matters can be heard in local sheriff courts. In England and Wales, these proceedings are typically overseen by the High Court or local county courts.

Choose a Specialist Who Understands Scottish Rules

The nuances in insolvency laws and practices between Scotland and England & Wales underscore the importance of understanding local procedures, especially for businesses operating across the UK. While there are broad similarities, the key differences can significantly impact the strategy and approach companies might need to take when facing insolvency. Always ensure that you consult with specialists familiar with your specific jurisdiction’s rules and regulations.