01 Jul 2012

s.39 Notice: A Refresher

s.39 Notice: A Refresher

Jane Gordon, Senior Solicitor, offers a refresher on the interaction between The Conveyancing and Feudal Reform (Scotland) Act 1970 and The Bankruptcy (Scotland) Act 1985.

Jane Gordon, Senior Solicitor, offers a refresher on the interaction between The Conveyancing and Feudal Reform (Scotland) Act 1970 and The Bankruptcy (Scotland) Act 1985.

Jane Gordon, Solicitor, offers a refresher on the interaction between The Conveyancing and Feudal Reform (Scotland) Act 1970 and The Bankruptcy (Scotland) Act 1985.

The Bankruptcy (Scotland) Act 1985 governs the process of Bankruptcy for individuals in Scotland. Section 39 of this Act applies where a lender wishes to repossess a borrower’s property, but the borrower is already bankrupt and a Court has already appointed someone to govern the borrower’s affairs (the Trustee).

Section 39 provides for an ‘intimation race’ between the lender and the Trustee. Whoever first intimates their intention to the other that they intend to take steps to sell the property will preclude the other from taking action. Intimation is made by service of a Recorded Delivery letter known as a ‘Section 39 Notice’.

Sometimes a Trustee has served a Section 39 Notice on the lender before we are instructed. In these cases the legislation precludes ‘the taking of steps by a creditor to enforce his security,’ but what is meant by ‘taking steps to enforce his security’? Our view is that this refers only to court action, so a Calling-up Notice can be served and any pre-action requirements completed.

A condition added into all mortgages by law, known as a ‘Standard Condition’, means that lenders can add any ‘reasonable costs’ (incurred caused by calling up the loan and enforcing their security) to the mortgage balance. The fact that the condition distinguishes between calling up the loan and the realising the security is supportive of our view that calling up the loan is not ‘enforcement action’.

Where there has been ‘undue delay’ by a party that has served a Section 39 Notice, the Court can authorise the other party to take action. So if we have served Calling up Notices for a lender, and the Trustee fails to sell within a ‘reasonable’ time, then we can raise a court action to obtain the right to enforce and sell.

More often that not however, the Trustee is happy step aside and let the lender repossess. Lenders do hold a strong bargaining position in these cases though, as they can always refuse to discharge the security they hold over the property until such time as the Trustee agrees to settle the outstanding balance in full.

Jane Gordon, Senior Solicitor


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