29 Sep 2011

Unsecured Recoveries - 'Know your Borrower'

Unsecured Recoveries - 'Know your Borrower'

Jane Gordon, Senior Solicitor, offers advice on how the prospects of recovery can be improved for unsecured debt in Scotland.

Jane Gordon, Senior Solicitor, offers advice on how the prospects of recovery can be improved for unsecured debt in Scotland.

There is often little sense chasing the proverbial ‘man of straw’, however, it is prudent to assess your borrower prior to dismissing an unsecured debt as a lost cause. The following questions all provide helpful insight into the prospects of recovery:

  • “Does the borrower own houses, land or other assets of significance?”
  • “If the borrower is an individual, is the identity of their employer known?” 
  • “Is the borrower’s bank account branch known?” 
  • “Is the identity of any of the borrower’s customers known?” 

If the answer to any one of these questions is ‘yes’, fruitful routes to recovery may be available.

Routes to Unsecured Recovery

Where written demands have proved unsuccessful, a lender may choose to raise a court action. In a straightforward undefended action, a lender can quickly obtain ‘decree’, (which is the court’s order to the borrower to make payment). Furthermore, the borrower will usually be ordered to pay the lender’s expenses.

Debts owed under a publicly registered agreement often enable the lender to bypass court action and go straight to the enforcement stage. There are various means by which the court decree, or the registered agreement, can be enforced:

  • If the borrower is an individual, an earnings Arrestment can be served on the borrower’s employer, meaning that a specified amount will be deducted from the borrower’s monthly salary and paid to the lender. If the employer doesn’t make payment, they become liable themselves for the sum they should have paid over.
  • If the borrower owns heritable property, the lender may choose to ‘Inhibit’ him. This prevents the borrower from selling or refinancing property without first paying the debt or having the lender’s agreement to discharge the inhibition. 
  • If the lender has knowledge of the borrower’s clients (if he is in business himself ), they can ‘Arrest’ sums currently due to the borrower and ultimately take payment of the arrested funds. Similarly, funds in the borrower’s bank account can be arrested. Arrestments can prove to be very effective given the restrictive effect on the borrower. 
  • In certain circumstances, attachment orders can be instructed, enabling certain goods (and in some circumstances money) belonging to the borrower to be seized and auctioned for sale.  

Finally, bankruptcy or sequestration proceedings can be brought against the borrower. However, with lenders’ claims competing against each other, the recovery prospects are again of paramount consideration prior to taking such action.

Jane Gordon, Senior Solicitor

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