Lenders

Prompt, independent and practical expert advice can prove invaluable for lenders faced with an insolvent or potentially insolvent borrower. Our team is well versed in working alongside lenders to plan and evaluate lending and security positions, either acting independently with the lender or as part of a team with other advisors during the Independent Business Review (IBR) process.

We routinely act for Financial Institutions, Asset and Invoice funders, and Private Lenders from putting security packages in place and if needs be enforcing the security and protecting the lending.

We are on hand to help, with over 50 years of experience within the team of providing commercial advice in relation to problematic lending.

At the beginning of a lending project, it is sensible to produce clear strategies for recovery in the event that the lending becomes troubled.  Here at Thorntons, our Recovery and Insolvency team work closely with our colleagues in our Banking and Commercial Property teams to help lenders set up robust, practical strategies for such situations. We feel strongly that whatever surprises happen in the commercial arena, how to implement a plan for recovery should not be one of them.  If the worst does happen, reacting quickly can make all the difference in how recoveries are made.

When a borrower is facing insolvency, you want to move quickly to ensure the best possible outcome in the circumstances. Our experienced team is happy to assist in any way to help enforce security by appointing the appropriate insolvency practitioner, by any of the in or out of court routes.  We routinely complete pre-appointment checks and can advise on all matters pre and post appointment, including the appointment process. 

Guarantees

Where a personal guarantee has been signed, an individual takes on personal liability for the obligations of the company in the event that the company is unable to comply.  Lenders can call on a personal guarantee as soon as the company is unable to fulfil its obligations; they do not need to wait for an administration or liquidation of the company to be completed or for the Company to pay what it can first.

In Scotland, if a personal guarantee has been registered for ‘preservation and execution’, a lender may be able to use the summary diligence procedure, where an extract of the registered guarantee and a certificate of indebtedness can be used to enforce it. Alternatively, lenders can seek decree from the court to enforce a personal guarantee.

Like individuals, certain companies can sign guarantees and such transactions are often seen when lenders are dealing with groups of companies. In the same way an individual takes on a liability for the obligations of a company that is unable to comply, another company can do the same. Companies can also sign cross-company guarantees where they act as a guarantor for one and other’s obligations. Thorntons’ multi-disciplinary teams are well placed to assist lenders with the enforcement, negotiation, or challenge of both personal and company to company guarantees.

Standard Securities

A standard security is a charge that is secured over heritable or certain leasehold property. In Scotland, it is the only form of ‘fixed’ security that can be taken over land. A standard security must be registered in the Land Register, and if granted by a company or LLP, must also be registered at Companies House.

In order to enforce a standard security, the creditor is required to serve a calling-up notice on the debtor (see section below on calling up notices).

Floating Charges

A floating charge ‘floats’ over a company’s assets until it either crystallises (i.e. on default or a specific event) or it is discharged. This allows the company to use and transact with the assets day-to-day without having to obtain consent from the creditor. Schedule 1b to the Insolvency Act 1986 provides for the appointment of an administrator by the holder of a floating charge. The holder of the floating charge must follow various steps in order to make a valid appointment. Thorntons’ Restructuring and Insolvency team can provide advice and assistance throughout the appointment and subsequent administration processes.

If a debtor is in default, a creditor may exercise any rights they have under the standard security, as considered appropriate in the circumstances. There are a number of steps that a creditor needs to take before they can enforce the standard security.

A creditor must serve a ‘calling-up notice’ on the debtor, if they are seeking to enforce the main obligation secured by the security (most often payment). This is necessary even if the creditor is not seeking payment of all sums due. It is imperative for the creditor to abide by the terms of section 19 of the Conveyancing and Feudal Reform (Scotland) Act 1970, otherwise the notice may be invalid, or the enforcement of the security challenged.

A calling up notice will say the debtor has two months during which to repay the full debt, although with the written agreement of the debtor the two-month period can be dispensed with (if there is no residential element) or shortened to one-month (if the property in question is residential).

If the calling up notice expires and no payment has been received, the debtor is in default. If the secured premises are not used for residential purposes the creditor can now exercise their remedies under the standard security, including but not limited to a power of sale. It may then be necessary to seek a court decree to have the occupiers removed from the premises.

Some creditors may expect to be able to appoint an ‘LPA receiver’ to enforce the charge on their behalf. Whilst this is possible in England under the Law of Property Act 1925, the provisions of the 1925 Act are not applicable in Scotland and an LPA receiver cannot be appointed to enforce the security.

To successfully enforce a standard security in Scotland the correct procedures must be adhered to, our team can guide you through the required steps.

Unsecured loans can be used to raise funds without the debtor providing a guarantee/collateral.

Statutory demand

A statutory demand is a written demand for payment of a debt within 21 days. If the debtor fails to make payment within said timeframe, a creditor can use the demand to support a request to the court for a bankruptcy or winding-up order. If the debtor is a company the sum being demanded must be greater than £750 and for an individual the total sum demanded must be equal or greater than £5,000.

Charge for payment

A charge for payment is served by sheriff officers or messengers-at-arms once an extract decree has been obtained. The charge must be in the correct form and served in accordance with certain rules. The charge will specify the names and addresses of the parties, date of the decree, sums due, time period for payment and a warning of further actions if payment is not made. If the debtor is not an individual, who may be charged differs depending on the entity.

For more information, please see our creditors page for more information.

Westminster retains certain powers to legislate on insolvency for the whole of the UK, whilst other powers are devolved to the Scottish Parliament. As a starting point, the Insolvency Act 1986 applies in Scotland, England and Wales alike.

The 1986 Act only goes so far, so much of the detail is contained in the rules which differ between England and Scotland. In England and Wales, insolvency details can be found in The Insolvency (Amendment) Rules 2003. In Scotland, the details can be found in (1) the Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018, and (2) the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018. Accordingly, many of the processes and legal remedies must be dealt with in a specific way, which is not always the same North and South of the border.

At Thorntons, we have solicitors who are dual-qualified in Scots and English law, as well as Scottish insolvency specialists and litigators. Our solicitors bring a wealth of experience and knowledge of the corporate restructuring and insolvency landscapes. We can deal with all elements of Scottish insolvency matters and cross-border issues. Additionally, we have close and long-standing relationships with English firms of solicitors that we can instruct and work with, if necessary, to achieve the best resolution for our clients.