Sheriff considers alternative courses of action for discovery of PPI post bankruptcy
Glasgow Sheriff Court has given guidance on the circumstances in which it is appropriate for a former trustee in receipt of a PPI refund to apply to be re-appointed to a sequestrated estate. David Menzies considers the Court’s view and its implications.
In the latest of a long running series of cases to come before the Scottish Courts involving PPI and a discharged Trustee, a Note issued by the Sheriff has raised several points worthy of consideration.
The Note issued by Sheriff Deutsch in Glasgow Sheriff Court concerns an application under section 63(1) of the Bankruptcy (Scotland) Act 1985 by Kenneth W Pattullo, former trustee in the sequestration of Mary Elizabeth Johnstone. The application sought Mr Pattullo’s re-appointment as trustee to deal with money from a PPI claim which had come to light after the administration of the sequestration had ended.
The Sheriff Appeal Court has previously ruled that a trustee in sequestration may apply to be re-appointed to the estate of a bankrupt in order to deal with assets only discovered after the bankruptcy comes to an end.
This situation has become increasingly common, particularly where PPI is involved. In many situations credit institutions have failed to correctly identify the existence of a PPI claim when enquired about by a trustee, or have been found to have incorrectly adjudicated or calculated compensation entitlements resulting in additional payment being made long after the original claim or enquiry had been dealt with.
The debtor was sequestrated in 2009 with Mr Pattullo being appointed trustee. The administration of the sequestration completed in August 2015 with the trustee being discharged at that time. Subsequent to this the former trustee received a payment of £2817.91 from Clydesdale Bank in respect of a claim for refund of payments made by the debtor to the bank in respect of payment protection insurance. The PPI claim predates the debtor’s sequestration and forms part of the sequestrated estate.
Sheriff Deutsch noted that he has a discretion over whether to grant such an application, notwithstanding the Appeal Court judgment. The Note issued by Sheriff Deutsch notes that he had raised issues about the application prior to the hearing, indicating that he required further information to exercise his discretion.
The Note narrates that no claims had been received while administering the original sequestration and that the former trustee did not know the number of creditors with a right to claim.
The Sheriff ultimately dismissed the application, explaining that from the information provided it did not appear that any party would benefit from the re-appointment of the trustee 'other than the professionals involved'.
The Note also considers alternative courses of action which might have been appropriate to deal with the newly discovered assets.
The solicitor representing the former trustee at the hearing indicated that as a result of the Sheriff’s decision the funds would be remitted to the Accountant in Bankruptcy as consigned funds.
Sheriff Deutsch raises the prospect of an informal resolution being sought prior to an application to court. He also suggests alternatives of returning the funds to the bank and suggests that in doing so the former trustee may wish to inform the bank that the funds can be returned to the debtor. Finally, he suggests the former trustee could raise a summary cause action of multiplepoinding.
While this case has some specific circumstances surrounding the Sheriff’s ultimate decision, the Note raises several matters worthy of comment.
Firstly, and perhaps most obvious, the Court is unlikely to grant an application without detailed consideration of the case circumstances. It is therefore essential that any application to the court contains sufficient detail for the court to take a considered view on the matter.
It is emphasised once again that any application should set out information on creditors, anticipated costs involved in re-opening the sequestration and for distribution of funds and the extent that creditors will benefit. A ‘meaningful’ distribution is more likely to succeed.
The suggestion from the Note is that circumstances surrounding the discovery of the PPI funds were not narrated. Where the post sequestration discovery is as a result of failings by the bank (see example) then this may add additional weight to the re-opening of the sequestration.
The Sheriff notes that ‘the proper forum for dealing with assets of the estate in sequestration and the adjudication of creditors’ claims is within the sequestration process itself’. This makes the suggestion of an ‘informal resolution’ or returning the funds to the bank and informing them that the funds may be returned to the debtor all the more curious.
The Note does not expand on what is meant by an ‘informal resolution’. From a regulatory and professional risk perspective, this is not an avenue that an IP would be expected to pursue.
Similarly, while it may be appropriate to return the funds to the issuer, the suggestion that a former trustee should consider also advising that the funds could be returned to the debtor is not an approach that would be expected. The former trustee has no locus to intromit with the funds once discharged and similarly has no locus to suggest how the bank should deal with the funds. It is recommended that where funds are returned, the factual position only should be stated – the debtor and trustee have obtained their discharge, where the claim pre-dates the date of sequestration that the funds would form part of the sequestrated estate, the former trustee has no locus with which to intromit with the funds, and that after careful consideration it has been decided that the former trustee is not going to seek reappointment.
The suggestion of an action of multiplepoinding (where the court is asked to determine conflicting claims on funds or property) is an interesting one. Legal advice would best be sought on whether this is appropriate when there is already a process in legislation to specifically deal with how funds in a sequestrated estate should be distributed. If multiplepoinding is appropriate then this would appear to be a potentially cost effective and pragmatic route to achieve the same outcome as re-opening the sequestration (notwithstanding that ‘Metro’ adverts are not free as the Sheriff appears to believe).
It is unclear whether an action of multiplepoinding would be able to deal with circumstances where a former trustee has not been able to recover their full costs of administering the estate. It might be easier for the former trustee to submit a claim in such an action where there is a determination made during the sequestration but which has not been able to be recovered in full. It is I think less certain that where the unrecovered costs have not yet been determined whether the court would admit that as a claim.