Notes for Guidance - Bankruptcy (Scotland) Act 2016 (as amended)

It is important immediate possession is obtained of any trading records of a debtor who has carried on a business, and of any other papers and documents relating to the debtor’s financial affairs.

As property of the debtor their books and records vest absolutely in the trustee and the debtor accordingly has no right to their return except in the following circumstances:

• the bankruptcy is recalled
• there is a reversion to the debtor after all the debts have been paid, with interest
• any right to pursue the recovery of debts owing to the debtor or any other right of action has been abandoned to the debtor and the trustee holds records or documents relating to the debts

When there is any such reversionary right, the interim trustee or trustee, as the case may be, must take every reasonable step to return to the debtor all papers, books and records which the trustee has taken possession of.

10.10.1 Entitlement to records

The powers available to a trustee are not as specific as those pertaining to an interim trustee. However, section 108(5) of the Act requires the debtor or any other person to hand over any title deed, or other document.

Section 218(5) of the Act makes it an offence to destroy, damage, conceal or remove any document.

10.10.2 Inventory of accounting records

It is important to make an inventory of business records and to have such records identified by the debtor. This will avoid any possible evidential difficulty in cases which go for prosecution on an alleged offence, e.g. of failure to keep proper accounting records.

A separate statement must be taken from those asked to carry out the identification of the records. The separate statement will identify the records handed over to the trustee and will additionally list all the records maintained, including any which have not been handed over.

10.10.3 Records not to be annotated

Business books and records used in the business of a debtor should not be ruled off after the last entry in them, or otherwise annotated either by the interim trustee, trustee or their staff; or by the debtor or their accountants preparing statements of affairs etc.

10.10.4 Records subject to a lien

Records which the interim trustee or trustee is entitled to take possession of may be subject to a lien. Section 108(5) allows the trustee to require delivery of documents despite a right of lien being claimed but without prejudice to any preference of the person claiming the lien.

When a person claiming a lien refuses to deliver up relevant documents the trustee may apply to the court at any time to require the delivery or surrender of any records relating to the debtor’s estate or affairs which are in the possession or under the control of the debtor or anyone else.

10.10.5 Private and public examination

Uncooperative persons may additionally be warned of the trustee’s power, under sections 118 and 119 of the Act, for the private or public examination of any person known or suspected to have in their possession documents or information relative to the debtor’s financial affairs (see section 11).

10.10.6 Disposal of records no longer required

In all other cases, subject to section below, the trustee is entitled to dispose of the debtor’s papers, books and records whenever they have no further use for them. Such records, particularly those identifying the debtor by name, should be disposed of carefully as confidential waste. Entirely at the discretion of the trustee, a debtor who requests the return of papers, books and records may be allowed to collect or have them delivered, at their own expense.

10.10.7 Preservation of certain records

Certain records must not be disposed of unless the trustee is satisfied there is no third party interest.

Company Pension Scheme

If it is known there is a company pension scheme it is advisable for any relevant papers, including policies, trust deeds, rules or equivalent documentation and the wages records be identified and separated at an early date from the remainder of the records. Unless the trustee is certain, from consultation with other parties concerned, those records will not be needed in connection with the pension fund, they shall be preserved until they are no longer required.

Historical interest (general)

Consideration should be given to whether any records might be considered to be of historical interest and ought to be preserved. If so, or if anybody, such as a local museum or the Scottish Record Office, has expressed interest in any documents, the matter must be referred to the Trustee Supervision (TS) team.

Historical Interest (Insurance Companies)

Records of debtors who traded as insurance brokers should not be destroyed without prior reference to the Accountant, supplying a list of the records. The matter will then be referred to the History Committee of the Chartered Insurance Institute, who may wish to arrange for the preservation of some or all of the records.

10.10.8 Time of disposal

Generally, records should not be disposed of, or returned, until the trustee has received their discharge.

In particular, trustees should have regard to the following in which records might be required:

Records Relating to Asset Realisation

If assets, especially book debts, remain unrealised care should be taken not to dispose of any records which could be useful in this connection.

Offences and BROs

A check should be made with the Accountant as to whether any prosecution or BRO proceedings are outstanding and whether any papers etc. may be relevant to such proceedings.

Private Or Public Examination

If there is a real possibility of a private or public examination being held consideration should be given to whether any records are likely to be required in that connection.

Application For Deferral Of Debtor’s Discharge

If an application is to be made for deferral of the debtor’s discharge it may be necessary to retain records which are likely to be referred to at a later date.

HMRC/DWP involvement

HMRC and DWP should be given an opportunity to inspect any records before they are destroyed. Except in cases of urgency, when notification may be given by telephone, HMRC and DWP should be given six weeks’ written notice of intention to destroy. It may be convenient in most cases for this aspect to be dealt with at the same time as contacting HMRC.

Records Relating To VAT

The age of a business record is determined by the date of the last entry in it. Where records are on that basis more than six years old they can be destroyed without reference to HMRC.

Where records are those of a person not registered for VAT they can be destroyed at any time without reference to HMRC.

However, when there is no VAT registration but it is apparent the person concerned should have been registered HMRC should be notified and the case treated for the purpose of these provisions as if there had been a registration.

When records are less than six years old but more than a year has elapsed since the date of bankruptcy they can be destroyed without reference to HMRC.

When it is intended to destroy records within the period of one year after the date of bankruptcy and the records are less than six years old a letter shall be sent to HMRC. A copy of the letter must also be sent for HMRC to endorse and return to the trustee as authority to destroy the records concerned.

When urgent authority is required, e.g. to avoid having to take possession of vast quantities of papers, ‘expedited treatment’ should be requested on the letter and telephone contact should be made with HMRC to put them on notice that such a request is being sent. This will enable HMRC to respond more quickly to the request. ‘Expedited treatment’ should not be requested as a matter of course.

Civil Proceedings

If it is known there are civil proceedings, or the possibility of them, in connection with the affairs of a debtor the persons concerned must always be asked in writing whether they wish any records.