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

This guidance describes the general functions of Accountant in Bankruptcy, interim trustees, trustees and commissioners in relation to their responsibilities regarding bankruptcies which started on or after 30 November 2016.

13.12 Other account considerations

The following areas should be considered by the trustee.

13.12.1 Pre-award fees and costs

A fee cannot be charged for the granting of a Certificate for Sequestration.

If a fee or outlay becomes due prior to the date of the debtor’s bankruptcy, it is not a fee or outlay of the estate and cannot be claimed through the bankruptcy accounts.

The Accountant in Bankruptcy will disallow any fee or outlay which was incurred prior to bankruptcy and the appointment of the insolvency practitioner as trustee if it is declared in a bankruptcy account.

13.12.2 Outlays

The Accountant will consider the following in respect of outlays:

  • ensure that they were not incurred prior to the date of sequestration
  • that they were reasonably incurred for the administration of the estate
  • the cost is reasonable
  • whether legal outlays should not be taxed under section 132(5) (see section 13.12.13)

For any outlay, a valid invoice must be produced. It is expected that the following information would be included on the invoice:

  • the word invoice
  • a unique identification number
  • the supplier name, address and contact information
  • VAT registration number (if applicable)
  • the name and address of the customer being invoiced
  • a clear description of what is being charged for
  • the date the goods or service were provided (supply date)
  • the date of the invoice
  • the amount(s) being charged
  • VAT amount if applicable
  • the total amount owed

If an invoice cannot be produced, alternative means of providing evidence of the outlay will be acceptable. For example, where the expense is an application to court, a copy of the application and evidence of the outcome (i.e. copy of the court interlocutor) should be provided.

To evidence the payment of a trustee’s bond, a copy of the invoice from the insurance company or a copy of the trustee’s monthly RPB return will suffice. The Accountant is aware that VAT can be charged on this outlay and will take into consideration when determining the amount requested e.g. bond invoice states £10, amount claimed £12, the Accountant will determine the latter amount.

To evidence outlays for postage, photocopying etc. the trustee should provide a breakdown of any costs. This can be attached to the table providing a breakdown of time costs by activity and staff grade or on a separate document. However, to be determined, the cost must also be shown through the receipts and payments.

To evidence outlays for travel expenses a copy of an expense return or petty cash voucher will be required together with information relating to the date and reason for the travel.

When a property has been sold on the open market or an asset sold at auction a copy of the state for settlement or auctioneer’s invoice must be provided. This will allow the Accountant’s staff to correctly identify those outlays that will not attract an audit fee. 

For all account types except final, only outlays claimed through an account which are vouched will be determined. The outlay may be determined in any subsequent account through which the trustee claims the outlay and provides the voucher.

AiB staff would make provision for any such outlay not vouched where the trustee has provided an estimated scheme of division.

If the account is a final account, the Accountant’s staff will endeavour to phone or e-mail the trustee’s office to request the required supporting evidence. If the information is not received within three working days, or by a mutually agreed timescale which adheres to statutory constraints, the account may be returned or otherwise not treated as final. This could result in a section 212 application by the trustee or a further account requiring to be submitted.

13.12.3 Taxation of Legal invoices

Section 132(3) of the Act requires all accounts, in respect of legal services incurred by the trustee, to be submitted to the auditor of the court for taxation.

Section 132(5) of the Act makes provision for the trustee to make a request, under certain circumstances, that such accounts do not require to be taxed.

All requests under this section should be made on the trustee's statement for legal expenses not to be taxed confirming:

  • the trustee is not an associate of the person who has provided the legal services, an
  • the trustee finds the legal expenses to be reasonable and the amount of the invoice has been agreed by the trustee and the legal agent entitled to payment

This must be uploaded when the relevant bankruptcy account is being submitted for audit and determination. 

The trustee should include the legal account with the account and provide a detailed breakdown of the work carried out. The Accountant will either determine it as an outlay of the bankruptcy or advise it should be submitted for taxation.

If the outlay has to be submitted for taxation, it will be removed from the current accounting period and the trustee will be permitted to re-submit a request for this legal outlay, upon taxation, to be determined within a later accounting period.

Please note, this does not preclude the trustee from making payments on accounts against an undertaking from the payee to repay any amount which proves, on taxation, to have been overpaid. The commissioners, or the Accountant, will advise if it is deemed appropriate that the accounts are taxed.

13.12.4 Funds from a third party

The Accountant is aware some insolvency practitioners, or their firms, request a third party pays, deposits, or guarantees an amount towards payment of the trustee’s fees and outlays, particularly in the event of a shortfall of asset realisations or debtor contributions being insufficient to cover the expenses of the insolvency, including the trustee’s remuneration.

The Accountant considers it is important all interested parties are made aware of any agreement the trustee has made with a third party which has influenced the decision of the trustee to act.

The Accountant will not determine any fee and outlay of the trustee that is to be met from funds contributed by a third party and these should be highlighted by way of a note in the description box for the outlay.

The Accountant requires trustees to declare in their accounts’ circulars, any monies that have been paid to, or deposited with, the trustee or their firm, being payment of the trustee’s remuneration and outlays.

The requirement to disclose such payments is specified in Section 8(f) of SIP 7 and is consistent with paragraphs 2 and 5 of SIP 9(Scotland).

If the trustee has received, or is to receive, funds from a third party in respect of a specific instruction, but also seeks approval of remuneration and outlays from the debtor’s estate they must submit to the Accountant with their bankruptcy accounts their SIP 9 detailed time sheets and vouchers to support their claims to be paid from the estate. Copies of the terms, conditions and payment details, the trustee has agreed with the third party should also be provided.

13.12.5 Sale of heritable assets on behalf of secured lenders

When a heritable asset is sold by the trustee on behalf of the secured lender, and there are other assets to be realised for the benefit of the estate generally, the trustee should account for the income and expenditure relating to the secured asset sales in a separate receipts and payments account, to be uploaded as a separate document to BASYS, in the same way as a trading account.

If a separate account is not uploaded and any outlays and/or expenses relating to the sale on behalf of the secured lender are shown through the main receipts and payments account, your account may be returned and not determined.

The Accountant will not determine any fee and/or outlay of the trustee that relates to work completed for the sale of a property on behalf of the secured lender that will be paid by the secured lender.

The following guidance should be noted:

  • the gross proceeds of the sale must be shown through the account
  • any expenses incurred in selling the property, or outlays agreed to be paid by the secured lender, are to be shown through the account, as they become due
  • the amount paid to the secured lender is to be shown through the account and an up-to-date redemption statement provided if the sale is completed more than six months after the proposal action was approved by the AiB
  • the trustee’s fee, agreed by the secured lender for selling the property is to be shown through the account
  • if the agreement specifies all fees and outlays are to be paid by the trustee and reimbursed from the secured lender, but not from their security, the money paid to the trustee is to be shown through the receipts, in order to balance the account
  • any net amount arising from the sale, which is due to the bankruptcy should be shown through the main receipts and payments account. If this situation arises, the fee agreed by the secured lender may not be taken from the estate funds. If the trustee wishes to take remuneration in respect of the sale from these funds they must first have the amount determined by the accounts team

If the trustee is also seeking payment of other remuneration and outlays they must submit their detailed SIP9 timesheets and vouchers to support their claim.

It is expected that the sale of any heritable asset under these circumstances will previously have been approved by The Accountant (see section 10.2.13).

When a heritable asset is sold by the trustee on behalf of the secured lender following a formal repossession of the property, the net amount, if any, received should be shown in the account as receipts and the related costs should be given by way of a note in the description box for the outlay.

Details of the agreed amount of fees and outlays paid by the secured lender to the trustee, in the specific accounting period, along with details of the properties sold in the period should be declared in the relevant account circular.

13.12.6 Category 2 disbursements

Category 2 disbursements cannot be determined until they are shown through an account.

However, the Accountant is aware that under SIP 9 a trustee cannot draw these disbursements until they are agreed. If a trustee wishes to have these disbursements agreed they should show the entries through the account, providing the relevant documents or supporting evidence.

These entries should be shown as due to trustee at the end of the account. These outlays will be included in the determination as an agreement they may be drawn.

13.12.7 Payments for services to associated companies

When the trustee is engaging the services of an associated company the Accountant is of the opinion this should be treated in line with a category 2 disbursement.

The following process should be applied:

  • the outlay should be shown through the account for determination
  • advise of the association by way of a note in the description box for the outlay
  • include a paragraph in their account circular detailing the outlay payable and advising it is payable to an associated company
  • should not be drawn from the bankruptcy estate until such time as the appeal period has passed

13.12.8 Agreements with legal agents/third parties to fund litigation

Before entering into agreements with legal agents and third parties, who are charging an uplift in their fees or taking a percentage of the realisations when assets are finally realised, trustee’s must be able to demonstrate that creditors have been notified of their intentions to do so and that they have first been given the opportunity to fund any action.

13.12.9 Recovery of VAT

If the debtor was registered for VAT, but de-registered prior to the date of bankruptcy, any VAT due on the supply of services made after the date of de-registration cannot be claimed by virtue of Regulation 111(3) of the VAT General Regulations because the requirements of section 24(6) are not met.

If the trustee de-registers after bankruptcy, however, the VAT charged on the trustee’s own fees and outlays are fully recoverable.

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