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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.

7.10 Redundancy payment

When a debtor is made redundant and receives a severance payment from their employer the question arises as to whether this payment, or part of it, vests in the trustee under Section 86(4) of the Act.

This question was considered in an application by Patrick McGrail under section 78(11) of the Act (Sheriff Murphy, Glasgow Sheriff Court, 10 August 1990). The sheriff did not issue a written judgement but the Accountant understands the facts of the case to be as follows.

During the relevant period, as defined by Section 79(5) of the Act, Mr McGrail was made redundant and received a severance payment of £5050. This sum was made up of four elements:

Statutory redundancy payment £810
Payment in lieu of notice        £810
Company ex gratia payment £1000
Additional payment based on years of service & wages £2430
Total £5050

The trustee conceded the payment in lieu of notice was income but claimed the remaining £4240 as acquirenda.

This approach was later approved by the sheriff. The debtor disputed this approach and applied to the sheriff for this amount be excluded from vesting in the trustee under Section 78(11) of the Act.

The sheriff held that:

  • the statutory redundancy payment of £810 fell to be regarded as alimentary in nature and therefore as income which did not vest in the trustee
  • the other payments made by the company which were voluntary did vest in the trustee

When dealing with payments made on redundancy, it will be necessary for trustees to identify the part which represents the debtor’s statutory entitlement and care will be required in those cases, such as McGrail, when it is company policy to pay an enhanced sum. In some cases such an enhanced sum might be loosely termed the redundancy payment.

In summary, the various elements of payment which can be received on redundancy should be treated as follows:

Statutory Pay In Lieu Of Notice (PILON) Income
Enhanced or voluntary PILON Acquirenda vested in the trustee Statutory
Statutory redundancy pay Income
Enhanced or voluntary redundancy pay Acquirenda vested in the trustee
Other ex-gratia payments Acquirenda vested in the trustee

Once a debtor has received their statutory redundancy payment the trustee should consider whether a contribution or increased contribution should be sought.

The trustee should bear in mind receipt of a redundancy payment does not immediately debar the debtor from receiving unemployment benefit under Section 20(3A) of the Social Security Act 1975.

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