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

Practitioners who are appointed or elected, in succession to a judicial factor, as trustee on the estate of a practising solicitor should be aware of the terms of the Inner House Opinion on a report by the Accountant of Court in the case of I.J.W. McKinnie.

The effect of the judgement is that:

• whole estate as it stands at the date of bankruptcy but only a right to an accounting from the judicial factor for the general funds remaining after the appropriate proportion of the factors remuneration and funds held on behalf of the clients of the solicitor are trust funds which do not, in the event of bankruptcy, vest in the trustee who accordingly has no title to receive or intromit with such funds. Section 88(1)(c) of the Act
• the judicial factor is entitled to and should apportion their costs appropriately and charge their expenses proportionately to both the client and the general funds of the estate
• what vests in the trustee in a bankruptcy which follows upon a judicial factory is not the debtor’s outlays has been determined and met from that general estate

Despite these conclusions, the leading opinion (of Lord Penrose) allowed:

“that a trustee might still competently take on the administration of the estate, including the realisation of the work in progress, subject to his acceptance and recognition of the judicial factor’s prior rights.”

This is a matter for the trustee, but it is the Accountant’s opinion that the most prudent course is to decline to accept the estate or to assume its administration until the judicial factor is in a position to provide a final accounting in respect of their own intromissions and costs, and to convey any remaining assets without reservation.

In all bankruptcies involving practising solicitors, including those when there was no preceding judicial factory, trustees should observe the principle now established that costs should be appropriately apportioned between the client and general funds.