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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.

7.9 Claims for patrimonial loss and compensation

Claims for damages as a result of personal injury can generally be split into two elements – patrimonial loss (e.g. loss of earnings) and compensation (solatium). Compensation is the element of a claim relating to pain and suffering.

It is the Accountant’s view that a trustee should not involve themselves in speculative proceedings and should be very reluctant to insert themselves into damages actions commenced by the debtor in case they find themselves personally liable for the costs of the action.

Where the debtor’s estate includes a right to make a claim for patrimonial loss it vests in the trustee on the date of sequestration as part of the debtor’s estate.

Where the debtor’s estate includes a right to a claim for compensation for personal injury, unlike a claim for any patrimonial loss, the right does not vest in the trustee at the date of sequestration and so the trustee is prevented from raising an action seeking damages. This is because a claim for compensation is considered a personal right to the debtor such that only the debtor themselves should have the right to say whether proceedings should be initiated or not.

When a debtor’s estate has been sequestrated, the trustee can commence proceedings for any patrimonial loss but does not have the right to raise an action for compensation (Muir’s Trustee v Braidwood, 1958 SC 169).

The position changes for compensation if the debtor has already raised an action. In Watson v Thompson (1991 SC 447) it was held that the nature of the right to claim compensation changed after the debtor raised an action to recover it so that it ceased to be a personal right. As such the trustee is entitled to be sisted as a party to the action.

The Inner House of the court of Session has also said, in the case of Coutts Trustee v Coutts (1998 SCLR 729), that the right to the proceeds of the action vests in the trustee at the date the action was raised by the debtor.

The main point being that it is not a requirement that the trustee is sisted in place of the debtor, once an action has been raised the right to the proceeds automatically vests in the trustee.

In any event if the debtor decides to pursue an action for compensation and is successful, any sum awarded during the acquirenda period will fall to the estate for the benefit of the creditors. In Jackson v M’Kechnie (1875 3 R130) the debtor raised an action for slander after the date of bankruptcy but prior to the end of the acquirenda period. It was held the claim for damages formed part of the estate.

In personal injury claims it is common for the injured party to settle a claim with the insurer before it reaches court. The fact that an agreement is reached gives rise to contractual rights that vest in the trustee. Where the debtor agrees to settle a claim during the acquirenda period the claim vests in the trustee under section 86(4) of the Act. Similarly, damages recovered in any successful action or settlement for compensation prior to the bankruptcy would fall into the estate for the benefit of the creditors under section 79(1) of the Act.

Therefore, a claim for compensation for personal injury vests in the trustee where, prior to the end of the acquirenda period, whether an action for damages has been raised by the debtor or settlement has been reached.

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