In April 2008 the Bankruptcy & Diligence (Scotland) Act 2007 ("the Act") introduced a new regime for obtaining permission for (and recalling) diligence on the dependence of a court action (i.e. arrestment and inhibition). In terms of the Act, before granting (or recalling) warrant for diligence, the court must be satisfied that:

  1. There is a good, arguable case on the merits;
  2. There is a real and substantial risk that enforcement of any decree would be defeated by the debtor being insolvent, or likely to dispose of his assets; and
  3. That it is reasonable in the circumstances for diligence to be granted

This test has recently been considered in the appeal case of McCormack v Hamilton Academical Football Club [2009] CSIH 16.

Facts  

Mr McCormack raised an action for payment against Hamilton Academical Football Club ("HAFC"). Warrant to arrest on the dependence of this action was granted, and the resulting arrestment caught £100,000 held by Glasgow Rangers. At the subsequent hearing, the court decided that the warrant for arrestment should be recalled. The reasoning was that it could not be said that, following the above test, there was a real and substantial risk that enforcement of any decree would be defeated by HAFC disposing of their assets.

The court decided that while HAFC's liabilities exceeded their assets, they could see no imminent danger that those liabilities would be called upon. The fact that HAFC's liabilities exceeded their assets was not in itself sufficient to necessitate the arrestment.

Decision

On appeal, the court ruled that the warrant for arrestment should not have been recalled. Instead, the arrestment should be restricted to a reasonable sum, in this case £40,000. The court was in no doubt that HAFC were absolutely insolvent and so decided that there was a clear risk that any award in Mr McCormack's favour might be defeated in the future. The court should look not just at the imminent position, but also at the likely position and state of affairs at the point where judgment might be secured. As such, where HAFC's future financial position depended on the goodwill of their creditors, the court could not find that the requisite risks no longer existed.

This judgment very helpfully clarifies the "real and substantial risk" test and means that arrestment will remain a key part of a pursuer's strategy in court.