What follows is an explanation given to me by a leading lawyer in the field of Insolvency Law in Scotland. It may be of interest after the recent move by HMRC to “ring-fence” funds in the Rangers’ bank account.The Sheriff Officers served a charge for payment on RFC under the Insolvency Act 1986. The charge for payment gives the debtor 14 days to make payment to the creditor or the debtor company is deemed to be unable to pay its debts “as and when they fall due”. This is important as it is the test laid down in the 1986 Act which must be met if a petitioning creditor applies to the court for further orders under the Act.
If the 14 days expire, as they have in this case, then this means that this test has been met. What is then open to the creditor is to take further action. Under the Insolvency Act this means the creditor can apply to the court to wind up the company. Under the Enterprise Act 2002 this allows the creditor to apply to have the company placed into administration.
The purpose of an administrator is to run the company as a going concern until such times as they have realised the assets to meet the petitioning creditor’s claim, after which the company can be sold as a going concern or liquidated if there are no assets left.
Liquidation on the other hand is when a liquidator is appointed by the court simply to wind the company up to realise its assets and pay creditors.
HMRC, like local government, can apply to the courts for summary warrants to enforce tax debts. This means the debtor gets no notification of any court hearing and the warrants are granted by the sheriff automatically. They can then be enforced through use of arrestments, sequestration for individuals and winding up or administration for companies. As there has been no court case here between HMRC and RFC, then it is reasonable to suspect that there has been the use of summary warrant here.
If they have certified that the debt is due, then they can apply late payment penalties and arrest sums in the hands of third parties. This is what has happened here, with the money being arrested in the hands of Rangers bankers.
The effect of an arrestment is that the sum arrested cannot be removed by RFC, the bank or HMRC. It is effectively protected.
The term “frozen” is merely common usage in this context, but has no legal meaning.
Rather like the term “heart attack” has no medical meaning.
If the sums have been arrested on the dependence of a court action then they can’t be touched until the court action is over. If they have been arrested in execution or, as in this case, based upon a summary warrant, then they will be paid over to the HMRC after 14 weeks have passed. RFC have a right of appeal against the arrestment to the courts.
HMRC have clearly identified assets – the money in the account – and moved to protect their position by serving the arrestment with their powers under the Taxes Management Act.
Given the effect of the demand for payment, it would have been open to HMRC to have applied for RFC to be placed into administration.
Only because there is money in that account have they been spared this.