Edinburgh Sheriff Court has held in a recent unreported repossession action that, where a debtor under a secured loan is a company, service of a calling-up notice on the debtor company may be effected by depositing a copy at or sending it by recorded delivery post to the Registered Office of the debtor company.

As a company is not a natural person, recent Sheriff Court interpretations of section 19(6) of the Conveyancing and Feudal Reform (Scotland) Act 1970 (the 1970 Act) that the calling-up notice must be delivered personally to the debtor do not apply. The decision will provide some welcome relief for creditors from the already stringent repossession requirements, in what is already a tough economic climate.

Background Information and the Conveyancing and Feudal Reform Act 1970

Where a debtor in Scotland defaults on a loan secured over a property and the creditor requires payment of sums due under the security, the creditor is required by the 1970 Act to serve a calling-up notice on the debtor and a copy of the same on any occupier of the property. The calling-up notice is a legal document which requires the debtor to repay to the creditor the sums demanded under the calling-up notice, failing which after 2 months the creditor is enabled to raise a court action for recovery of possession of the secured property. The requirement to serve calling up notices was disapproved in the judgement of the Inner House on appeal in Bank of Scotland v Millward and not followed for many years, until the Supreme Court judgment in Royal Bank of Scotland v Wilson in November 2010 which overruled the Scottish decision, making service of calling up notices mandatory.

Section 19(6) of the 1970 Act states the service of a calling up notice may be made “by delivery to the person on whom it is to be desired to be served” or “sent to him by registered post or by recorded delivery service to him at his last known address”. The section has been interpreted in a recent decision of Edinburgh Sheriff Court (Santander UK plc v Gallagher [2011 GWD 556])as requiring calling-up notices to be delivered to the debtor in person and ruled that service by placing the notice through his or her letter box is not compliant with the requirements of the Act.

Companies are Different

In the decision referred to the defender was a limited company that had defaulted on a loan secured by a standard security granted in favour of a bank. Sheriff Officers had been instructed to serve the calling-up notice on the defender. After making enquiries at the company’s registered office, the Sheriff Officers were unable to find any employee to whom they could deliver the calling-up notice personally and so deposited the notice by affixing it to the main door at the company’s registered office. A copy of the calling-up notice was also sent by post to the occupier of the property as required by the 1970 Act.

When the case first called in Court, it was continued for further clarification as to the manner of service as the Sheriff concluded that “depositing” the notice was not valid.

When the continued case called it was argued that it was not possible to deliver the Notice to a company personally as it is a non natural person. The proper mode for service or delivery of documents to a company is to be found in section 1139 of the Companies Act 2006 which allows delivery to the Registered Office. The Sheriff ruled the requirement that the calling-up notice be delivered into the hands of a company did not apply, and concluded that the manner of service by Sheriff Officers in this instance was sufficient. Decree was granted in favour of the bank.

The Implications

The ruling means that, where the debtor is a company, service of a calling-up notice is valid where it is deposited at or sent by recorded delivery to the debtor’s registered office.

The decision will be welcomed by all secured lenders in Scotland. There are already stringent requirements for creditors to adhere to in repossession actions, which have been applied by some Sheriffs with increasing rigour in recent months. This decision makes service of calling up notices more practical where the debtor is a company and not an individual.

It should however be noted that this judgment, which is considered to be correctly decided, is not binding on other Sheriffs in Edinburgh Sheriff Court or the wider Scottish jurisdiction but is persuasive. That it has now been reported makes it more probable that it will be followed by other Sheriffs. Decisions may however vary on a case by case basis.

Further Information

For further information please contact Ruari MacNeill, Claire Martin or your usual contact within the Dispute Resolution Banking Team.

This bulletin is for general information only and does not constitute legal, investment or other professional advice. Please contact us should you require advice on any particular legal issue. Anderson Strathern LLP accepts no responsibility for any loss that may arise if reliance is placed on any information or opinions expressed in this bulletin.