On 6th August 2010, the Scottish Government issued guidance on pre-action requirements for creditors. The guidance is designed to be read alongside the forthcoming Applications by Creditors (Pre-Action Requirements) (Scotland) Order 2010, which remains in draft.

The guidance is aimed at creditors and their representatives to aid them in ensuring that pre-action requirements – which are entirely new to this area of Scots law – are complied with. This note gives an overview of those requirements.

Provision of Information

The forthcoming provisions will require creditors to provide clear information to the debtor detailing:

(a) the terms of the security;

(b) the amount due to the creditor under the security, including any arrears; and

(c) any other obligation under the security in respect of which the debtor is in default.

This information requires to be provided as soon as is reasonably practicable upon the debtor's account going into default. At a minimum, therefore, it is expected that creditors provide to their debtors:-

(a) a statement of the total amount of the arrears;

(b) a statement of the total outstanding amount due under the loan contract,  including charges already incurred; and

(c) a description of the nature and level of any charges that may be incurred by virtue of the loan contract if the default is not remedied, excluding any redemption charges, and where a standard security is involved, expenses recoverable such as legal costs, asset management/estate agency fees, repossession and conveyancing charges on default.

The information requires to be clear. Mere screen prints without further explanation may not be sufficient. It should be easily understandable – preferably in plain English - and should not mislead. The guidance states that where a debtor has known difficulties in reading that should be taken into account. Equally, if English is not the debtor's first language, that should also be borne in mind by the creditor.

Reasonable efforts to agree proposals

The legislation is designed to help prevent court action, which (it states) should be a last resort. As a result creditors will henceforth be required to make reasonable efforts to agree proposals with their debtor. Creditors are therefore required to:-

(a) Make reasonable efforts to contact the debtor to discuss the default;

(b) Provide the debtor with details of any proposal made, set out in such a way as to allow the debtor to consider it;

(c)  Allow debtors a reasonable time to consider any proposal made, having regard to their individual circumstances;

(d) Notify a debtor within a reasonable time of any decision to accept or reject a proposal he has made;

In making reasonable efforts to contact the debtor, creditors are recommended to include written contact, but are cautioned against making solely written approaches. If one method of contact is unsuccessful, creditors should attempt another. If agreement is reached, this ought to be clearly documented in writing.

Creditors will require to keep full records of all contacts including logs of the date, time and, if possible, content of all telephone calls. In making calls, creditors must ensure they do not cross the line into harassment. To that end creditors are warned against excessive attempts to contact debtors, and against making calls at unreasonable hours (after 9pm or before 8am).

In all of the above the creditor must bear in mind the debtor's individual circumstances. Creditors should not adopt a one-size fits all policy and every case should be considered on its own merits.

Action where failure to keep to an agreement

Where a creditor and debtor reach an agreement and the debtor defaults on the terms of that agreement, the legislation will require creditors to take certain action.

On the first occasion when a default of this type occurs, creditors are prohibited from applying to the court without first writing to the debtor stating that such an application will be made and the reasons why. The debtor must be given 15 working days thereafter to remedy their failure.

This only applies to the first default and not subsequent defaults.

Requirement to take cognisance of steps taken by debtor

The legislation will require creditors to withhold from raising court proceedings where the debtor is taking steps which are likely to result in payment within a reasonable time.

It is worth noting that the onus is upon the debtor to provide documentation vouching that they are taking such steps. If satisfactory evidence is produced, however, the creditor cannot raise proceedings.

These steps may include:-

(a)  Claim under a mortgage protection policy (unless there is a shortfall which the debtor cannot otherwise meet);

(b) Application to the Mortgage to Rent or similar government schemes (unless the scheme would result in a shortfall which cannot otherwise be covered by the debtor);

(c)  Actively marketing the property, unless:

• The debtor rejects a reasonable offer to purchase the property;
• The property does not sell within a reasonable time; or
• The debtor refuses to provide the creditor with details of any agent acting for him  in relation to the marketing or sale and refuses to allow the agents to communicate with the creditor in order to enable the creditor to determine  whether reasonable offers have been rejected or the property not sold within a reasonable time.

Proceeding with court action

If, having completed the pre-action requirements, the creditor chooses to proceed with court action, they will be required to complete a form certifying that they have complied with the requirements. They will also require to be in a position to back this up with documentary evidence should the sheriff require that.

The forms (to be called Form 11C and Form 59) are still undergoing approval by the Scottish Court Rules Council and are not currently available. 

Further Information

For further information on the issues raised in this ezine, please contact Ruari MacNeill, Katrina Lumsdaine, Claire Martin, Andrew Foyle or your usual contact within the 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.