Bank Account Arrestment
If your company’s bank account has been arrested, formal creditor enforcement is already under way.
The bank may have frozen money that was in the account when the arrestment was served. That can create an immediate problem if the company was relying on those funds for wages, suppliers, rent or tax.
A bank arrestment does not automatically mean the company must go into liquidation. But it is a strong warning that the company’s financial position needs to be assessed quickly.
The first questions are:
- Who has arrested the account?
- How much are they claiming?
- How much money has actually been caught?
- Can the company still trade without those funds?
- Is this one creditor problem, or is the company unable to pay its debts generally?
What is a bank arrestment?
Bank arrestment is a form of Scottish debt enforcement, known as diligence.
Instead of trying to recover money directly from the company, a creditor instructs a sheriff officer to serve an arrestment on a third party that holds money belonging to the company.
In this case, that third party is the bank.
The arrestment prevents the bank from releasing the money caught by it to the company.
In simple terms: the money may still appear to belong to the company, but the company cannot freely use it.
Does the whole bank account get frozen?
Not necessarily.
An arrestment is intended to catch funds up to the amount that can properly be recovered for the creditor’s debt, interest and enforcement expenses.
However, the practical effect can still be severe.
If most or all of the available balance is caught, the company may suddenly be unable to make payments it expected to make that day.
Direct debits, standing orders, supplier payments and payroll may therefore be affected depending on the money remaining available and how the bank operates the account.
Is there a protected amount that a company can keep?
No protected minimum balance applies to an ordinary company bank account.
You may see Scottish debt advice referring to a £1,000 protected minimum balance in a bank arrestment.
That protection applies in qualifying cases where the debtor is an individual.
It does not apply where the account is held in the name of a limited company, limited liability partnership, partnership or unincorporated association.
This is an important distinction for company directors. Do not assume that the bank must leave £1,000 available for the business to continue trading.
Does the arrestment catch money paid into the account afterwards?
An ordinary bank arrestment catches funds held for the company at the time the arrestment is executed.
It does not simply operate as an indefinite sweep of every future payment into the account.
That does not mean directors should start moving receipts around in an attempt to defeat creditor enforcement.
If trading is continuing after an arrestment, the company’s wider solvency and the proper use of incoming funds need to be considered carefully.
How long is the money frozen for?
Where the statutory automatic-release procedure applies, arrested funds are normally released to the creditor after 14 weeks from service of the arrestment unless something happens to prevent that.
The money can potentially be released sooner if the company authorises the bank to do so by signing an appropriate mandate.
But the 14-week period should not be mistaken for 14 weeks in which the company can simply ignore the problem.
The funds are already unavailable to the business, and the company may have much more immediate decisions to make about wages, suppliers and continued trading.
HMRC has arrested the company bank account. What should I do?
HMRC can use bank arrestment as part of its Scottish enforcement process. If HMRC is already at this stage, first establish whether the company can realistically resolve the tax arrears.
Ask:
- What is the total HMRC debt?
- How much has the arrestment caught?
- Are current VAT and PAYE also overdue?
- Can the company pay wages this month?
- Are suppliers also unpaid?
- Would a payment arrangement actually be affordable?
If the business is viable and can clear the historic debt, an agreement with HMRC may still be worth exploring.
If tax debt is increasing every month and the company cannot meet its current liabilities, the arrestment may be a symptom of a more fundamental insolvency problem.
Should I put personal money into the company?
Only after considering whether the company is worth saving.
Introducing personal money can make sense where a fundamentally viable company has suffered a temporary cash-flow problem.
It is much harder to justify where:
- HMRC arrears continue increasing
- Several creditors are enforcing
- The business is trading at a loss
- There is no realistic route to repaying the money you introduce
- The new funds will merely allow the business to survive for another few weeks
A limited company debt does not automatically become your personal debt because its bank account has been arrested.
Understand the company’s prospects before risking personal savings or taking personal borrowing.
Can I just open another company bank account?
Do not treat another bank account as a way of avoiding enforcement.
An arrestment generally catches the funds held by the bank when it is executed, but directors still have duties in relation to company money and creditors.
Moving or concealing money simply to place it beyond a creditor’s reach can create much more serious issues.
If the company genuinely needs alternative banking arrangements to continue legitimate trading, take advice on the wider position rather than acting solely to get around the arrestment.
Will a CVL release the arrested money?
Do not assume so.
The legal effect of an arrestment that has already been executed can depend on the precise timing of the diligence and the insolvency.
Starting a Creditors’ Voluntary Liquidation does not automatically mean money already caught by an arrestment immediately becomes available again to the company.
This is why we need to know the exact chronology:
- When was the arrestment served?
- How much did it catch?
- Has any money already been released?
- Has the company already taken steps towards liquidation?
- Are other creditors also enforcing?
If liquidation is now being considered, give the insolvency adviser the arrestment paperwork straight away.
Is the company now insolvent?
A bank arrestment does not automatically prove that the company must close.
But it often exposes the financial position very quickly.
If losing access to one bank balance means the company cannot pay wages, tax and ordinary trading costs, ask whether the company was already dependent on money that was effectively required to pay overdue creditors.
Warning signs include:
- Several creditors are seriously overdue
- HMRC arrears are increasing
- Payroll is at risk
- Suppliers have stopped giving credit
- There is no available working capital
- Directors are repeatedly funding the company personally
- There is no credible route back to positive cash flow
If that describes the business, the question may no longer be how to release one bank account. It may be how to deal properly with an insolvent company.
What should I do today?
- Speak to the bank. Find out how much has been arrested and what funds remain available.
- Identify the creditor. Establish the debt, enforcement costs and sheriff officer involved.
- Keep the paperwork. Obtain the arrestment schedule or correspondence relating to it.
- Check the next seven days of cash requirements. Particularly wages and essential trading costs.
- Assess the whole debt position. List HMRC, suppliers, lenders and any other enforcement.
- Get advice quickly. Decide whether settlement, rescue or insolvency is realistic.
You do not need a finished set of management accounts before speaking to us.
If you know roughly what the company owes, what is in the bank and what has been arrested, that is enough to start.
Can the company still pay wages?
That depends on how much money remains available to the company.
If the arrested funds leave the company unable to make payroll, this needs urgent attention. Do not assume that directors must personally fund the wages.
Instead, establish whether:
- The arrestment can realistically be resolved
- Other company funds are properly available
- The business can continue to trade
- Employees may need to be made redundant
- Formal insolvency now needs to be considered
Can I get the creditor to release the arrestment?
Potentially.
If the debt can be paid or a satisfactory settlement reached, the creditor may agree to take the necessary steps to deal with the arrestment.
That might involve:
- Payment from another available company source
- Part payment together with an agreed arrangement
- New funding in a genuinely viable business
- A negotiated settlement
But do not solve a £20,000 arrestment by borrowing £20,000 if the company will still be unable to pay next month’s wages, VAT and suppliers.
The objective is to solve the company’s financial problem, not merely today’s frozen account.
Can I challenge a bank arrestment?
Potentially, depending on the circumstances.
Possible issues might include:
- The debt has already been paid
- The arrestment has been executed against the wrong company
- The creditor does not have the necessary enforcement right
- Some of the money caught does not belong to the company
- There is another legal reason why the funds should not be released
There are procedures for objections and court applications in appropriate cases.
If you think the arrestment is wrong, obtain Scottish legal advice immediately. Do not wait until the end of the 14-week period before raising the issue.
Bank Arrestment FAQs
What does bank arrestment mean?
It means a creditor has used Scottish diligence to freeze qualifying money belonging to the company that is held by its bank.
Does the company get to keep £1,000?
No. The protected minimum balance available in certain individual bank arrestments does not apply to an account held in the name of a limited company.
Does it freeze future money paid into the account?
An ordinary arrestment catches funds held at the time it is executed rather than operating indefinitely against every future credit to the account.
How long is the money frozen?
Where automatic release applies, arrested funds are normally released to the creditor after 14 weeks unless an objection or another legal event prevents release. They may be released earlier if an appropriate mandate is given.
Can HMRC arrest a company bank account?
Yes. Bank arrestment is one of the enforcement methods HMRC can use in Scotland after it has obtained the necessary enforcement authority.
Can I negotiate with the creditor?
Potentially. The creditor may consider payment or an acceptable settlement, but once enforcement has reached arrestment the company should act quickly.
Does an arrestment mean I need to liquidate?
Not necessarily. The important question is whether the business is fundamentally viable and can pay its wider debts, not simply whether one creditor has enforced.
Will starting a CVL cancel the arrestment?
Do not assume it will. The timing and legal stage reached by the diligence can matter, so an existing arrestment should be reviewed specifically when planning a liquidation.
Has your company’s bank account been arrested?
Tell us what has happened before making decisions about personal funding, paying selected creditors or continuing to trade.
We can help you establish whether the arrestment is a problem the business can realistically overcome or a sign that the company now needs a formal insolvency solution.
If wages or essential payments are due shortly, tell us that immediately.