Scottish Insolvency Explained
If your company cannot pay its debts, you may already have read a lot of insolvency information online.
The problem is that much of it is written for companies in England and Wales.
Scottish company insolvency follows many of the same underlying principles, but there are important differences in the procedures, courts, public notices and creditor enforcement system.
You may come across terms such as Accountant in Bankruptcy, Edinburgh Gazette, Sheriff Court, diligence, arrestment and interim liquidator that are specific to the Scottish system.
You do not need to understand all of them before taking advice.
The first question is much simpler: can the business realistically recover, or does the company now need a formal insolvency solution?
What does company insolvency actually mean?
In everyday terms, a company is in financial difficulty when it can no longer comfortably meet the money it owes.
Legally, insolvency can involve different tests, including whether the company can pay debts as they fall due and whether the value of its assets is sufficient when compared with its liabilities.
For a director, some of the practical warning signs are usually easier to recognise:
- VAT or PAYE is repeatedly left unpaid
- Suppliers are well outside agreed terms
- The company cannot meet payroll without delaying somebody else
- Creditors are threatening court action
- Sheriff officers are involved
- The bank account has been arrested
- Directors are repeatedly funding normal trading personally
- The company has no realistic way of clearing its arrears
One late invoice does not necessarily mean a company is insolvent. A pattern of being unable to meet liabilities is much more significant.
Does an insolvent Scottish company have to go into liquidation?
No.
Insolvency does not automatically mean that the business has to close.
Depending on the circumstances, the company might be able to:
- Negotiate with creditors
- Agree HMRC Time to Pay
- Raise new finance or investment
- Restructure costs or operations
- Enter a Company Voluntary Arrangement
- Use administration where formal protection or a business sale is required
If none of those options can realistically return the company to a sustainable position, liquidation may be the appropriate next step.
What insolvency procedures are available to a Scottish company?
The main procedures a director is likely to encounter are:
Creditors’ Voluntary Liquidation — CVL
A CVL is used where an insolvent company cannot realistically continue and the directors and shareholders take steps to put it into liquidation voluntarily.
Compulsory liquidation
This happens when a Scottish court orders the company to be wound up, often following a creditor’s winding-up petition.
Company Voluntary Arrangement — CVA
A CVA can allow a viable but insolvent company to keep trading while dealing formally with historic creditor debt.
Administration
Administration can provide protection from creditor action while an insolvency practitioner seeks to rescue the company, preserve a valuable business or achieve a better result than immediate liquidation.
What makes a Scottish CVL different?
The broad purpose is the same as an insolvent voluntary liquidation elsewhere in Great Britain: bring the company to an end, realise its assets and deal with its creditors.
But the Scottish procedure has important differences.
For example, following the shareholders’ winding-up resolution, the directors seek creditors’ decision on the nomination of a liquidator by deemed consent or a decision procedure conducted virtually. The decision date is no later than 14 days after the resolution.
The decision date must be at least three business days after notice is delivered. The directors send the statement of affairs within the statutory seven-day period, and it must reach creditors by the business day before the decision date.
The winding-up resolution is advertised in the Edinburgh Gazette, and relevant information is also sent to Companies House and the Accountant in Bankruptcy.
That is why a Scottish CVL should not simply be treated as the English procedure with the address changed.
What is the Accountant in Bankruptcy?
The Accountant in Bankruptcy — usually shortened to AiB — is Scotland’s insolvency service.
For Scottish corporate insolvency, AiB has an important role in relation to the devolved parts of company liquidation and receivership.
It also maintains the public Register of Insolvencies, which records Scottish company liquidations and receiverships.
This means a Scottish company liquidation involves filings and public records that directors may not see mentioned on generic UK insolvency websites.
Why does the Edinburgh Gazette matter?
The Gazette is the UK’s official public record for statutory notices.
For Scottish insolvency matters, the relevant publication is the Edinburgh Gazette.
Notices relating to Scottish liquidations can include:
- Voluntary winding-up resolutions
- Liquidator appointments
- Winding-up petitions
- Other statutory insolvency notices
This is another obvious difference from England and Wales, where insolvency material commonly refers to the London Gazette.
Which courts deal with Scottish company liquidation?
Compulsory liquidation of a Scottish company is dealt with through the Scottish courts.
Depending on the company and the statutory jurisdiction rules, proceedings may be dealt with by:
- The Court of Session; or
- A Sheriff Court with appropriate jurisdiction
This is important if a creditor has presented, or is threatening, a winding-up petition.
If you have received Scottish court papers, work from the actual court deadline shown on them rather than relying on a timetable from an English insolvency website.
Is there an Official Receiver in Scotland?
Not in the way you may see described on English insolvency websites.
When a Scottish company is compulsorily wound up, an interim liquidator is appointed.
The Scottish system does not use an Official Receiver to perform the same initial role that exists in compulsory liquidations in England and Wales.
If you are a Scottish director reading that “the Official Receiver will contact you after the winding-up order”, you are probably looking at guidance written for another jurisdiction.
What are sheriff officers and diligence?
Scotland also has its own terminology for creditor enforcement.
Diligence is the Scottish term for formal debt-enforcement procedures.
Sheriff officers are officers of court who serve legal documents and carry out authorised enforcement.
For a company, that can include measures such as:
- Bank arrestment
- Attachment of qualifying company assets
- Money attachment
So if you are searching for “bailiffs chasing my Scottish company”, the Scottish procedure you actually need to understand may involve sheriff officers and diligence instead.
Is Scottish company insolvency law completely separate from the rest of the UK?
No — and this is where the system can look more complicated than it really is.
Corporate insolvency in Scotland is partly devolved and partly reserved.
The Scottish Government and Accountant in Bankruptcy are responsible for areas including the process of company liquidation and receivership and maintenance of the Scottish Register of Insolvencies.
Other areas remain the responsibility of the UK Government and Insolvency Service, including matters such as:
- Company Voluntary Arrangements
- Administration
- Certain legal effects of liquidation
- Regulation of insolvency practitioners
For a director, you do not need to work out which part is reserved and which part is devolved before asking for help.
The practical point is simply that Scottish company insolvency has its own procedures within the wider UK insolvency framework.
How do I know whether my company is a Scottish company?
For an ordinary UK company, the important starting point is where the company is registered — not simply where it happens to trade.
A company registered in Scotland will normally have:
- A Scottish registered office; and
- A Companies House company number beginning with SC
A business can trade in Glasgow, Edinburgh or Aberdeen while being incorporated elsewhere in the UK.
Similarly, a Scottish registered company can trade throughout the UK.
If you are unsure, check the company’s Companies House record before assuming which insolvency procedure applies.
What happens to directors when a Scottish company becomes insolvent?
Simply becoming insolvent does not automatically make the directors personally liable for the company’s debts.
But it does change what directors need to think about.
As insolvency becomes unavoidable, directors need to focus increasingly on protecting creditors and avoiding decisions that worsen their position.
That means taking particular care with:
- Payments to directors or connected parties
- Repayment of personally guaranteed creditors
- Asset transfers
- Dividends
- Director’s loan accounts
- New customer deposits
- Continuing to incur debts the company is unlikely to pay
The sensible step is not necessarily to stop everything immediately. It is to understand the company’s position before making further significant decisions.
Will the directors be investigated?
Every insolvent liquidation involves a review of the company’s affairs and director conduct.
That is a normal part of the process and does not mean that the director is assumed to have done something wrong.
The insolvency office-holder will look at what happened before insolvency and submit the required conduct report to the Insolvency Service.
If the company’s records are available and the directors can explain what happened, that makes the process considerably easier.
Is Scottish insolvency public?
Formal company insolvency is not a private process.
Depending on the procedure, information may appear through:
- Companies House
- The Edinburgh Gazette
- The Accountant in Bankruptcy’s Register of Insolvencies
- Scottish court proceedings
Creditors are also formally notified as required by the particular procedure.
Trying to keep an unavoidable insolvency secret is therefore rarely a useful strategy. It is generally better to plan how employees, customers and suppliers are told what is happening.
What should I do if I think my Scottish company is insolvent?
- Work out roughly what the company owes.
- Check what cash and customer receipts are available.
- Identify the most urgent creditors. Particularly HMRC, payroll and anyone taking formal action.
- Preserve the company records and assets.
- Avoid unusual payments or asset transfers.
- Consider whether the underlying business is profitable.
- Find out whether creditor enforcement has already started.
- Take advice before the position becomes more difficult.
You do not need to know whether the answer is CVL, CVA, administration or something else before speaking to us.
That is what the initial discussion is for.
Scottish company insolvency FAQs
Is Scottish company liquidation different from England?
Yes. The underlying insolvency framework has much in common, but important Scottish procedural differences include the Scottish CVL decision timetable, Edinburgh Gazette notices, Accountant in Bankruptcy filings and Scottish court procedures.
What is AiB?
AiB stands for Accountant in Bankruptcy, Scotland’s insolvency service. Among its corporate insolvency functions, it records information relating to Scottish company liquidations and receiverships and maintains the Register of Insolvencies.
Does Scotland have an Official Receiver?
Not performing the role seen in English compulsory liquidations. When a Scottish company is wound up by the court, an interim liquidator is appointed.
What is the Edinburgh Gazette?
It is the Gazette used for statutory notices relating to Scottish insolvency proceedings, including relevant liquidation and winding-up notices.
What does diligence mean?
Diligence is the Scottish term for formal creditor enforcement and includes measures such as arrestment and attachment.
Does an insolvent company have to close?
No. A viable business may be capable of rescue through negotiation, finance, a CVA, administration or another restructuring. Liquidation becomes relevant where there is no realistic sustainable recovery.
Which court deals with a winding-up petition in Scotland?
A Scottish company can be wound up by the Court of Session or by a Sheriff Court with appropriate jurisdiction.
Do company debts automatically become the director’s debts?
No. A limited company is legally separate from its directors. Personal liability can arise in particular circumstances, such as guarantees, overdrawn director’s loan accounts or specific claims, but insolvency itself does not automatically transfer company debts to the directors.
Worried your Scottish company may be insolvent?
You do not need to diagnose the company yourself before asking for advice.
Tell us what the business does, roughly what it owes, what cash is available and what creditor pressure you are facing.
We can then help you establish whether the company has a realistic route back to financial stability or whether a formal insolvency process should now be considered.
If there is a viable business to rescue, we will look at rescue first. If there isn’t, we will explain how to deal with the company properly and move forward.