In this article Leon Breakey explains some of the issues that can arise when an English bankruptcy order is issued and the debtor owns property in Scotland.

When an English debtor with an interest in heritable property in Scotland is made bankrupt under English law, a crucial question arises: how can the English bankruptcy order be enforced in Scotland? This article explores this issue, highlighting the potential risks for trustees and the solution provided by Section 426 of the Insolvency Act 1986.

The Issue: English Bankruptcy Orders and Scottish Property

In Re Proex Logistics, 2025 ONSC 51, Justice Steele of the Ontario Superior Court of Justice (Commercial List) recently made a number of holdings related to the process for trustees accepting claims in a bankruptcy and other parties seeking to challenge those decisions. The Court held that:

A recent decision of the Commercial Sheriff Court at Perth in the case of Priority Construction UK Limited v Advanced Material Processing Limited, reported at [2024] SC PER 48, has confirmed the position in relation to the proper basis for liquidation petitions to be brought against debtor companies. The moral of this story is that liquidation petitions should not be used to try to recover a validly disputed debt - something that all creditors and practitioners should be alert to.

The facts

Two recent Supreme Court of Canada decisions demonstrate that the corporate attribution doctrine is not a one-size-fits-all approach.

In a recent decision of the Supreme Court of Canada in Poonian v. British Columbia (Securities Commission), the Court determined that while disgorgement orders made by the British Columbia Securities Commission (the “Commission”) survive bankruptcy under the Bankruptcy and Insolvency Act (the “BIA”), administrative penalties may not.

Frequently a debtor’s assets are sold out of bankruptcy “free and clear” of liens and claims under §363(f).  While the Bankruptcy Code imposes limits on this ability to sell assets, it does allow the sale free and clear if “such interest is in bona fide dispute” or if the price is high enough or the holder of the adverse interest “could be compelled ... to accept a money satisfaction of such interest” or if nonbankruptcy law permits such sale free and clear of such interest.

On February 5, 2016 the IRS released Chief Counsel Advice Memorandum Number 201606027 (the IRS Memo) concluding that “bad boy guarantees” may cause nonrecourse financing to become, for tax purposes, the sole recourse debt of the guarantor. This can dramatically affect the tax basis and at-risk investment of the borrowing entity’s partners or members. Non-recourse liability generally increases the tax basis and at-risk investment of all parties but recourse liability increases only that of the guarantor.

A long-honored concept in real property, that of “covenants running with the land,” is finding its way into the bankruptcy courts. If a covenant (a promise) runs with the land then it burdens or benefits particular real property and will be binding on the successor owner; if that covenant does not run with the land then it is personal and binds those who promised but does not impose itself on a successor owner.

We are often asked what to do if you have an operating agreement and your operator or one of the other working interest owners files for bankruptcy. The Bankruptcy Code allows the debtor to assume or reject the JOA (it is usually an executory contract).

On November 13, 2015, the Federal Deposit Insurance Corporation (FDIC) issued Financial Institution Letter 51-2015 (FIL-51-2015), FDIC Seeking Comment on Frequently Asked Questions Regarding Identifying, Accepting and Reporting Brokered Deposits. FIL-51-2015 seeks comments on the proposed updates to the existing FAQ document on brokered deposits, which was initially released in January of 2015 in FIL-2-2015, after additional comments and questions have been received by the FDIC since the initial issuance.