Legal Definitions - notorious insolvency

Notorious insolvency is a specific legal status under Scots law (the law of Scotland). It describes a situation where an individual or a company not only cannot pay their debts but has also publicly and officially acknowledged this inability in a manner prescribed by Scottish statutes. This public acknowledgment transforms a private financial problem into a legally recognized state of bankruptcy, often triggering further formal proceedings, such as the appointment of a trustee to manage the debtor's assets for the benefit of creditors (known as sequestration).

Essentially, notorious insolvency is the point at which a debtor's financial failure becomes a matter of public record and legal fact according to Scottish law.

• Example 1: Individual Business Owner

  Imagine Fiona, a sole proprietor running a small bakery in Glasgow. After several difficult years, her business has accumulated significant debts, and she can no longer afford to pay her suppliers or her business loan. Fiona decides to formally apply to the Accountant in Bankruptcy (AiB), Scotland's insolvency service, for her own bankruptcy. Once her application is processed and accepted by the AiB, her financial inability to pay her debts becomes a matter of public record, establishing her status of notorious insolvency.

  How this illustrates the term: Fiona's formal application to the AiB, a statutory body, and its acceptance, constitutes the "public and official acknowledgment" of her inability to pay her debts as required by Scottish insolvency law.

• Example 2: Scottish Limited Company

  Consider "Caledonian Crafts Ltd.," a Scottish company manufacturing artisanal goods. The company has been struggling financially for months, unable to pay its employees' wages, rent, or suppliers. After a board meeting, the directors formally resolve to place the company into 'creditors' voluntary liquidation' and file the necessary documents with Companies House and the courts in Scotland. This official filing and subsequent registration make the company's insolvency publicly known and legally recognized under Scottish company and insolvency statutes.

  How this illustrates the term: The directors' formal resolution and the subsequent filing for liquidation, which are public acts mandated by Scottish law, serve as the "public and official acknowledgment" of the company's inability to meet its financial obligations, thereby establishing notorious insolvency.

• Example 3: Unpaid Court Judgment

  Suppose David owes a substantial sum to a former business partner, Sarah, who successfully obtained a court judgment against him in a Scottish court. Despite the judgment, David fails to pay. Sarah's solicitor then serves David with a 'statutory demand' for payment, a formal legal notice under Scottish law, which David also fails to satisfy within the prescribed period. Based on this unsatisfied demand, Sarah petitions the court for David's bankruptcy. The court's acceptance of this petition, founded on David's failure to meet the statutory demand, formally establishes his notorious insolvency.

  How this illustrates the term: David's failure to respond to the statutory demand and the subsequent court petition for bankruptcy, which are formal legal steps defined by Scottish statute, publicly and officially establish his inability to pay his debts, leading to the status of notorious insolvency.