INTRODUCTION

This chapter deals with the dissolution of juristic persons. The paradigm juristic person is the company and the focus of this chapter is the Scots law of corporate insolvency as applied to companies. A major reason for dissolution is insolvency and the greater part of this chapter is concerned with those rules. But insolvency does not necessarily mean dissolution; and dissolution, like the death of natural persons, may occur for reasons other than insolvency.

The Scots law of corporate insolvency is not always easy to access. The principal legislation is the Insolvency Act 1986 (the ‘IA 1986’). Some rules are found in the Companies Act 2006. Although the corporate insolvency provisions no longer cross-refer to the rules on personal bankruptcy, the IA 1986 cannot be read in isolation. It must be considered together with the provisions of the Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018 (the ‘CVA and Administration Rules’); the Insolvency (Scotland) (Receivership and Winding-up) Rules 2018 (the ‘Winding-up Rules’); or, in some cases still, the Insolvency (Scotland) Rules 1986.

In addition, it is necessary to consider the domestic legislation in the context of the retained version of the Recast EU Insolvency Regulation, which applies following implementation period (IP) completion day. All this must also be considered in the context of an extensive case law interpreting those provisions, setting out various common law rules and decided within the framework of the applicable rules of court.

A long-overdue consolidation of personal bankruptcy law took place in the Bankruptcy (Scotland) Act 2016.6 There appears to be no prospect of Scots corporate insolvency law being set down in consolidated form.

GENERAL PRINCIPLES OF INSOLVENCY

Pari passu principle

Insolvency is, by definition, unfair: where liabilities exceed assets, creditors must lose out. In those circumstances, Scots law, like most legal systems, favours egalitarian over individual equity. The principle is known in the IA 1986 as the ‘pari passu principle’. Each unsecured creditor receives the same pro rata dividend from the insolvent estate: a general creditor, A, with a claim of £1m will receive the same dividend as B, a general creditor for £100: if the dividend is 5p in the pound (5 per cent) A receives £50,000 and B £5. Scots law is particularly reluctant to listen to individual creditors who argue for special treatment.