Online banks: Legal loopholes and curbing remedies for creditors in Scotland

An “arrestment” is a commonly used enforcement method for payment of a sum of money, allowing a creditor to seize a debtor’s moveable property (over and above the statutory protected minimum balance of GBP 1,000) where that property is held by a third party, usually a bank. 

Service of a bank arrestment is carried out by sheriff officers (e.g. bailiffs and deputies), normally at a local branch of the relevant bank. The recipient of the bank arrestment is, however, required to be subject to the jurisdiction of the Scottish Courts. Historically, this rarely posed an issue as most major high street banks had a branch in Scotland which would allow service of the arrestment. 

The rise in use of online banks however has created an unforeseen problem for creditors wishing to enforce their decree for payment against an individual or company which operates an online bank account.

Online banks offer banking facilities through apps and web pages with no need for physical branches. They often offer customers online currency exchange and wealth management services, all generally with lower fees than traditional high street banks. In a technology driven society, it is easy to understand why the convenience, flexibility and accessibility of online banks has driven an increase in their use, not to mention the benefit to the banks themselves in lower operational costs. 

A “bank that lives on your phone” however, leaves nowhere for sheriff officers to serve the relevant papers. Without a physical branch or registered office in Scotland, creditors are unable to serve a valid arrestment on an online bank. 

So, what can creditors do? 

Section 2 of the Execution of Diligence (Scotland) Act 1926 prohibits serving an arrestment by post outside of Scotland. Accordingly, creditors in Scotland wishing to enforce a decree for payment by way of bank arrestment on an online bank will be forced to make an application to register the decree in another jurisdiction where the online bank does have a physical presence (usually England, where the majority of online banks have a singular head office). 

Ultimately, there is no mechanism in place within the current law to support a bank arrestment on online banks in Scotland, creating a perfect loophole for an individual or company to avoid (intentionally or not) enforcement of a decree for payment. 

The relevant legislation was, of course, introduced long before online banks existed, leaving the legal landscape ripe for modernisation. It was anticipated that the Bankruptcy and Diligence (Scotland) Act 2024 might have addressed the matter, but whilst there have been continued calls from Scottish lawyers and sheriff officers to remedy this issue, we have yet to see any movement towards change. 

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Hilary Steer is a senior solicitor at Wright, Johnston & Mackenzie LLP. She specialises in commercial disputes, debt recovery, and insolvency, working largely with insolvency practitioners and creditors to find satisfactory, and commercially sensible, solutions in contentious matters.