IV. Executive Summary
Trust deeds are a formal voluntary debt solution open to those living in Scotland. Under a trust deed a debtor makes an offer to put what they can afford towards paying as much of their debt as is possible for a fixed term. Where the offer is accepted by creditors, the trust deed becomes protected and is now known as a protected trust deed ( PTD). This means that interest on the debts is frozen and creditors cannot pursue their debt further through legal action.
There is a long history of trust deeds as voluntary private agreements between debtors and creditors in Scotland. The most famous example is a trust deed signed by Sir Walter Scott in 1826. In more recent years, however, prior to 2007, stakeholders had raised concerns about PTDs. Among the concerns raised were levels of fees and returns to creditors, which stakeholders felt warranted further examination. Unfortunately, at this time and due to the nature of trust deeds being administered by individual insolvency practitioners, there was limited statistical information available to allow appropriate analysis in these areas.
To remedy this, measures were included in the Bankruptcy & Diligence etc. (Scotland) Act 2007 ( BAD Act), which came into force on 1 April 2008, to allow the collection of relevant information. This led to the Accountant in Bankruptcy ( AiB) being granted a supervisory role over the administration of PTDs and the introduction of an AiB annual review procedure for all PTDs.
In recent years, we have experienced the deepest global recession in over 50 years. This has increased the profile of debt in Scotland and raised concerns about what measures are being taken to address debt problems. This in turn has led to an examination of Scottish debt solutions, including trust deeds, to ensure they are easy to access and work efficiently, providing the best range of outcomes for those involved.
In 2009 the then Minister for Community Safety, Fergus Ewing MSP, chaired the Debt Action Forum ( DAF) which examined information and initiatives on debt relief in Scotland. DAF brought together a varied group of stakeholders with differing perspectives and views. The Forum worked constructively to make recommendations for improvements to debt relief mechanisms. It was from the work of the DAF that the Home Owner and Debtor Protection (Scotland) Act 2010 was developed. This Act, although giving added protections to the home for debtors in bankruptcy and PTDs, does not address the fundamental issues surrounding the treatment of the home in these debt solutions. No consensus on this area could be reached, and it was agreed that a full public consultation would be required in relation to this. Forum members did, however, give their support for a review of the trust deed process that would lead to enhancements for both debtors and creditors. This review was progressed by the AiB and led to the Protected Trust Deeds Working Group ( PTDWG) being established in 2010 at the request of the Minister.
The PTDWG was chaired by Rosemary Winter-Scott, the Chief Executive of the AiB and comprised a cross-section of stakeholders from the advice sector, creditor organisations, insolvency practitioners and AiB officials. Full details of membership can be found here: www.AiB.gov.uk/about.protected-trust-deds-working-group-ptdwg-members. The purpose of the PTDWG was to make recommendations for appropriate legislative and non-legislative measures, to ensure the PTD process in Scotland is fit for purpose and strikes the best possible balance between the needs of debtors and the rights of creditors.
The group sought input both from its members and other interested parties, and examined issues highlighted, including access to PTDs; a lack of consistency of information provided to creditors and debtors in PTDs; costs of trust deeds including trustees' fees; treatment of equity in the debtor's home; consistency in contributions made by debtors and general process changes intended to make the PTD process simpler and more effective. Although equity in the debtors' home was discussed in this group, again the wider issue of how the debtors' home should be treated in PTDs was not included in discussion. This topic will be the subject of a future consultation.
The group, although diverse in its range of interests, engaged constructively and achieved a great deal over the short term of five initial meetings. In general, the group agreed that there was scope for improvement to the PTD process and in its Final Report published in June 2010, made several recommendations.
The purpose of this consultation is to seek views on these recommendations which are intended to:
- make the current trust deed process more efficient,
- ensure the process is fit for purpose, and
- ensure that it strikes the best balance between the needs of debtors and the rights of creditors.
Specifically, proposals in this consultation are intended to standardise processes where possible and to improve the levels of information available, including that to debtors and especially creditors. Some of these proposals could be effected relatively quickly through a change in practice or through secondary legislation. Others, however, would require primary legislation in some cases and may, therefore, be longer term aims.
The proposals requiring a change in practice are:
- Introduction of the AiB Protected Trust Deed Guidance, which seeks to ensure best practice is adopted in all cases. Areas covered in this Guidance include, verification of information, standard documentation, reporting to creditors and changes to trustee fee arrangements. The Guidance also provides information on the intended introduction of a PTD Review Board, and trustee cooperation with this Board.
- Introduction of a standard summary sheet for trust deeds;
- Formal freezing of the equity. This will fix the valuation of the equity in a debtor's property at the time the trust deed is granted;
- Form 4 (trustee's statement of status of a protected trust deed) to be made available to creditors on an annual basis;
The proposals which would require secondary legislation are:
- Removal of the requirement on the trustee to publish a trust deed in the Edinburgh Gazette, and replacement with a requirement on the trustee to publish a trust deed in the Register of Insolvencies;
- Enhancement of the Register of Insolvencies to improve the level of information held and so better inform creditors;
- Inclusion of debtor's date of birth on relevant forms;
- Implementation of standard income and expenditure guidelines for trust deeds by use of Common Financial Statement ( CFS) figures or similar;
- Introduction of a fixed timescale for the submission of creditor claims;
- Removal of a trustee's right to accept contributions from a debtor's Social Security Benefits in PTDs; and,
- Amendment of statutory Protected Trust Deed Forms 1.
Longer term proposals which would need a change to primary legislation are:
- Provision for trust deeds that would make an earnings arrestment cease on the date a trust deed becomes protected;
- Introduction of Income Payment Orders in relation to trust deeds;
- Introduction of a simplified PTD product; and
- Amendment of debtor's address requirements on the Register of Insolvencies, which would require a change to the Act of Sederunt (Sheriff Court Bankruptcy Rules) 1996