Assessment of stakeholder concerns and supporting analysis
4. The Scottish Government is very grateful to all those who took the time to respond to our consultations. In all our discussions with stakeholders, it is clear that – of the current statutory solutions – PTDs give rise to most concern. This is also reflected in England and Wales, where the closest parallel option, Individual Voluntary Agreements (IVAs), raise very similar concerns. These concerns can be summarised into three main areas.
Are PTDs the most appropriate solution for all individuals who are in them?
5. From statistical analysis it can be seen that a reasonable proportion of those individuals in PTDs could settle their debts in a similar duration as an average DAS Debt Payment Programme (DPP) (Table 1 in Annex A). This raises doubt as to whether a PTD is the best option for these individuals or if repaying their debt via DAS would better meet their needs. Granting a PTD will bring more stringent consequences for the individual, specifically in that they are conveying assets to the trustee, including rights to post-insolvency acquired assets under the acquirenda period such as windfalls and inheritance – none of which will apply under DAS.
6. Creditors will also benefit from repayment through DAS by receiving a higher percentage of their money back as evidence has shown a substantial percentage of the contributions made in PTDs are required to cover the administration costs (see Table 2 in Annex A).
Extent to which PTDs strike the right balance between the interests of debtors and creditors
7. Stakeholders, particularly from the creditor and the advice sector, have voiced growing discontent over the level of returns to creditors from PTDs relative to the level of contributions made by debtors. It has been reported that some debtors are concerned that creditors, with some of whom they have developed personal relationships, are not receiving the repayment of debt they believed they would receive. Concern has also been raised about the fairness of the voting process in trust deeds. Many smaller creditors, some which have close ties to the local community, feel that their voice is not heard, and that their opposition to proposed trust deeds is not given sufficient weight. Credit Unions, who can be one of these smaller creditors, have suggested that the level of losses they are incurring as debts are written off in protected trust deeds are reaching the point where the credit union may find itself in financial difficulty.
Treatment of "high equity" trust deeds
8. Particular concern has been highlighted over the treatment of "high equity" trust deeds where the debtor has significant equity in a property, often far outweighing their debts. It has become increasingly rare over recent years for trust deeds to include any meaningful contribution either from the realisation or in lieu of the realisation of property in such cases.
9. It seems that common practice is rather for the trust deed to be extended for either 12 or 24 months, so that the debtor pays the same contribution based on their surplus income for this period. That bears no direct relation to the amount of equity the debtor holds. Smaller creditors, who may have to write off significant sums and feel that their objections are not given sufficient weight in decisions on whether or not to protect the trust deed, have told us that they consider that cases in which debtors can both receive debt relief and keep hold of large amounts of equity do not provide a fair balance between the parties.
10. Concerns were initially raised via stakeholder discussions throughout 2016, but have been less prominent in recent discussions during 2017-18. Table 3 (Annex A) shows that of all PTDs granted between 28 November 2013 and 31 March 2018, there were 1,294 high equity cases (where there is equity of £20,000 or more) and of these cases, 69% are balance sheet solvent – that is, the equity available was sufficient to pay off the debts in full. To place these numbers into context, the balance sheet solvent high equity cases, mentioned above, equate to 4% of the entire case load for the same time period.
11. To address this issue, AiB met with all major trust deed providers to discuss matters, and then sent two "Dear Trustee" letters setting out our concerns. The letters made it clear that arrangements where trustees proposed to ingather an additional 12 or 24 months contributions in lieu of realising the equity in a property would only be appropriate in the most exceptional of circumstances. In addition, the trustee would have to evidence that all options for realising the equity had been explored, or that there were specific circumstances that would lead creditors to show forbearance. There are signs that the action is starting to bring about a change in behaviour in such cases and AiB will continue to monitor this and report our findings to Ministers and the relevant Recognised Professional Bodies (RPBs). We do not propose to make any changes to the legislation at present to this part of the process.
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