Part 7: Proposals to improve the trust deed process
7. These measures could be introduced without legislation, and as such would be practical measure bound only be the agreement of those involved in the PTD process. In order to formalise them, however, legislation could be introduced.
7.1 The introduction of a Trust Deed protocol was discussed by the PTDWG. Now named the AiB Protected Trust Deed Guidance ( Appendix 1), it has been drafted, scrutinised and agreed by the PTDWG sub group. Its purpose is to facilitate a common approach to the efficient handling of all PTDs, ensuring that the process is fit for purpose and that it strikes the best possible balance between the needs of debtors and the rights of creditors. The AiB Protected Trust Deed Guidance recognises that PTDs support a valid Scottish Government policy objective by providing debt relief for debtors in financial difficulty. It also recognises the need for the PTD process to be more transparent and to provide a fair and reasonable return to creditors within an acceptable timescale. This includes the introduction of a clear structure for calculation of trustee fees and new timescales, where appropriate, for payment of dividends.
7.2 It is intended that the AiB Protected Trust Deed Guidance will become the mechanism by which all trust deeds are processed. In any cases where a trust deed has not followed the AiB Protected Trust Deed Guidance, this would have to be highlighted and an explanation provided for creditors as to the reason why.
Question 1. From your perspective, will the AiB Protected Trust Deed Guidance drive the desired changes as set out above?
Question 2. Do you agree that the AiB Protected Trust Deed Guidance strikes the right balance between debtors and creditors?
Question 3. Do you support the application of the AiB Protected Trust Deed Guidance to PTDs generally?
Question 4. If you are an insolvency practitioner, would you envisage that all of the PTDs you administer in future would be in line with the AiB Protected Trust Deed Guidance?
Question 5. If not, what percentage of the PTDs you administer in future would you estimate would struggle to be compliant with all aspects of the AiB Protected Trust Deed Guidance?
Question 6. If not all your cases would be in line with the AiB Protected Trust Deed Guidance, what aspects of the Guidance would you struggle to meet and why?
Question 7. Do you think that the AiB Protected Trust Deed Guidance goes far enough? Should there be a wholly legislative approach to trust deeds, not reliant on the voluntary agreement of those involved?
Question 8. Do you agree that trustees should have some limited discretion in accepting the value of a claim?
Question 9. Do you agree that trustees should seek to make payments to creditors no later than month 18 and at 6 monthly intervals thereafter, subject to sufficient funds being ingathered?
Question 10. From your perspective do the limited controls on fees as set out in the AiB Protected Trust Deed Guidance go far enough, or should AiB have increased powers over the fees that can be claimed in a PTD?
Question 11. Do you agree with the introduction of a PTD Review Board?
Question 12. Do you agree the proposed membership of the PTD Review Board as stated in the AiB Protected Trust Deed Guidance document?
Question 13. If not, what changes would you make?
Register of Insolvencies
7.3 The intention to introduce legislation to remove the requirement for a notice relating to protected trust deeds to be advertised in the Edinburgh Gazette and to replace this requirement with an entry in the ROI was discussed in Part 4. Also discussed was the intention to improve the service given through the ROI by having it display information not currently available in the Gazette.
Question 14. Do you agree that trust deeds should be published in the Register of Insolvencies rather than the Edinburgh Gazette?
Question 15. Would it be useful to have the accessible information regarding trust deeds on the ROI extended to include, for example, the current status of the trust deed and any change to the predicted dividend?
Standard Summary Sheet
7.4 The purpose of the summary sheet is to facilitate the efficient handling of the trust deed proposal by creditors. In completing this sheet which is attached to the front of the trust deed, the trustee is assisting creditors or their appointed agent by compiling the information that is required to make an informed decision on that trust deed. It is also envisaged that by completing this front sheet, a trustee may reduce his own costs by reducing the number of requests for additional information by a creditor or their appointed agent.
7.5 Members of the PTDWG agreed with the recommendation of the ICAS Trust Deed Working Group to introduce a standardised summary front sheet which is compatible with the Turnkey system (an IT system used by many of the major IPs). A prototype standard front sheet is included at Annex B of the AiB Protected Trust Deed Guidance which is attached at Appendix 1. The group members considered what additional information is required by the creditors in order for them to make an informed decision on the trust deed.
7.6 The discussion resulted in the following recommendations that the front sheet should:
a) display details of linked trust deeds, e.g. when both partners in a household have signed a TD, a cross reference process would be helpful as this would identify any combined dividend payable;
b) provide further information that would assist creditors in deciding on whether or not to accept the trust deed;
c) detail any up-front fee or 3 rd party fee that a trustee has paid before commencing work and that would be attributed to the case;
d) include where possible details of any fees paid by a debtor prior to commencing a trust deed.
Question 16. Do you agree that a standard front sheet should be introduced for use throughout the industry?
Question 17. If so, do you agree with a - d above as to what it should include?
Question 18. Would it be useful to you for any further information to be captured on the front sheet?
7.7 The issue of home equity was widely debated at the PTDWG. Early versions of the AiB Protected Trust Deed Guidance included de minimis equity levels and prescriptive mechanisms for dealing with the realisation of equity. The final draft includes a provision for equity to be frozen at the point where the debtor grants the trust deed. This affords the debtor a degree of certainty that cannot currently be guaranteed and is in line with Scottish Government policy. The equity freeze is dependant on debtor compliance and is removed if the debtor fails to meet his or her trust deed obligations. In the event that a house sale is necessary, the freeze on equity is also lifted. To formalise the equity freeze it is recognised that an amendment to existing 2008 regulations will be necessary.
Question 19. Do you agree that the equity in a property should be frozen at the date the trust deed is granted?
Question 20. Do you agree that, where it becomes necessary that the property is sold, the freeze on equity is lifted?
Question 21. Do you agree that legislation should be introduced to formalise these proposals regarding the freezing of equity?
7.8 Following lengthy debate by the AiB Protected Trust Deed Guidance sub-group on equity guidance, to further improve transparency a requirement has been incorporated for trustees' equity release plans to be signed by the debtor and trustee then sent to the AiB at the beginning of the trust deed administration. Creditors expressed the view that the trustee should seek to realise the available equity as early as possible in the process. Whilst it is recognised that this may not be possible in all cases due to the debtor's circumstances, trustees are referred to AiB's guidance notes which state that steps should be taken as soon as possible to realise or abandon heritage.
Question 22. Do you agree that the trustee should realise any available equity as soon as possible in the trust deed administration?
Question 23. Do you agree that equity realisation plans should be signed by the debtor and trustee then sent to the AiB as part of the documents which would allow AiB to register the trust deed as protected?
Common Financial Statement
7.9 The Common Financial Statement ( CFS) is a budgeting tool that can be used by advice agencies and other third party organisations to make debt repayment offers to creditors on behalf of clients. It provides a detailed budgeting format to provide an accurate overview of a person's income, expenditure, assets and liabilities.
7.10 The proposal to implement standard income and expenditure guidelines generated much debate amongst the PTDWG members, as it appears that due to the inconsistency in various guidelines currently used, some debtors are being treated differently when it comes to calculating the level of contribution they can pay. Members of the PTDWG were in agreement that the CFS figures should be used by all parties as the maximum figures allowable for the level of contribution debtors can pay under a trust deed. Members agreed this matter required further action. It was proposed that the AiB Protected Trust Deed Guidance sub-group should consider how this could be implemented as standard. It was subsequently agreed by the sub-group that there should be research into the available options for calculating a debtor's income and expenditure before any single mechanism was adopted. This work is ongoing, however it would be useful to gather opinion at this stage as to which, if any, option is supported by stakeholders.
Question 24. Should a single mechanism be employed as industry standard to calculate a debtor's income and expenditure, for example CFS?
Question 25. If yes, should it be the CFS figures that are adopted as industry standard?
Question 26. If you do not agree that the CFS should be used, should some other figures, be used, for example CCCS?
Question 27. Where a decision is made to use a consistent method of calculating excess income, what percentage of a debtor's excess income should be paid to the trustee after the calculation is complete? 100%, 80%, 75% or another figure?
Form 4 Statement of Status of the Protected Trust Deed to creditors
7.11 As described earlier in this document, the Protected Trust Deeds (Scotland) Regulations 2008 currently provide that the trustee must send to the AiB a report in the form of Form 4 (Statement of status of a PTD) on an annual basis, beginning with the date the trust deed is granted. This is the statement of status of the PTD showing the current position of the PTD and any change in the projected dividend. The creditors in the PTDWG requested that a copy of the Form 4 should also be sent to them as this would allow them to see how the PTD is progressing. This information would assist them when considering an audit request to AiB.
Question 28. Do you agree that the Form 4 Statement of status of the PTD should be provided to creditors on an annual basis?
Question 29. Should this form part of the PTD information held on the ROI and should the capacity be developed to have the Form 4 displayed electronically on the ROI,?
A fixed time scale for the submission of creditor claims
7.12 An insolvency practitioner needs to know the exact amount of debt the debtor owes his creditors in order to calculate the dividend. At present there is no fixed timescale for the submission of creditor claims. To streamline this stage of the PTD process the PTDWG proposed a fixed timescale of 120 days, as is the current timescale in IVAs. The period could start either on granting the trust deed or on publication of the notice of the PTD in the Edinburgh Gazette (or ROI if the requirement to publish a notice in the Gazette is removed). This timescale would be used where creditors have been identified at the outset, or where a creditor comes to light during the term of the trust deed, it could commence from the date they became known to the trustee.
7.13 Where a creditor missed the 120 day timescale, the trustee would have the authority to reject any claim made by the creditor. The creditor would then have the right to appeal the trustee's adjudication. This would be akin to the current legislation for adjudication of claims in bankruptcies.
Question 30. Do you agree that a timescale should be fixed for the submission of claims in a trust deed by creditors?
Question 31. If so, do you agree that 120 days is the correct timescale?
Question 32. If you do not agree, what do you think is a realistic timescale?
Question 33. Should the trustee be able to reject claims where they are submitted late?
Question 34. Should the creditor have the right of appeal where a claim is rejected?
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