Protected trust deeds: improving the process consultation

Part 6: Protected Trust Deeds Working Group

6. To build consensus over changes to the PTD process post DAF, at the request of the then Minister for Community Safety, the Accountant in Bankruptcy, Rosemary Winter-Scott, set up the Protected Trust Deeds Working Group ( PTDWG) to review the current PTD process.

6.1 The PTDWG was chaired by Rosemary Winter-Scott and comprised a cross section of stakeholders, including representatives from the advice sector, creditors, insolvency practitioners and AiB officials. Full details of the remit, membership and copies of the papers and minutes of the working group can be found at:
http://www.AiB.gov.uk/about/protected-trust-deeds-working-group

6.2 The PTDWG sought to make recommendations for a coherent approach, including appropriate legislative and non-legislative measures, to ensure the PTD process in Scotland is fit for purpose and that it strikes the best possible balance between the needs of debtors and the rights of creditors.

6.3 The PTDWG recognised that achieving a balance between the rights and needs of all parties involved in trust deeds is vital. Creditors agree to a trust deed in the expectation that a trustee will deliver a dividend as set out in the trust deed proposal. The needs of the debtor must also be taken into account. The debtor must be fully informed at the outset about what a trust deed means for them, for example the effect on their credit record, the contribution they must pay and what assets the trustee expects to realise. Trust deeds are a voluntary debt solution, based on expectations of outcome between all parties involved. Without clarity and transparency for all parties, the trust deed process may fail.

6.4 To produce recommendations, the PTDWG considered the following issues:

• the Protected Trust Deed process - is it effective and can it be improved?;
• how best to address the creditor's interest - in terms of the return/dividend;
• how best to address the debtor's interest - in terms of the cost, the process, the result;
• the fees - existing evidence, stakeholder concerns and alternative options;
• existing regulation and the AiB's supervisory role; and
• the need for change and any options for change.

6.5 In considering these questions the group examined evidence collected from the AiB review of PTDs and other relevant analysis undertaken in Scotland to identify the current issues and problems for discussion. This included the ICAS report mentioned in Part 5, which was adopted by the group in the main and evidence from the money advice sector. In considering the best ways of alleviating the current problems, the group considered alternative models for the delivery of PTDs in Scotland which would best serve the needs of both creditors and debtors.

6.6 The PTDWG initially met on five occasions, within a relatively short timescale, between March and June 2010, with the first meeting being held on 10 March 2010. The group considered a number of papers produced by its members together with comments and papers submitted through the AiB website, which sought to highlight suggestion as to how the PTD process could be made more effective for debtors and creditors. Minutes of the PTDWG and papers for discussion have been published on the AiB website and the final report of the PTDWG, including recommendations, can be accessed at: http://www.AiB.gov.uk/about/ptdwg/ptdwgfinalreport.

6.7 One of the main recommendations of the PTDWG was that a Trust Deed protocol be introduced. It has been suggested that the trust deed market in Scotland has much in common with Individual Voluntary Arrangements ( IVAs) in England. IVAs were introduced in England and Wales in 1986 as an alternative to bankruptcy, for individuals who had assets or income (or both) to repay some of their debt, and generally result in higher returns to creditors than bankruptcy. IVAs, which normally run for 5 years, create a flexible but binding contract between a debtor and his creditors.

6.8 In February 2008 The UK Insolvency Service brokered the IVA protocol between stakeholders to create a voluntary code of conduct to facilitate the efficient handling of straightforward consumer IVAs. The main elements of the protocol are:

• a standardised approach to assessing a debtor's income and expenditure;
• a standardised approach in dealing with a debtor's interest in their home;
• an agreed set of standard terms and conditions;
• a standardised approach for the format of presenting a debtor's IVA proposal to his creditors; and
• greater transparency for each stakeholder.

6.9 Findings from the IVA marketplace have shown a protocol approach to be more inclusive of all stakeholders due to the consultative method of building a set of principles. The protocol provides transparency and flexibility, providing the ability to adapt to changing social and economic circumstances.

6.10 The members of the PTDWG agreed that this approach may be beneficial for PTDs in Scotland, and provide the same benefits as the IVA protocol in England and Wales.

6.11 It is intended that the protocol should deliver benefits for all parties involved in PTDs. Creditors would benefit through increased consistency and improved information throughout term of a trust deed. Faster payment of dividends where possible should also improve the PTD process for creditors. Better advice and information, along with a requirement for complaint handling guidance should improve the trust deed experience for debtors. IPs should also benefit from the agreement to the increased use of their discretion and clarity on roles, while all involved would benefit from clarification of the process.

6.12 The PTDWG were in agreement to the development of a PTD protocol with these aims to be taken forward by a sub group of the PTDWG. AiB oversaw the meeting of this sub group, which consisted of a cross section of stakeholders, during the summer and autumn of 2010. It was agreed that, rather than being named the PTD protocol, the code of behaviour should be referred to as the AiB Protected Trust Deed Guidance. This change of name was designed to avoid confusion with the IVA Protocol and also because, unlike the IVA Protocol, the intention was that this guidance should apply to all PTDs.