Protected trust deeds: improving the process consultation

Part 9: Other proposed changes

9. Other changes have been suggested with regard to trust deeds over the recent period. These have come from various stakeholders, including money advisers, insolvency practitioners and the AiB.

Debtor's Address

9.1 The Act of Sederunt (Sheriff Court Bankruptcy Rules 2008) states that the address of the debtor at the date the trust deed is granted is the one which must be contained in the ROI. Concerns have been raised that where the debtor is, for example, living in safe accommodation, a woman's refuge or under witness protection and the current address is published, it could be used to trace them. This could put them in danger, from, for example, a violent ex partner. It has been suggested that to resolve this, a former address could be published.

9.2 With a view to making debtor identification easier, the Sheriff Court Rules Council has agreed that the debtor's date of birth can be included in the information held on the ROI. It is intended that this change to the ROI will be made later in this financial year, or in the next.

Question 43. Would a debtor's name and date of birth, along with a former address, be enough information for you to correctly identify the debtor?

Question 44. Do you agree that, in cases where a risk to the debtor can be shown, the debtor's current address should be omitted?

Contributions from Social Security benefits in PTDs

9.3 The AiB guidance notes currently state that no contribution should be sought from benefits but current practice appears to suggest that there are some cases where contributions from benefits are accepted by trustees in PTDs. The explanation given by trustees is that the debtor insists on making contributions from benefits. Section 187(2) of the Social Security Administration Act 1992 provides that every assignation of or charge on benefit as defined; jobseeker's allowance; any income-related benefit; or child benefit and every agreement to assign or charge such benefit shall be void, and on the bankruptcy of the beneficiary, such benefit shall not pass to any trustee or other person acting on behalf of his creditors. Trustees argue that the legislation only states that trustees in bankruptcy cannot take contributions from benefits and as PTDs are not mentioned, taking a contribution from someone in a PTD who is a beneficiary of a benefit, while regarded by some as morally dubious, is not prohibited.

9.4 The AiB Protected Trust Deed Guidance states "Where a debtor's sole income is derived from benefits or tax credits as laid down in Section 187 (2) of the Social Security Administration Act 1992 Chapter 5 (as amended) or Section 45 (2) of the Tax Credits Act 2002 (as amended), it should not be appropriate for an income based PTD to be considered. " Thus where a trustee adheres to the AiB Protected Trust Deed Guidance, were this to be agreed by the industry, no contribution from benefits would be taken or allowed to be given by a debtor.

9.5 Where an insolvency practitioner did not agree to adhere to AiB Protected Trust Deed Guidance, or to AiB guidance notes, no legal challenge could be made unless legislative change was introduced to expressly make it clear that trustees cannot accept a contribution from social security payments to debtors, in PTDs.

Question 45. Do you agree that no contribution should be taken from Social Security benefits where these are a debtor's only income?

Question 46. If the AiB Protected Trust Deed Guidance is agreed, do you consider that this is a sufficient safeguard for the debtor with regard to Social Security benefits?

Question 47. If not, do you think that legislation should be introduced to prohibit trustees from accepting contributions from a debtor's Social Security benefits?

Fact Finding Fees

9.6 In trust deeds, the trustee can claim a payment that has been made to a third party agent for work done on behalf of the trustee. The payment, which is claimed as an expense of the trust deed, is for work to establish the debtor's financial circumstances prior to the granting of the trust deed. A third party agent may, for example, advertise PTDs as a means of debt control, then when contacted by a debtor, confirm their circumstances to establish whether they are eligible to enter a trust deed. If the debtor may be eligible for a trust deed, the third party agent will pass them to an insolvency practitioner. In some cases the third party agent will charge the debtor directly for this service as well as receiving a payment from the trustee.

9.7 The agent must submit an invoice to the trustee, detailing the work they have done, and this can be paid as an outlay from funds in-gathered through the trust deed. Prior to payment, the trustee should be satisfied that the fee charged by the agent is reasonable for the amount and type of work completed and that the work has been completed to an acceptable standard.

9.8 The trustee may also claim time to the trust deed if they believe there is a requirement to verify any of the information provided by the agent. But a fee cannot be charged if the trustee is duplicating work that the agent has completed and has been paid for. The time spent verifying information, however, can add to the cost of the trust deed, increasing fees and reducing dividends to creditors.

9.9 The fees charged by an agent range from £400 to £1200, averaging £800. Added to this, trustees typically charge between 1 ^1/2 and 3 hours to the trust deed to verify the agent's work. This verification is carried out over the range of grades within an insolvency practitioner's staff, so is charged at a variety of levels dependant on which insolvency practitioner is trustee. Both the agent's fees and the charge for verification of the information are charged to the trust deed, reducing the amount that is available for creditors. As stated above, the debtor may also have paid a fee directly to the third party agent.

9.10 This provision to claim a pre-trust deed cost as an outlay of the trustee of a trust deed, does not apply to trustees of sequestrations. The Bankruptcy (Scotland) Act 1985, as amended, makes no provision for work completed prior to the date of bankruptcy and the appointment of the trustee and this cannot be treated and paid as an outlay of a sequestration.

Question 48. Do you believe it is appropriate for an agent's fact finding fees, that are incurred prior to the granting of a trust deed, to be treated as an outlay of the trust deed?

Question 49. Do you believe it is appropriate that a further charge to the trust deed should be allowed to verify information gathered by a third party agent?

Forms in PTD Regulations

9.11 The statutory forms used in the PTD process can be found at Schedule 1 of Protected Trust Deeds (Scotland) Regulations 2008. These forms have not been reviewed since their introduction in 2008.

9.12 Improvement to these forms to assist in the PTD process could include:

• the addition of the debtor's date of birth to assist creditors in their identification of debtors;

• capturing creditors current addresses to try to improve the trustees of PTDs chances of contacting the creditor at the time a dividend is to be paid and so reduce the amount of PTD consigned funds;

• the inclusion of further information with regard to assets and debts to improve the information provided to creditors;

• the addition of the AiB Reference to improve process for associating the Form with the correct PTD; and

• the inclusion of reversion and consignment figures and preferred and secured creditor debt details for future statistical purposes, to enhance information available to those involved in the PTD process.

Question 50. Do you agree that the PTD Forms contained in the Protected Trust Deeds (Scotland) Regulations 2008 should be reviewed?

Question 51. Are there any particular changes to PTD Forms that you feel would benefit you?