Protected trust deeds: improving the process consultation

V. Background

Part 1. Current Trust Deed Process

1. Having taken advice and decided that a trust deed is the appropriate way to deal with their debt, a debtor will meet with an insolvency practitioner (the trustee) who will draw up a trust deed. Only licensed insolvency practitioners ² can be trustees in relation to trust deeds.

1.1 Trust deeds are voluntary agreements, granted by a debtor in favour of a trustee under which assets of the debtor are transferred to be administered for the benefit of creditors and the payment of debts. They provide, through realisation of assets or contributions from the debtor's income, for the repayment of part of what is owed to creditors over the course of the trust deed. Trust deeds generally run for a period of 3 years although some may extend to 5 years.

1.2 Once the trustee has collected the information regarding the debtor's financial circumstances and what the debtor can afford to pay towards his debts, he advertises the trust deed in the Edinburgh Gazette and writes to the creditors to propose payment of some of what is owed - a dividend.

1.3 A trust deed can become 'protected' if a sufficient number of creditors do not object to the trust deed protection request and thus are deemed to agree to it. Once protected, the trust deed is binding on all creditors who can usually take no further action to pursue the debt owed providing the debtor complies with the terms of the trust deed. Upon completion of the trust deed the remaining unpaid debt is written off although secured lenders can still rely on their security.

1.4 An ordinary trust deed is not binding on creditors who have not agreed to its terms and they can still decide to pursue their debt; only a PTD is binding on all creditors.

1.5 As a result of the changes introduced by the BAD Act, the Protected Trust Deed (Scotland) Regulations 2008 (2008 Regulations) require trustees to provide additional information, not previously supplied, in respect of trust deeds. They are now required to provide a Statement of the Debtor's Affairs and to complete Form 3, a Statement of Anticipated Realisations from a PTD. Form 3 details the anticipated contributions from the debtor, expected realisations from assets, the estimated cost of administering the PTD and proposed dividend to ordinary creditors.

1.6 The trustee must prepare a statement of his accounts and send a copy to the debtor, each creditor and the AiB. Once the trustee fees and outlays have been paid from the money ingathered, the trustee will pay a dividend to creditors, usually at the end of the trust deed.

1.7 When the administration of the trust deed is complete and the trustee has made the final distribution of the estate among the creditors, the trustee may seek his discharge from the creditors who agreed to the trust deed. The trustee will make an application to the creditors and will issue a certificate of discharge to the debtor.