Protected trust deeds: improving the process consultation

Part 3: Review of Protected Trust Deeds

3. The BAD Act ³ introduced modification of provisions relating to PTDs and extended the supervisory functions of the AiB to include trustees under PTDs. Prior to 1 April 2008 no specific information was available in respect of debts included in PTDs, of expected realisations, of proposed dividends to creditors or of fees charged by trustees.

3.1 The 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 Protected Trust Deed. 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.

3.2 In accordance with the legislation, a trustee must submit to the AiB, at intervals of not more than 12 months beginning with the date the trust deed is granted, a Form 4, which details the estimated dividend payments to creditors. If this amount has varied from the amount projected at the commencement of the PTD (as shown on Form 3) the trustee must give the reason for the change. The trustee must also, at this time, submit a statement of his accounts in administering the trust deed.

3.3 A commitment was made that the AiB would carry out an overall review of PTDs following the introduction of the 2008 Regulations. The review would collate information ingathered from the relevant forms on PTDs that were registered after 1 April 2008. Collection of this additional information has allowed AiB to monitor the progress of PTDs, establish trends, and highlight areas of concern.

Initial Review

3.4 The first review to be undertaken, in line with AiB's new powers, examined a representative sample of 1,262 of the 3,825 PTDs registered between 1 April 2008 and 30 September 2008. The review further compared the findings from the sample with estimated outcomes for the year ended 2008/09 and reported outcomes for the year ended 2007/08. The data collected included information on debts, debtor profiles, proposed dividends and anticipated trustee fees and outlays. The review can be found at: http://www.AiB.gov.uk/sites/default/files/publications/Resource/Doc/4/0000821.pdf

3.5 The review found that, in respect of the 2008 sample:

• the legislative changes introduced appear to have had no effect on the number of PTDs registered;
• the number of individuals entering a PTD has been fairly consistent over recent years;
• more male than female debtors entered PTDs during the review period;
• at the very outset of trust deeds, (as shown on Form 3), 47% of expected realisations was absorbed by trustee fees and outlays;
• only 53% of money ingathered went to payment of dividends;
• the average total debt included in individual PTDs amounts to £32,652;
• the average estimated dividend proposed to creditors in individual PTDs is 17 pence in the pound;
• the average anticipated trustee fees and outlays amount to £4,937;
• total debt estimated to be written off for PTDs registered in the year 2008/09 is £205m out of £249.2m of debt included in these PTDs; and
• the additional information trustees are now required to provide to AiB for Protected Trust Deeds is sufficient to allow PTDs to be effectively monitored.

3.6 The review concluded that PTDs can be an effective debt relief mechanism for some people. However it also highlighted the significant percentage (almost half) of debtor contributions that went in fees and outlays, rather than to creditors. Because of this, the review also concluded that further work should be undertaken to develop a simplified procedure to make PTDs more cost effective.

Subsequent review

3.7 A further review of a sample of PTDs submitted to AiB from 1 April 2009 to 30 September 2009, allowed comparisons with the first review undertaken in the corresponding period of the previous year. This Protected Trust Deed Review 2010 can be found at http://www.AiB.gov.uk/publications/protected-trust-deed-review-2010.

3.8 This sample reinforced the findings of the first. Because a full year had elapsed since legislation allowed the AiB to supervise cases, changes to trust deed projected outcomes could be established. The review illustrated a trend, in 823 cases where a Form 4 had been submitted, where the projected cost of the PTDs had increased. It also highlighted a decrease in projected dividends to creditors. In 71 of the 823 cases examined, the projected dividend due to be paid to ordinary creditors reduced to zero.

3.9 The findings of the reviews indicated that there were issues with PTDs which warranted further examination. In particular:

• Cases where the predicted dividend falls - causes and remedies;
• Cases where the predicted trustee's fees increase - causes and remedies;
• Cases where the creditor receives nothing, with only trustee fees being paid; and
• General cost of PTDs.