PROTECTED TRUST DEEDS - Scottish Parliament...2020/01/24 · e [email protected] Claire Murrie...

The Accountant in Bankruptcy

& Agency Chief Executive 1 Pennyburn Road

Kilwinning KA13 6SA

t 0300 200 2901 f 0300 200 2601 e [email protected]

www.aib.gov.uk

Claire Murrie Assistant Clerk Economy, Energy and Fair Work Committee The Scottish Parliament

Date 24 January 2020

Dear Claire PROTECTED TRUST DEEDS Thank you for your e-mail of 17th January. During my evidence session, I promised to come back to the Committee on a number of points. Detail on these is provided in the annex to the document, along with the further information you requested on average returns and the work done on a “PTD-Lite”. I wanted to add two further points myself. First, on the issue of the increase in complaints about PTDs in 2018-19, I wanted to personally apologize for misleading the Committee when I suggested (at column 7 of the OR) that this was down to complaints from credit unions. In fact, of the 23 complaints listed on our website as received by us last year about protected trust deeds, only one was raised by a credit union. This is because in previous annual reports, we have included as “complaints” only complaints against ourselves – a policy we have changed for future reports. Credits unions asked us to look into a further 14 cases in a manner which did not score under our complaints recording procedure – even though in two of these cases, our investigations led to the trust deeds’ protection being rescinded. It was the memory of these additional cases that blurred my recollection. Second, the Committee will be aware that stakeholders believe that historically, many of the issues in individual trust deed cases are in part a result of firms’ purchasing leads from companies not subject to FCA regulation. The RPBs have now set a clear expectation in guidance that IPs will only use firms who are subject to the FCA. In my session, Mr Lockhart asked if that were a hard requirement or whether it was best practice. Michelle Thorpe subsequently confirmed that all the firms with high volumes of PTDs have agreed to abide by this approach voluntarily pending the expected introduction of statutory regulation – this of course being a reserved matter.

Yours sincerely

Richard Dennis

mailto:[email protected]

http://www.aib.gov.uk/

Good Afternoon. Thank you for your e-mail of 17 January 2020, following up from the Protected Trust Deed evidence session of 14 January involving Richard Dennis, Kelly Donohoe and Stacey Dunn. You have asked for clarification on some points raised during the session and some further information that the Committee would find useful. I am pleased to provide the following information: Point 1 - To clarify why there was an increase in the number of complaints from an average of 2 per year for the past 8 years to 23 complaints in 2018/19. It is difficult to establish a clear rationale behind the increase in the PTD complaints recorded in AiB‟s annual report for 2018/19 as compared to figures for previous years. Having discussed with the operations team, the primary reason would appear to be a recent change in approach to recording of PTD complaints that will have impacted on the 2018/19 figures. The figures now encapsulate all PTD complaints, including those that are not considered to fall within AiB‟s direct field of responsibility. AiB now records complaints have been received, even where the issues identified are more appropriate for investigation by the Recognised Professional Body (for example potential breaches of the published Statements of Insolvency Practice) and the complainant has been referred to the Complaints Gateway managed by the Insolvency Service. This more comprehensive approach will include complaints not previously captured – these would have been limited to those where AiB had the direct responsibility for investigating the issues raised and reaching a decision on whether the complaint should be upheld or not. Point 2 - To confirm the number of websites that the AiB requested that the Advertising Standards Authority should take down last year. AiB‟s Operational Policy and Compliance department formally record action taken where inappropriate website material has been identified and have kept a formal record of this since April 2017 - when such issues started to become more prevalent. Since April 2017, 37 websites have been investigated. As a consequence of these investigations, the majority of website owners have amended any inaccurate information when concerns have been – some web-sites had become inactive during the time of the investigation. Three web-sites have been taken down completely as a result of investigation and a further seven were reported to either the FCA, ASA or the Insolvency Service and are still under investigation. Out of those still under investigation by these bodies, three were reports concerning inappropriate advertising. Point 3 - Colin Beattie said that he would provide you with further information on his constituent‟s case. Please let us know if you would like us to follow this up with Colin. Richard Dennis has been in contact with Mr Beattie to request the details of the case and awaits his response.

Point 4 - Statistics on the average returns to creditors in PTDs and bankruptcy going back five years The tables below provide the information requested. AiB annual reports include details of the total numbers of bankruptcies and PTDs that pay a dividend and the figures below show the average dividend paid to creditors where a dividend is paid. It should be highlighted that no dividend is payable in bankruptcy in a significantly higher proportion of cases than is the case with PTDs. The 2018/19 shows that no dividend was payable in 66% of bankruptcies (76% including Minimal Asset Process cases) and a dividend was payable in 71% of concluded PTDs.

Figures highlighted in yellow were not published. * = Unknown. Point 5 - Alternative debt relief or management product – “PTD-lite” In 2009 the then Minister for Community Safety, Fergus Ewing MSP, set up and chaired the Debt Action Forum (DAF) bringing together a varied group of stakeholders with differing perspectives and views to examine information and initiatives on debt relief in Scotland including PTDs. This review led to the establishment of the Protected Trust Deeds Working Group (PTDWG), chaired by The Accountant in Bankruptcy at that time, Rosemary Winter-Scott. The purpose of the PTDWG was to make recommendation for appropriate legislative and non-legislative measures to ensure the PTD process in Scotland was fit for purpose and strikes the best possible balance between the needs of debtors and creditors.

One of recommendations made by the PTDWG in their final report was that consideration should be given as to whether a simpler model of a PTD is needed and can be developed for some specific straightforward cases which would reduce costs and possibly make the process available to a wider group of customers.

PTD

2014-15 2015-16 2016-17 2017-18 2018-19

Average dividend paid to ordinary creditors (pence in the £) 21.7 20.1 19.8 17.8 16.4

Bankruptcy

2014-15 2015-16 2016-17 2017-18 2018-19

Average dividend paid to ordinary/preferred creditors (pence in the £) * 27.5 21.1 17.8 19.3

of which: AiB as trustee 24.7 29.3 20.6 22.9 21.3

of which: Private sector trustees 16.5 24.3 16.6 10.1 17.8

https://www.aib.gov.uk/protected-trust-deed-working-group-final-report

Working group members prepared option papers at that time on possible alternatives and these could be provided to the Committee if specific consent from the authors is obtained. The Protected Trust Deed - Improving The Process consultation was issued in 2011 to get feedback on all recommendations for changes to PTD legislation. In the consultation questions 38 to 42 contemplated the requirement for such separate product. Responses to the specific questions asked on the development of a separate product came back with the majority (77.6%) disagreeing with the proposal for this new product on the belief that there are already a number options available. Therefore this specific recommendation for changes to the PTD legislation was not taken forward into legislation. Additional Background - AiB Audits and Supervision Further to the information on audits, undertaken by AiB, given at the evidence session on 14 January we thought it would be helpful to provide some further information on the 66 cases audits mentioned and the further work that is undertaken by AiB in its auditing and supervision role in PTDs. Background With the implementation of the Protected Trust Deeds (Scotland) Regulations 2013 (amalgamated into the Bankruptcy Scotland Act 2016) changes to the trustee remuneration process were introduced. Previously, trustees charged on a „time and line basis‟, this was replaced by a fixed initial fee supplemented by a percentage of funds collected through realisations (sales of assets and debtor contributions). The level of the initial fee and percentage charged for realisations are not set in statute, so it is possible for varying amounts to be charged by individual trustees. The remuneration arrangements require creditor approval through the protection process. Under the pre-2013 regulations, AIB could reduce the time charged by the trustee where there was insufficient supporting evidence. Now that the initial fee and percentage charge for realisations are set at the outset, there is limited scope for the trustee fee to be reduced through the audit process, though any outlays incurred by throughout the administration may be reduced or disallowed where appropriate. As mentioned 66 Audit have been completed since 2016, 45 initiated by AiB, 15 by creditors and six by debtors (if an audit is requested by anyone other than AiB a 5% fee is applied to the case). One of these 66 audits was on a post-2013 case where the full fee could not be audited. Reviews While the audits look specifically at fees or outlays AiB can also conduct reviews of cases where the complete file is reviewed to ensure the trustee had completed all of their statutory duties. 169 full case reviews have been completed since 2016, 159 initiated by AiB, eight by debtors and two by creditors. Statistics on these audits are

https://www.gov.scot/publications/protected-trust-deeds-improving-process/

provided below. Of those referred for a compliance issue report, 13 have resulted in formal referrals to the relevant RPB.

Result of review Number of cases

2016 27

Compliance Issue Report 5

Converted to Audit 7

No further action required 15

2017 82


Converted to Audit 2


2018 30



2019 30



Ongoing 17

Grand Total 169

Additional checks during administration of PTD In addition to these audits AiB also carry out a series of detailed checks on the returns made by Trustees at various points during the administration of a PTD. All cases undergo checks prior to protection whilst trustees‟ annual progress reports are also scrutinised. At the end of the process, checks are carried out on the trustee‟s final administration report before it is uploaded to the register of insolvencies. Some findings from checks Situation 1 – Checks on routine annual returns provided by trustees revealed that one particular trustee had increased their fixed fee in a substantial number of cases. The Bankruptcy Scotland Act 2016 (section 183(3)) stipulates that a trustee may, in unforeseen circumstances, increase the fixed fee if agreed by majority in value of creditors, or with specific consent of AiB. Following an investigation by the team a total sum of £60,760 (over a number of cases) was disallowed as it was found that the trustee had not obtained agreement from AiB or creditors. Situation 2 - Checks on routine trustee returns highlighted that a trustee was adding an outlay for death and terminal illness cover. A number of the trustee‟s other cases were reviewed and it was found it was a common charge in their PTD cases. The fee was put in place to cover the dividend payment to creditors in the event of the debtor‟s death during the PTD. AiB instructed the trustee that the fee was not appropriate and that they should no longer charge this fee.

Report on Public Consultation

Protected Trust Deeds – Improving the Process

Report Summarising the Responses to the PTDs – Improving the Process Consultation

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Report on Public Consultation Contents I. Ministerial Foreword II. Background III. Evaluation IV. Consultation Response Results V. Next Steps Annex A List of Organisation which responded


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I. Ministerial Foreword

As the global economy continues to recover, the Scottish Government acknowledges that Scotland, as a nation, will strengthen with a growing economy. In the insolvency industry, this economic growth can be achieved by carefully balancing the needs of indebted individuals and their creditors. In the current financial climate many individuals are finding themselves in a situation where they are unable to repay their debts in full as they fall due. Although I hope that people who can pay back their debts over a longer period of time access the Debt Arrangement Scheme, a Protected Trust Deed is another product that offers debt relief to those who need it, whilst paying something back to their creditors. This report summarises the responses to the consultation which was aimed at making improvements to strengthen the current Protected Trust Deed product by simplifying its processes, assisting in the financial rehabilitation of individuals and providing a greater return to creditors. I am therefore grateful to all those who took the time to contribute to the consultation, to assist us in developing an improved mechanism to support the people of Scotland and to strengthen its growing economy.

Fergus Ewing, MSP Minister for Energy, Enterprise and Tourism


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II. Background In 2010 The Protected Trust Deeds Working Group (PTDWG) was established at the request of the then Minister for Community Safety, Fergus Ewing MSP. The PTDWG was chaired by Rosemary Winter-Scott, the Chief Executive of the Accountant in Bankruptcy (AiB) and comprised a cross-section of stakeholders from the advice sector, creditor organisations, insolvency practitioners and the AiB. The purpose of the PTDWG was to make recommendations for appropriate legislative and non-legislative measures, to ensure the PTD process in Scotland is fit for purpose and strikes the best possible balance between the needs of debtors and the rights of creditors. The group, although diverse in its range of interests, engaged constructively and achieved a great deal over the short term of five initial meetings. In general, the group agreed that there was scope for improvement to the PTD process and in its Final Report published in June 2010, made several recommendations. These recommendations formed the basis of the consultation ‘Protected Trust Deeds – Improving the Process’. On the 17th October 2011 the consultation was published on the AiB and Scottish Government Consult website and ran until the 31st January 2012. The purpose of the consultation was to seek views on the recommendations which are intended to:

make the current trust deed process more efficient,

ensure the process is fit for purpose, and

ensure that it strikes the best balance between the needs of debtors and the rights of creditors.

Specifically, proposals in the consultation are looking to standardise processes where possible and to improve the levels of information available to debtors and especially creditors. All 49 responses to the consultation were received and collated by the AiB. Summary of the proposals As a result of the responses to the consultation the following proposals will be taken forward as soon as possible:

Introduction of the AiB Protected Trust Deed Guidance, to ensure best practice is adopted in all cases. This Guidance will include verification of information, standard documentation and reporting to creditors;

The Guidance will also introduce a revised structure for trustee fees consisting of an up-front fee for setting up the trust deed and a percentage fee based on the amount of funds ingathered from the debtor’s estate;

Introduction of a PTD Review Board, membership of which will still need to be confirmed;


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Removal of the requirement on the trustee to publish a trust deed in the Edinburgh Gazette, and replacement with a requirement on the trustee to publish a trust deed in the Register of Insolvencies;

Introduction of a standard front summary sheet for trust deeds;

Formal freezing of the equity. This will fix the valuation of the equity in a debtor’s property at the time the trust deed is granted;

Introduction of a requirement for the Form 4 (trustee’s statement of status of a protected trust deed) to be made available to creditors on an annual basis;

Introduction of a fixed timescale for the submission of creditor claims;

Enhancing the information held on the Register of Insolvencies to improve the level of information available to creditors;

Removal of a trustee’s right to accept contributions from a debtor’s Social Security Benefits in PTDs; and,

Amendment of statutory Protected Trust Deed Forms. Some of the proposals could be effected relatively quickly through a change in practice or through secondary legislation. There were a number of proposals which will be considered alongside the responses to the Bankruptcy Law Reform Consultation. This will include the following:

Implementation of standard income and expenditure guidelines for trust deeds by use of Common Financial Statement (CFS) figures or similar;

Introduction of Income Payment Orders in relation to trust deeds; and

Introduction of a simplified PTD product. There were two proposals that will not be taken forward at this time as there was insufficient support. These were:

Provision for trust deeds that would make an earnings arrestment cease on the date a trust deed becomes protected; and

Amendment of debtor’s address requirements on the Register of Insolvencies, which would require a change to the Act of Sederunt (Sheriff Court Bankruptcy Rules) 1996.


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III. Evaluation A total of 49 responses were received by the AiB at the close of the consultation. A list of the organisation who responded can be found in Annex A of this document, and a breakdown of the respondents is shown in the graph below:

42.9

28.6

16.312.2

0

10

20

30

40

50

60

70

80

90

100

Perc

enta

ge o

f Res

pond

ents

Creditor Insolvency

Practitioners

Advice Sector Individual (Sector

Not Specified)

Total Respondants

Of the 42.9% of creditor responses received 34.7% were from credit unions and the remaining 8.2% were from creditors and creditor representatives. 12.2% of responses were from individuals who did not indicate the sector they represented. Methodology Throughout the document there are small charts representing the responses to the questions asked in the consultation. Where the respondent has a ‘yes’ or ‘no’ answer the percentage of responses are recorded accordingly. However, where no answer was provided, that is recorded as ‘N/A’. Some respondents provided comments, rather than answering the question. These are recorded as ‘Other’. For example the chart below demonstrates that 75.5% of respondents responded ‘yes’, 16.3% responded ‘no’ and 8.2% made a comment.

75.5

16.3

0.08.2

0.0

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30.0

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100.0

YES NO N/A OTHER


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IV. Consultation Response Results AiB Protected Trust Deed Guidance The AiB Protected Trust Deed Guidance was drafted with the purpose of facilitating a common approach to the efficient handling of all Protected Trust Deeds (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. The following is an analysis of the questions asked relating to the AiB Protected Trust Deed Guidance. Question 1 From your perspective, will the AiB Protected Trust Deed Guidance drive the desired changes as set out above?

75.5

16.3

0.08.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

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100.0

YES NO N/A OTHER

Wilson Andrews Limited, Part of the Think Money Group - "In principle we believe it will; however we have reservations about the ability to achieve this in practice."


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Question 2 Do you agree that the AiB Protected Trust Deed Guidance strikes the right balance between debtors and creditors?

75.5

16.3

0.08.2

0.0

10.0

20.0

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YES NO N/A OTHER

The Insolvency Practitioners Association - "In general terms, yes, although as described elsewhere some specific details of the Guidance (for example regarding home equity and dividend timescales) may generate unfair outcomes in some cases. The IPA is of the view that current practice with regards to PTDs already provides a good balance between the interests of creditors and debtors. Broadly the Guidance adopts many practices that diligent IPs are already using.”

Question 3 Do you support the application of the AiB Protected Trust Deed Guidance to PTDs generally?

77.6

12.20.0

10.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

YES NO N/A OTHER

Of the respondents that answered ‘Yes’, a general expression was given that the Guidance would add consistency and transparency in the handling of PTD’s. However, several respondents did identify that there may be occasions where an insolvency practitioner (IP) chooses to propose a trust deed that is not guidance complaint on the grounds of the variety of the debtors’ personal circumstances.

Consumer Credit Counselling Service Scotland - "Yes. It is important that consumers are protected from organisations that may seek to exploit their debt problems to make excessive profits. The clarity and consistency that comes with the guidance will benefit consumers, as well as creditors and insolvency practitioners."

Association of British Credit Unions Ltd. (ABCUL) - "ABCUL welcomes the formal PTD Guidance which has been produced to facilitate a common


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approach to PTDs. We feel the Guidance addresses many of the concerns raised by credit unions about the PTD process and strikes a much better balance in its treatment of debtors and creditors. We would welcome the application of this Guidance to PTDs generally, and credit unions would be prepared to adhere to it as creditors."

The Insolvency Practitioners Association - "The IPA is generally supportive of the introduction of the Guidance. Broadly speaking much of the practices recommended by the Guidance are already being undertaken by diligent and professional insolvency practitioners. In that regard the Guidance simply repeats current good practice, much of which is already contained in the authorising bodies' ethics codes and Statements of Insolvency Practice ("SIPS") which have regulatory force."

Max Recovery - "There will no doubt be some cases that are challenging to fit within the confines of guidance but if an IP talks to creditors then a solution should be found."

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?

10.216.3

55.1

18.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

YES NO N/A OTHER

The Carrington Dean Group - "No. We would not envisage it is possible to say that all PTDs will be in line with the guidance. We would envisage the vast majority will and the few that won’t will be the exceptions. It is important to remember that guidance is just guidance and there may be circumstances where the purpose driving it will not be achieved by following it. In certain cases it may be appropriate to not follow the guidance in order to strike the correct balance between the rights and obligations of creditors and debtors."


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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?

61.2

38.8

0.0

10.0

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70.0

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No Comment

Given

Comment Given

The respondents were divided in opinion on a percentage with the majority noting that either 100%, 80% or 85% of their cases would be compliant with the Guidance. A number of respondents did convey that they couldn’t give an approximate percentage at this time but did envisage the numbers would be small. 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?

64.6

35.4

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No Comment

Given

Comment Given

The general response indicated that although uncommon, there may be occasion when a guidance compliant trust deed is not achievable or appropriate on the grounds of the debtors’ personal circumstances.


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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?

45.254.8

0.0

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100.0

Goes far enough Legislative

approach

Max Recovery - "We do not think that it goes quite far enough in respect of term of PTDs, however, in other areas we feel it is a better approach than legislation which tends to decrease flexibility.” R3 Association of Business Recovery Professionals – “In our opinion the Guidance is simply not required, there is already a statutory framework in terms of the Protected Trust Deed (Scotland) Regulations 2008 (as amended) and recognised industry wide best practice in SIP3A (Scotland).”

Question 8 Do you agree that trustees should have some limited discretion in accepting the value of a claim?

87.8

2.0 2.0 8.2

0.0

10.0

20.0

30.0

40.0

50.0

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YES NO N/A OTHER

We recognise that trustees have wide discretionary powers at present. However, the aim of the Guidance is that creditors should not challenge the trustee’s use of discretion within specified limits.

Max Recovery - "Definitely. Under the IVA Protocol the IP has 15% discretion from the statement of affairs value. This has driven huge efficiencies and time-saving in the process and is widely accepted as appropriate by all parties."


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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?

81.6

10.20.0

8.2

0.0

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30.0

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YES NO N/A OTHER

Christians Against Poverty - "We believe that in order for a PTD to be viable it should be an attractive alternative to bankruptcy for debtor and creditor alike. We believe that once contributions have been ingathered there should be the shortest delay possible in distributing proceeds to creditors. Therefore, we would propose amending the guidance to stipulate that the first payment to creditors should be made no later than month 12 and at 6 monthly intervals thereafter."

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?

42.957.1

0.0

10.0

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100.0

Controls go far

enough

Increased

powers for AiB

Respondents for the ‘Increased powers for AiB’ indicated that it would be in the creditors’ best interest for AiB to have increased powers. A number of respondents offered an opinion that the Scottish Government should consider regulating all fees and charges and introduce a cap on the hourly fee which trustees and third parties carrying out work for the trustee are allowed to charge. Responses from the creditor sector also offered a strong opinion that it should never be accepted that a PTD can deliver a zero return to creditors due to the IP fees, and that a trustee should not be able to profit from a PTD which fails to pay a dividend to creditors. However, the respondents who voted that the ‘Controls go far enough’ have highlighted that the trustee is required to seek the approval of fees from the creditors prior to the trust deed becoming protected. If creditors believe the fees to be unreasonable or disproportionate, they can refuse to allow the trust deed to become protected or can require the trustee to


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make reduction in their fees. These respondents believe that with this process already in place, that adding further powers to the AiB would be unjustified.

Association of British Credit Unions Ltd. (ABCUL) - "Credit unions feel strongly that the AiB should have increased powers over the fees that can be claimed in a PTD." "It is our preference that the PTD Guidance should be made statutory, but if this is not to be, we would certainly like to see the AiB at least furnished with the statutory powers to control fees."

KPMG LLP - "The current legislation/regulations provide adequate control and safeguards. The creditors have the option to object to the level of proposed Trustee's remuneration irrespective of any AiB Guidance or legislation.”

Summary The AiB Protected Trust Deed Guidance was developed by the PTDWG as the mechanism by which all trust deeds are processed.

Of the questions answered in the PTD consultation, the majority of the respondents were in favour of the proposed application of an AiB Protected Trust Deed Guidance. The overall opinion given by respondents were that the proposed Guidance did drive the desired changes and struck the right balance. The respondents did agree that trustees should have some limited discretion in accepting the value of a PTD however there was mixed opinion as to whether a guidance or legislative approach should be taken and whether AiB should have increased powers over fees. As a result of these responses we intend to introduce the AiB Protected Trust Deed Guidance. We will also make changes to the Protected Trust Deed Regulations to allow trustees some limited discretion in accepting the value of a claim and to facilitate more regular dividend payments to creditors.


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PTD Review Board The AiB Protected Trust Deed Guidance introduces the proposal of a PTD Review Board. The purpose of the Board is to monitor and review the efficient operation or otherwise of the AiB Protected Trust Deed Guidance. Question 11 Do you agree with the introduction of a PTD Review Board?

71.4

6.1 12.2 10.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

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100.0

YES NO N/A OTHER

The Insolvency Practitioners Association (IPA) - "The IPA's experience of working with the Individual Voluntary Agreement (IVA) Standing Committee, a similar body in England and Wales, is positive and has enhanced communication across the range of stakeholders to increase confidence in the IVA process. Such a Board will be able to suggest periodic changes to the Guidance with a view to ensuring that the Guidance remains fit for purpose."

Question 12 Do you agree the proposed membership of the PTD Review Board as stated in the AiB Protected Trust Deed Guidance document?

36.7

53.1

2.08.2

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YES NO N/A OTHER

Consumer Credit Counselling Service Scotland - "We would recommend increasing the representation from the debt advice sector. Currently, as the only consumer focussed organisation on the Board, debt advice providers are outnumbered ten to two."


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Question 13 If not, what changes would you make?

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No Comment

Given

Comment Given

The majority of the respondents indicated that they were happy with the proposed membership in principle but wished to add further suggestions. The following is a list of such suggested additions:

All board members should have insolvency training, expertise and experience

An addition of a credit union representative in the list of members

An increase in the representation from the debt advice sector

Include representation from a consumer advocacy organisation without a financial stake in PTDs on the Board i.e. introduce a neutral member to the board.

An addition of a representative from the Pay Day Loans sector

An addition of a representative from the trade association

An addition of a representative from the individual debt collection sector. Summary The majority of the respondents to the PTD consultation were in favour of the introduction of a PTD Review Board. However, there were many suggestions about the proposed membership of the PTD Review Board with numerous respondents making suggestions for alternative members. Therefore, we will introduce a PTD Review Board as soon as possible. The membership of the Board will be reviewed taking on board recommendations from respondents to the consultation.


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Information on the ROI The PTDWG discussed 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 Register of Insolvencies (ROI). 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 advertised in the Register of Insolvencies rather than the Edinburgh Gazette?

83.7

6.1 2.0 8.2

0.0

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30.0

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YES NO N/A OTHER

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?

67.3

24.5

0.0 8.2

0.0

10.0

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60.0

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YES NO N/A OTHER

Lloyds Banking Group - "This should be progressed as long as it does not add incremental cost to the process and data integrity can be guaranteed."

Summary The majority of respondents to the consultation were in favour of trust deeds being advertised in the ROI rather than the Edinburgh Gazette and for the proposals that the accessible information regarding trust deeds on the ROI being extended. Therefore, we will also make changes to the Protected Trust Deed Regulations to enable the notice to be placed in the ROI. We will also consider what other


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information can be held in the ROI. This may be further informed by the responses to the Consultation on Bankruptcy Law Reform.


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Introduction of a front sheet The PTDWG proposed the introduction of a PTD front sheet. The purpose of the 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. Question 16 Do you agree that a standard front sheet should be introduced for use throughout the industry?

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The Insolvency Practitioners Association - “Yes. The IPA has no objection to this.” The Association of British Credit Unions Limited – “ABCUL would welcome the introduction of a standard front sheet to be used in all trust deed proposals, provided it is also a clear requirement that every section of it must be completed in full by the IP. We would like to see this requirement specified in Section 8.2 of the PTD Guidance.”

Question 17 If so, do you agree with a – d at para 17.6(of the consultation) as to what it should include?

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The Consumer Credit Counselling Service (CCCS) – “We agree that a), c) and d) should be included on a front sheet. However, b) would need to be clarified before a front sheet was attached to PTDs as standard. The current phrasing,


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“provide further information that would assist creditors on whether or not to accept the trust deed”, is unclear. CCCS Scotland would like to see further details from the Scottish Government on point b) before this proposal is enacted.”

Question 18 Would it be useful to you for any further information to be captured on the front sheet?

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Some respondents who felt that additional information was required, suggested the following additions:

National insurance number

A declaration of any relationship between trustee and the third parties receiving fees from the trust deed

Other respondents who were against the addition of further information offered an opinion that the information currently asked for is already sufficient enough to allow creditors an overview of the proposed PTD. An opinion also stressed that the current front sheet was already over populated. In addition, some of the respondents identified a risk with the information captured and noted that care should be taken with any personal information, especially in a situation where a vulnerable debtor does not want their address to be available for fear of harm.

Parkhead Credit Union - "National Insurance Number, declaration that DAS was explored but not appropriate, and declaration of any relationship between trustee and third parties receiving fees from the trust deed."

Scott Moncreiff Corporate Recovery - "Over populated already” The Insolvency Practitioners Association – “No, the information suggested would appear to be sufficient to allow creditors an overview of proposed PTD.”

Summary

Of the questions asked in the PTD consultation, the respondents indicated that they were in favour of the development of a standard front sheet for use throughout the industry. The majority of respondents agreed with proposed details to be included with the front sheet that were laid out in the consultation and offered further suggestions as to what additional


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details should also be captured. Due to concerns about identity fraud the national insurance number of a debtor will not be incorporated into the front sheet. Therefore we will make changes to introduce a front sheet as standard within the Protected Trust Deed Regulations.


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Freeze on equity The AiB Protected Trust Deed Guidance 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?

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The majority of the respondents considered that such a proposal would be very difficult to put into practice as the value of a property can fluctuate. In addition, an added risk was highlighted where a property’s value drops substantially during the set up of the trust deed.

Wilson Andrews Limited, Part of the Think Money Group – “Yes - However, we are unclear how the frozen equity proposal would work in the event of the Clients property falling in value over the term.” Institute of Chartered Accountants Scotland – “In principle we agree that the equity should be established at the start of the trust deed and the debtor afforded a reasonable timescale within which to buy out the trustee’s interest. Whilst desirable it is not always possible to realise the equity at the outset. An agreement should be reached between the debtor and the trustee on how and when that equity should be dealt with, which is the generally accepted best practice. If the debtor is unable to proceed then it is incumbent upon the trustee to obtain the best price possible for the creditors. In such a case it would be detrimental to creditors if the equity had been frozen at a lower figure than could ultimately be realised. Freezing of equity at the outset would resolve the problems debtors have experienced in the recent past of equity levels having risen considerably by the time debtors are required to deal with the equity, however an agreement to freeze at the outset will create problems in realising this value if property values fall. Circumstances in which it is desirable to have the equity frozen ought to be given due consideration but absolutely clear criteria requires to be laid down. There is an urgent need for detailed guidance to be drawn up and agreed between relevant stakeholders on how trustees should deal with equity in bankruptcy cases in Scotland including the ability of trustees to


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abandon an asset. Further consideration of this matter followed by clear Guidance on dealing with equity is essential.” R3 Association Recovery Professionals – “This is in line with best practice currently set out in SIP3A (Scotland) and is in effect a duplicate provision. However, we think that the promised consultation on the status of the debtor’s home in bankruptcy generally should take place first before any proposals or amendments are made in relation to property in PTDs. Only after full consultation, can policy be formulated and any amendments legislated as necessary.” Max Recovery – “Whilst we can see that this might provide certainty for the debtor, it does nothing to redress the balance of PTDs back towards creditors, indeed it could lead to the rejection of PTDs if creditors feel that there is potential abuse. It is our view that the later revaluation of equity as under the IVA Protocol is more effective and fairer to all parties, especially as there is the opportunity for the debtor to share in any ‘upside’.”

Question 20 Do you agree that, where it becomes necessary that the property is sold, the freeze on equity is lifted?

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The majority of respondents agreed with the action of lifting the freeze on the equity of a property due to be sold. A variety of opinions were offered, with a strong emphasis on the risks if this proposal was not enacted. These risks identified included:

The potential of funds being returned to an undischarged debtor,

If the value of the property falls then the debtor could be pursued for the shortfall,

The best interests for the creditor would be jeopardised.


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Question 21 Do you agree that legislation should be introduced to formalise these proposals regarding the freezing of equity?

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The respondents who were for the legislation of the proposals indicated that doing so would offer clarity in the process and give debtors a certainty to the terms they are agreeing to. Those who opposed offered the opinion that the legislative approach was unnecessary and that voluntary guidance would be sufficient.

Payplan – “Believe this to be a must for the debtor as it will give certainty to the terms they are agreeing to and therefore aid sustainability.”

Question 22 Do you agree that the trustee should realise any available equity at the beginning of the trust deed administration?

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The majority of respondents agree with the proposal however several did offer from experience that discretion would be required as it is not always possible to release equity at the beginning stages.

Money Advice Scotland - "Debtors may need time to get alternative arrangements in place."

KPMG LLP - "I agree in principle, however, it is not always practical to do so. The most important thing is that an agreement is reached about how it will be dealt with and then fulfilled rather than when it happens."


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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?

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The majority of respondents agreed that the creation of a plan for dealing with the equity that is then signed by both the debtor and the trustee would show best practice, however some respondents did indicate a belief that a similar existing practice was already in place, i.e. as required by SIP3A (Scotland). A strong view given from respondents within the insolvency practitioners sector indicated that they did not agree that the plan should be a prerequisite for the AIB registering the trust deed as protected, and that protection should be automatic where the provisions for protection are met. Summary The majority of respondents to the PTD consultation were in support of the equity in a property being frozen at the date the trust deed is granted, that the trustee would realise any available equity at the beginning of the trust deed administration and that where a property is sold, the freeze on equity is lifted. The majority of respondents were content for legislation to be introduced to formalise the proposals regarding the freezing of equity and for the development of an equity realisation plan that would be sent to the AiB as part of the documents which would allow AiB to register the trust deed as protected. Therefore we will make changes to the Protected Trust Deed Regulations to reflect the treatment of equity in the debtor’s property, including adding a provision for the trustee to send AiB an equity realisation plan.


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Single income and expenditure calculation mechanism 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. However, due to the inconsistency in various guidelines currently used, debtors are being treated differently when it comes to calculating the level of contribution they can pay. Members of the PTDWG agreed this matter required further action and that there should be research into the available options for calculating a debtor’s income and expenditure before any single mechanism was adopted. Question 24 Should a single mechanism be employed as industry standard to calculate a debtor’s income and expenditure, for example CFS?

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The majority of respondents agreed with the proposal for a single mechanism. However, some respondents did air a caution that for such a system to work, the system and the wording of its guidance would have to be sound and complete so as to take into account different debtors’ circumstances. Question 25 If yes, should it be the Common Financial Statement (CFS) figures that are adopted as industry standard?

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Question 26 If you do not agree that the CFS should be used, should some other figures be used, for example CCCS?

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Comment Given

The comments received gave a mixed opinion with no strong views given for or against any of the mechanisms. However, the majority of respondents did offer an opinion that both mechanisms were not perfect as both have benefits and drawbacks.

NHS (Scotland & North England) Credit Union - "A newly developed CFS for Scotland should be developed with involvement/input from stakeholders in terms of categories/headings and financial allowances."

Parkhead Credit Union - "A new 'Scottish CFS' should be developed with wider stakeholder input into deciding categories and allowances."

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?

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100% 80% 75% Other

Money Advice Scotland - "Whatever % is chosen should always allow for contingency, otherwise PTD's will collapse and not be sustainable."

Summary The majority of respondents were in favour of a single mechanism being adopted as an industry standard in calculating a debtor’s income and expenditure, however the majority


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were against the CFS being the adopted standard. In addition, the majority of respondents were in support of a proposal that 100% of the debtor’s excess income being paid to the trustee. We acknowledge the support for this change, however, we feel that this should be considered along side the responses to the Consultation on Bankruptcy Law Reform on whether a Common Financial Tool should be adopted for all debt management and debt relief products in Scotland. Therefore, we will not proceed with this at the present time.


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Form 4 Statement of Status 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?

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Association of British Credit Unions Ltd. (ABCUL) - "ABCUL supports the proposal to provide the Form 4 Statement of Status of the PTD to creditors on an annual basis, and for this to be displayed electronically on the ROI as part of the information held on that PTD."

Question 29 Should the capacity be developed to have the Form 4 displayed electronically on the Register of Insolvencies (ROI), and this form part of the PTD information held on the ROI?

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The majority of respondents were happy with this proposal however some did comment that they would only be happy if it was to result in a drop in cost and fees to the debtor. Of the respondents who were against the proposal, questions were asked as to what benefit this proposal was trying to gain.


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Summary The respondents of the PTD consultation expressed a positive opinion to the proposal that the Form 4 Statement of Status of the PTD being provided to creditors on an annual basis and for the Form 4 being displayed electronically on the ROI. As a result of these responses we propose to make changes to the ROI to allow information on the Form 4 to be made available to creditors electronically. We will also make changes to the Protected Trust Deed Regulations to provide for the trustee to issue the Form 4 to creditors.


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Creditor claims 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). 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 the 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?

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The majority of respondents welcomed the proposal of a fixed timescale. Those who were against the proposal expressed the opinion that this was not required as trustees already have an appropriate form of discretion as laid down in the terms of s48-53 of the Bankruptcy (Scotland) Act 1985 (as amended).

Max Recovery - "There should be discretion for the IP to accept later submissions should they see the circumstances as reasonable. This is the case under IVA protocol and it seems to work ok."


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Question 31 If so, do you think that 120 days is the correct timescale?

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The Carrington Dean Group - "Yes. However it is difficult to comprehend how this cannot be shortened considerably given current technology."

Question 32 If you do not agree, what do you think is a realistic timescale?

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Comment Given

Of the comments given, few alternative timescales were offered however opinions were given that the provision of 120 days should be a guideline only. Question 33 Should the trustee be able to reject claims where they are submitted late?

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Institute of Chartered Accountants Scotland - "Provision should be made allowing trustees to reject claims submitted late if a distribution has been made


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with the proviso that such claims are included in subsequent dividend distributions, assuming that the claim is subsequently accepted, but those creditors should not be entitled to participate in earlier distribution."

Question 34 Should the creditor have the right of appeal where a claim is rejected?

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Max Recovery - "We do not agree with barring claims for lateness, but if brought in then an appeals process is needed."

Summary Of the questions asked in the PTD consultation, the respondents were in favour of a fixed timescale for the submission of claims in a trust deed by creditors, and for that timescale to be 120 days. The respondents also supported trustees having the ability to reject claims where they are submitted late and for creditors having the right of appeal where a claim is rejected. As a result of these responses we propose to make changes to the Protected Trust Deed Regulations to provide for a fixed period for the submission of claims by creditors. We will also look to specify the number of days and the rights of trustees to reject claims where claims are submitted later than the specified number of days.


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Earning arrestments At present PTDs do not invalidate or stop any existing earnings arrestment, which will normally continue to be collected alongside a trust deed. This means that the particular creditor who has acquired an earnings arrestment order will get 100% of their debt repaid, whilst the others will get whatever dividend is calculated after taking the earnings arrestment into account. It should be noted, however, that the particular creditor who has pursued the earnings arrestment has already paid for this, including relevant Court and Sheriff Officer costs to put this in place and should the earnings arrestment cease, they may not recoup the money they have spent taking this action. An award of bankruptcy will immediately stop an earnings arrestment. The insolvency practitioners in the PTDWG requested that the provision in the Debtor (Scotland) Act 1987 be extended to provide that as of the date when a trust deed becomes protected an earnings arrestment stops automatically. In doing so this would prevent one creditor from having preference over all other creditors. Question 35 Do you agree that there should be an the extension of the provision for sequestrations in the Debtor (Scotland) Act 1987 to provide that as of the date when a trust deed becomes protected an earnings arrestment stops automatically?

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Of the respondents who were for the proposal, the following comments were given:

Payplan - “Fully support this - in this aspect, trust deeds should be brought in line with Sequestration.” The Carrington Dean Group – “Yes, more so now as this relief is provided in the Debt Arrangement Scheme also.”

ICAS - “We welcome the proposal. However some mechanism should be included to enable a creditor to re-instate an earnings arrestment if the trust deed fails.” Money Advice Scotland – “We strongly agree with this, otherwise it can serve to undermine the overall success of the PTD.”

Of the respondents who were against the proposal, the following comments were given:


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ABCUL - “It is our view that if a creditor has taken the initiative – and devoted the time and resources – to secure an earnings arrestment which other creditors have not, then it is not right that this should then be declared void and all creditors treated “equally” when a PTD is agreed.”

Summary A mixed opinion was received from the respondents of the PTD consultation, with this, the proposal that the date a trust deed becomes protected any earnings arrestment’s stop automatically would require further review. Therefore, we are not going to proceed with this at this time. We are going to consider this further.


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Additional recourses other than sequestration or non discharge In bankruptcy, a trustee can apply to the sheriff for an Income Payment Order (IPO) requiring the debtor to make a contribution from that income to the trustee One proposal discussed by the PTDWG was for the introduction of IPOs to PTDs for debtors who fail to comply with the agreed contribution payments in PTDs. Question 36 Do you consider that recourse over and above the option to sequestrate the debtor or deny discharge from the PTD should be available to the trustee?

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The majority of respondents were against this proposal on the grounds that they did not see the need to create additional sanctions to those already available, however some respondents did note that they were undecided. Institute of Chartered Accountants Scotland - "There are mixed views within our membership on this question." Question 37 Should consideration be given to the introduction of Income Payment Orders (IPOs) to PTDs for debtors who fail to comply with the agreed contribution payments?

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Of the respondents who were for the proposal, the following comments were given:

The Insolvency Practitioners Association – “IPA…considers the introduction of IPO’s to be a sensible idea which will assist Trustees with the recovery of contributions from delinquent debtors.”


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The Carrington Dean Group – “The introduction of IPAs into trust deeds would also have a further cautionary effect on debtors and further emphasise the importance of complying with any agreement, as it will legally be enforceable.”

Of the respondents who were against the proposal, the following comments were given: Christians Against Poverty – “We believe that the introduction of Income Payment Orders (IPOs) for PTDs is a good principle. However, we feel that the nature of a PTD is voluntary and that introducing IPOs would take away an element of debtor choice. We also feel that the potential consequences for failing to pay an IPO (imprisonment) is unduly harsh for a voluntary insolvency measure – the threat of bankruptcy should be enough to induce payment from a debtor who can repay but won’t.”

Citizens Advice Scotland - "CAS does not support the use of Income Payment Orders within a Protected Trust Deed. We have great concerns that they would be used to press vulnerable debtors to make payments that they cannot afford to make. We also don’t think they have a place within a voluntary arrangement."

Summary The respondents to the consultation were largely opposed to the proposal for additional recourse over and above the option to sequestrate the debtor or deny discharge from the PTD being available to the trustee. In addition, the respondents gave a mixed response to the proposed introduction of Income Payment Orders (IPOs) to PTDs for debtors who fail to comply with the agreed contribution payments. Due to the mixed responses to these questions, we propose that this should be considered along side the responses to similar questions with the Consultation on Bankruptcy Law Reform.


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New Trust Deed Product At the PTDWG, Citizens Advice Scotland (CAS) stated that their research has indicated that many of their clients are unable to access PTDs as a form of debt relief due to the level of fees involved. With this in mind, the members of the PTDWG were generally supportive of setting up a sub group to look at the possibility of introducing a simplified, lower cost, model PTD which would enable more people to access this form of debt relief. Question 38 Do you agree that there should be a different product for some specific straightforward cases which would reduce costs and possibly make the process available to a wider group?

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The majority of respondents disagreed with this proposal on the belief that there are already a number options available that suit any debtor’s circumstances. Question 39 Under what circumstances would you envisage this product could be used, for example no heritable property, no assets, low number of creditors?

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As the majority of respondents in Question 38 were against the proposed new product, the comments given were further iterating the opinion that there are already enough products available.

Dumbarton Credit Union - "More suitable alternatives are available in these circumstances."

Lloyds Banking Group - "We believe there are sufficient products available to customers at present, e.g. DAS and LILA. Until acceptance to the new PTD


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Guidelines mature, we feel it may detract from the objectives of formalising and improving the PTD process as set out by the Guidelines."

Institute of Credit Management - "There is a general concern there are too many options available for debt relief which inadequately protects creditors."

Question 40 What do you consider a realistic charge for such a product would be?

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Comment Given

As the majority of respondents in Question 38 were against the proposed new product, the comments given indicated that the respondents were unable to suggest an appropriate fee.

North Ayrshire Council, Money Matters Team - "No specific figure suggested but for a simpler product would expect a significantly lower fee for this product."

Question 41 Were such a product to be introduced, should there be any extra responsibilities placed on a debtor prior to agreeing to this product, such as an Income Payment Agreement?

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The Insolvency Practitioners Association – “The IPA does not view such a product as necessary.” The Association of British Credit Unions Limited – “Should the Scottish Government nonetheless choose to introduce such a product, then given the likelihood of failure, we do believe the debtor should be required to enter an Income Payment Agreement in an effort to reduce this risk. We firmly believe that should it be introduced, a simplified PTD product should only be


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administered by the AiB as it would be wrong for such a product to become a profit-generating opportunity for IP’s.” Wilson Andrews Limited, part of the Think Money Group – “We would need to better understand the merits of such a product and the consumer group for which it is intended, before being able to comment on the appropriateness of such an agreement. We would however be cautious in compelling income payment agreements or orders; as a client on a lower income does not necessarily represent a greater risk of non-payment and such an approach may well impose unintended financial hardship.”

Question 42 Were such a product to be introduced, should this be administered by IPs only, AiB only, or should both IPs and AiB be able to administer such products?

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IPs only AiB only IPs and AiB

The Carrington Dean Group - "It would grossly be unfair to allow the public sector to compete with the private sector using public funds or to cross subsidize one service, using another, particularly when the funds used may be raised from the private sector using other fee charging powers the AiB has."

Summary From the questions asked in the PTD consultation the majority of respondents disagreed with the proposal for a new product on the belief that there are already a number options available, and gave a mixed opinion as to who would administer the product if it was put in place. However, in the event of a new product being created, respondents were of an opinion that the new product should incorporate extra responsibilities on a debtor. Due to the mixed responses to these questions, we propose that this should be considered along side the responses to similar questions with the Consultation on Bankruptcy Law Reform.


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Debtor’s identity 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. 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 Do you agree that, a debtor’s name and date of birth, along with a former address, should be enough information to correctly identify the debtor?

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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 from the ROI?

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Max Recovery - "This would bring consistency with the e-IIR (Individual Insolvency Register) in England & Wales.”


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Summary From the questions asked in the PTD consultation, respondents agreed that the debtor’s name and date of birth, along with a former address was sufficient enough information to identify the debtor. The large majority of respondents also agreed, that in cases where a risk to the debtor can be shown, that the debtor’s current address could be omitted from the ROI. We, therefore, have no plans to change the information that is currently held about the debtor in the ROI. However, due to the overwhelming positive response to protecting a debtor who is in risk of harm or abuse, we propose to implement changes that would allow us to withhold a current address as soon as possible. This will also be considered by respondents to similar questions with the Consultation on Bankruptcy Law Reform.


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Social Security benefits The AiB Protected Trust Deed Guidance suggests that where a debtor’s sole income is derived from benefits or tax credits, 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. 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?

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The majority of respondents were in agreement with this proposal and offered an opinion that Social Security benefits exist to provide people with the means to obtain a basic existence. However, the opposing view suggests that as a PTD is voluntary and the debtor chooses this option, then benefits should be included.

Citizens Advice Scotland - "CAS believes that contributions from social security benefits should not be included in PTDs. Benefit payments contribute towards key living costs for claimants and there is a risk that their inclusion in PTDs would lead to debtors going without essentials.”

Institute of Credit Management - "It is unlikely that a person receiving Social security benefits would be able to construct a viable Trust Deed with their Insolvency Practitioner; however, if the debtor was willing and capable to make a contribution from benefit payments, and the Insolvency Practitioner supported the proposal, they should not be excluded from the PTD process."


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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?

Money Advice Scotland - "It may be that debtors could be treated differently if the Guidance is not adhered to."

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?

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Summary The majority of respondents to the consultation were supportive of the proposal that no contribution should be taken from Social Security benefits where these are a debtor’s only income. However, they were also against the suggestion that the AiB Protected Trust Deed Guidance would be a sufficient safeguard for the debtor with regard to Social Security benefits. As a result of the responses, we will consider making changes to the Protected Trust Deed Regulations to make it clear that contributions can not be taken from a debtor where they are in receipt of social security benefits only.

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Charges and fees 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. 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.

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.

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 the trust deed, to be treated as an outlay of the trust deed?

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Max Recovery - "These are part of the overheads of the trustee in sourcing their work and should be treated no differently than advertising costs. In no circumstances should they be allowed. In addition, they are anti-competitive in that they disadvantage those IPs that act responsibly and do not seek to pass those costs on to creditors.”


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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?

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Summary Of the questions asked in the consultation, respondents were generally against any proposal that where an agent’s fact finding fees are incurred prior to the granting of the trust deed, that they are to be treated as an outlay of the trust deed. In addition, the respondents were also against further charges to the trust deed being allowed to verify information gathered by a third party agent. As a result of the responses, we will consider making changes to the Protected Trust Deed Regulations to make it clearer what happens to agent’s fact finding fees.


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

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

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The majority of respondents who marked yes to this question motioned that several changes noted within the consultation document would be of great benefit to them and also noted some additional ideas that they would like considered. One respondent suggested that the forms should be adapted to incorporate the trustee’s reference. Another suggested changing the layout of Forms 3 and 4 and possibly merging the information.

Glasgow Credit Union – “All the information proposed in the consultation document should be included.”


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Summary When asked in the PTD consultation whether the regulations should be reviewed, the respondents supported the proposal that PTD forms contained in the Protected Trust Deeds (Scotland) Regulations 2008 be reviewed. As a result of the responses, we will review the forms in the Protected Trust Deed Regulations.


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IV. Next Step

On the 24 February 2012 the Scottish Government published a consultation which sets out proposals for significant reform to Scottish Bankruptcy Legislation. It describes a Vision for a debt advice, debt management and debt relief service in Scotland, fit for the 21st Century.

The purpose of the consultation is to seek views on those recommendations with a view to modernising current Scottish insolvency legislation. The consultation looks at:

- Developing a “Financial Health Service” for debt advice, debt management and debt relief for the people of Scotland, and ensuring that financial education is a central to this

- Developing new statutory debt relief routes for individuals and businesses as well as refining the current range of options - while reinforcing the key principle that individuals who can pay their debts, should pay

- Strengthening the powers of AiB in relation to supervision of trustees in all personal debt relief products

- Streamlining the process by removing the court from non-contentious creditor bankruptcy petitions and modernising those parts of the current legislation that are outdated

- Introducing a single financial assessment tool to aid in the calculation of an appropriate contribution from individuals

As part of this consultation document, several proposals have been offered which would substantially change the current legislation on Protected Trust Deeds. With this, it is proposed that the results of the ‘Protected Trust Deeds – Improving The Process’ be analysed against the results of the new ‘Bankruptcy Law Reform’ consultation once it closes on the 18 May 2012.

The Bankruptcy Law Reform’ consultation can be viewed and responded to at the following link: http://www.scotland.gov.uk/Consultations/Current

We will now look to amend the necessary legislation, where required, to incorporate the proposals that were supported within the consultation. Similarly, we will review the current protected trust deed guidance to reflect these changes. Once responses are collated from the Consultation on Bankruptcy Law Reform we will consider the implications for the PTDs. Any resulting recommendations will be taken forward as part of the Bankruptcy Consultation work.

http://www.scotland.gov.uk/Consultations/Current


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ANNEX A Below is a list of all respondents to the consultation.

Responses per sector

21 Creditor sector responses received – 16 Credit Unions (3 non discloseable) – Association of British Credit Unions Ltd. – TDX Group Ltd – Institute of Credit Management – Max Recovery – Lloyds Banking Group

14 Insolvency Practitioner responses received – 11 Insolvency Practitioners (5 non discloseable) – R3 Association Recovery Professionals – Institute of Chartered Accountants Scotland – The Insolvency Practitioners Association

8 Advice sector responses received – Money Matters (Advice Service) – Money Advice Scotland – Citizens Advice Scotland – Consumer Credit Counselling Service Scotland – Wilson Andrews Limited, Part of the Think Money Group – Christians Against Poverty – Money Advice Trust – 1 Non discloseable

6 responses received from individuals who did not specify a sector – Alyn Smith MEP – 1 private individual (partial disclosure) – 4 non discloseable

As part of the consultation, all respondents were asked to indicate using the appropriate tick box whether they wished their full or partial details to be made available to the public. For the purposes of this document, a mark of ‘Non Discloseable’ or ‘Private individual’ has been used to indicate respondents who either chose for their details to remain private or where no tick box was marked to indicate choice of disclosure. In addition, where a response has been received from a representative of a group of members, their response has been categorised under the sector its members are associated i.e Creditor, Insolvency Practitioner or Advice sector.


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No Organisation

1 Non Discloseable

2 Private individual

3 Non Discloseable

4 Non Discloseable

5 Non Discloseable

6 Alliance (Ayrshire) Credit Union

7 Non Discloseable

8 Non Discloseable

9 Castle Credit Union

10 Glasgow Credit Union

11 Drumchapel Credit Union

12 Lochaber Credit Union

13 W.H.E.B Credit Union

14 SCVO Credit Union

15 Non Discloseable

16 East Kilbride Credit Union Ltd

17 Dumbarton Credit Union

18 Money Advice Scotland

19 North Ayrshire Council, Money Matters Team

20 Non Discloseable

21 TDX Group Ltd

22 Non Discloseable

23 Credit Unions of Glasgow Ltd

24 Payplan

25 MacGregors Chartered Accountants

26 Renfrewshire Wide Credit Union

27 Citizens Advice Scotland

28 NHS (Scotland & North England) Credit Union

29 Parkhead Credit Union

30 Scott Moncrieff Corporate Recovery

31 Non Discloseable

32 Non Discloseable

33 Consumer Credit Counselling Service Scotland

34 Wilson Andrews Limited, Part of the Think Money Group

35 R3 Association Recovery Professionals

36 Association of British Credit Unions Ltd. (Abcul)


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37 KPMG LLP

38 Christians Against Poverty

39 Lloyds Banking Group

40 Institute of Chartered Accountants Scotland

41 Non Discloseable

42 Alyn Smith MEP

43 Money Advice Trust

44 The Carrington Dean Group

45 The Insolvency Practitioners Association

46 Non Discloseable

47 Non Discloseable

48 Institute of Credit Management

49 Max Recovery

PROTECTED TRUST DEEDS - Scottish Parliament...2020/01/24 · e [email protected] Claire Murrie...

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