Scotland: Protected Trust Deeds

(Updated 14/05/2025)

Protected Trust Deeds (PTD) – applies to Scotland only

Introduction

When a member of your credit union finds themselves in financial difficulty, you may find that they sign a Trust Deed. Below is some advice on how credit unions may wish to deal with this situation. We do appreciate that matters relating to insolvency are particularly sensitive, and that credit unions may have their own ethos in terms of dealing with members in financial difficulty – it is very much a personal choice. However, it is worth being informed about the system – very often the option being offered is not the best, or only, option.

A (Protected) Trust Deed is a voluntary arrangement that involves the assets of an individual who has found themselves in financial difficulty being transferred to a trustee, who can then sell them to pay off debts to creditors (those who are owed money by the individual). It also usually includes a contribution of the individual’s income for a period, to pay off a portion of the debts.

The trustee must be a qualified Insolvency Practitioner (IP), and their fees will be removed from the money recovered as part of this agreement – rule changes in 2015 have meant that the trustee now has to set a fixed administration fee and an additional fee based on a percentage of the funds collected. However, as creditors you should also note that the trustee can also collect third party fees incurred from the money recovered, which can be substantial.

If a Trust Deed has the approval of the majority of creditors, the Accountant in Bankruptcy can give it protected status, which makes it binding on all parties. Once protected, creditors cannot take alternative action to recover the money they are owed, as long as the individual remains within the terms of the PTD.

The Moratorium

It is possible that, before a member applies for any debt solution, they will ask for a moratorium on all debt recovery. The AiB will enter all moratoria granted on the Register of Insolvencies and the DAS Register, and it will last for 6 weeks from the date this appears. During the moratorium period, the credit union cannot enforce any diligence (recovery action) against the member (/debtor), with the following exceptions:

• Auction an article which has been attached in accordance with the Debt Arrangement and Attachment (Scotland) Act 2002 (asp 17) where: notice has been given to the debtor under section 27(4) of that Act, or the article has been removed, or notice of removal has been given, under section 53 of that Act
• Implement a decree of forthcoming
• Implement a decree or order for sale of a ship (or a share of it) or cargo
• Execute an earnings arrestment, a current maintenance arrestment or a conjoined arrestment order which came into effect before the day on which the moratorium period in relation to the person begins.

We would therefore advise that, before progressing with any recovering action against a member who is in arrears, you check the Register of Insolvencies and the DAS Register, to ensure that the money is not wasted. Both registers are free to use.

Only one moratorium is permitted for any individual within any 12 month period (unless one was taken out on behalf of a couple who subsequently ended their relationship).

If you have received no further update on whether the member intends to enter a formal debt solution during the moratorium period, as a creditor you can resume diligence after the 6 weeks expires.

The Process

When an individual signs a Trust Deed (prior to it becoming protected), their trustee should write to all the creditors asking them to agree to the proposal – this should include details of how much the individual can pay, how their assets will be dealt with and how much you should expect to receive over the course of the Trust Deed. As a creditor, you then have the opportunity to respond indicating whether you accept the proposal or not. If you don’t respond, it will be assumed that you accept it. You have 5 weeks to respond

You should complete the form you are sent by the trustee, and also provide the evidence of the sum you are owed. You should also make it clear to the trustee at this stage whether the individual has any shares with you, as this will impact the sum you are owed. Assuming it is within your loan agreements, you can use the shares to pay the amount owed, but it is important to make the trustee aware of the correct remaining amount owed. Shares do not appear on a credit file, and so it is possible that they will not have picked this up.

Whether a PTD is deemed as having been accepted by creditors depends on how the majority of creditors vote. If more than half of the creditors in number, or those accounting for one third or more of the debt, do not agree to the terms of trust deed, it will not be protected by the Accountant in Bankruptcy.

If you are a smaller creditor, relative to the total number owed, it is possible that your vote will not impact on the final outcome (unless the other creditors have also rejected it). However, we would encourage credit unions against the assumption that there is no point in responding at this stage. Your credit unions may very well be the largest creditor – we have heard of a few examples in recent months of credit unions not responding on the assumption that their vote would not count, yet they could have stopped the Trust Deed progressing if they had. We also would highlight a significant trend we are seeing in PTDs resulting in a significant amount of the money collected being paid to the Insolvency practitioner in fees and outlays, rather than to the creditors. We do not agree that a PTD is the best solution for everyone, yet we are increasingly seeing it become the popular choice. We would also therefore discourage credit unions from assuming that it is in the member’s interest to simply accept the Trust Deed. We know this is a view also shared by the Accountant in Bankruptcy. It is also worth noting that the Accountant in Bankruptcy (AiB) will not have seen a Trust Deed proposal prior to creditors being asked to vote on it, so you should not assume that it comes with their approval.

At this stage you are entitled to take a view on whether their amount being offered to you is reasonable – some of the points you may wish to consider are:

• Whether you would have a better chance of recovering more money through alternative means if the Trust Deed was not progressed.
• Whether the amount being taken in fees and outlays by the trustee is fair.
• Whether a Protected Trust Deed is really the best outcome for this member, given the impact on their credit file and future access to credit.
• Whether the proposal complies with the rules on Protected Trust Deeds, as set out below

The AiB will only protect a Trust Deed if:

• The necessary number of creditors have agreed (as outlined above)
• The total debts at the date of granting are less than £5000.

If protected, the Trust Deed becomes binding from the date it appears on the Register of Insolvencies. You can still take alternative recovery action until the Trust Deed becomes protected. In the event that it doesn’t become protected, your usual rights to recover it apply. You should be notified whether it has been protected by the trustee.

Occasionally credit unions may find they have not been given notification of a Trust Deed, despite being a creditor. If this happens prior to it being protected, you should ask for the process to be restarted so that you are included. If it happens after the Trust Deed is protected, you should make a claim to the trustee to ensure you can receive the sum you are owed at it’s conclusion. Please note that, even if you were not included in the voting the PTD is still binding, so you should put a claim in as soon as possible.

Managing a Protected Trust Deed – once a Trust Deed is protected

If the Trust Deed becomes protected you should receive notification. Even if you did not vote in favour of it, you can no longer take any action to recover the debts owed to you, and cannot take steps to make the individual bankrupt.

You should receive yearly statements setting how much has been recovered, how much has been paid in fees and outlays, and how much you will be paid as a creditor. However, the final sum will only be paid to you at the end of the term of the PTD.

The set fee paid to the trustee cannot vary from that set out in the original proposal – the Accountant in Bankruptcy has to agree any changes to this. The fee to the trustee will be paid before any money is paid to creditors.

The statement will include details of outlays, ie. costs paid to third parties who have provided services to enable to PTD to be administered. Since the AiB forced trustees to have a set fee, we have seen an increase in outlays, and we have raised this on numerous occasions with the AiB, and also the bodies regulating Insolvency Practitioners. We would encourage credit unions to be vigilant in terms of monitoring these costs and, if you are unclear as to the necessity of them, please do ring up the trustee and ask about it – one credit union recently informed us one trustee had dropped a ‘software fee’ after they asked for more information on it.

Frustratingly, other than raise concerns with the trustee, there is no formal route to block such fees. However, ABCUL representatives sit on the Protected Trust Deed Standing Committee, and can raise concerning trends (though not individual cases) through the committee – please forward any examples of cases that concern you (with the debtor’s personal details concealed) to advocacy@abcul.org, and we will look for opportunities to raise your concerns.

How much of an individual’s income is distributed to creditors is calculated according to a Common Financial Tool – in Scotland the same tool must be used to ensure consistency across all debt solutions. The current tool is the Common Financial Statement. However, the AiB recently consulted on moving to the Money Advice Service’s Standard Financial Statement – ABCUL submitted a response on behalf of members.

The standard contribution period is 48 months, though some may agree a longer period. An early discharge can only be made in the event that all debts can be fully settled, including interest.

Once in a PTD, an individual’s assets are handed to the trustee to manage. This includes any property owned. However, the trustee is required to allow the individual to keep goods they need for their house and family. Many PTDs do not include the property in their proposals, but it is up to creditors whether to accept this. If the home is excluded from the PTD, but the individual falls behind on their mortgage, the mortgage company retains the right to repossess the property. If the creditors vote collectively to accept the proposal to exclude the property at the outset, then it is permanently excluded from any recovery action. You may be interested in this warning letter issued to trustees by the AiB, in relation to how many PTD cases they saw which excluded the home from the plan, despite there being enough equity in the home to settle all the debts – you may wish to consider this when deciding whether to support Trust Deed proposals

Credit unions should note that there is no exemption given to vehicles – the current rules only allow an individual to keep a vehicle if they would be at a disadvantage if they did not have access to it (ie. they could not get to work). Again we are aware that many recent proposals received by credit unions seem to include car costs as standard spending. It is up to creditors as to whether they feel this is reasonable, but you should be aware that it should not automatically be considered essential spending within the current rules. We would encourage credit unions to consider both whether there is a resale value in the car, and also the ongoing costs of running it (petrol, insurance etc) in deciding whether to accept.

If the individual’s circumstances change when the PTD is in place, perhaps because their income has changed, the trustee can apply to the AiB for a variation, or a payment break. If the individual acquires new assets within four years of signing the trust this must be passed to the trustee to distribute among creditors.

Even in cases where the home is excluded from a PTD, if it is sold during this time frame it, any profit must also be passed to creditors.

When the PTD has finished, normally after 4 years, as long as they have abided by the terms of the PTD, an individual is no longer liable to creditors (except their mortgage provider in cases where the property was excluded, any new creditors obtained since the PTD was initiated, and a few other categories). A formal discharge will be recorded on the Register of Insolvencies, and a credit union can no longer recover those debts. Credit unions are still able to make a judgement on whether any member in this situation has the right to access any further lending however.

Following feedback ABCUL has raised concerns about this with the Joint Committee on Insolvency (within the UK Government). Insolvency Practitioner are obliged to abide by a Code of Ethics.  If, as a creditor, you are concerned about the actions of the trustee, you may wish to:

• You can ask the AiB to audit the accounts or investigate a complaint (asking for a formal audit may involve the AiB taking a fee from the sum recovered, so it is worth being mindfulof that).
• You can make a complaint to the trustees Registered Professional Body (RPB). All IPs are required to be registered with one body. If you don’t know which RPB the individual belongs to, you can make a complaint though the Insolvency Service Gateway, which directs complaints to the appropriate RPB.
• You can apply for a direction from a sheriff in a Scottish court.

Helping members in financial difficulty

If a member of your credit union approaches you to discuss a possible Protected Trust Deed, we would encourage any credit union to work with them to find a solution – informal agreements are likely to be beneficial to both the credit union and the individual.

Below we some sources of free confidential advice, should you need to refer anyone (though you will of course be more familiar with local sources of information, depending on where you operate):

• Money Advice Scotland, Telephone: 0141 572 0237, Website: www.moneyadvicescotland.org.uk, E-mail: Info@moneyadvicescotland.org.uk
• Citizens Advice Scotland, Telephone: 0131 550 1000, Website: www.cas.org.uk
• National Debtline Scotland, Telephone: 0808 808 4000, Website: https://nationaldebtline.org
• StepChange Debt Charity , Telephone: 0800 138 1111, Website: http://www.stepchange.org

The contact details for the Accountant in Bankruptcy are as follows:

• Accountant in Bankruptcy, 1 Pennyburn Road, Kilwinning, Ayrshire, KA13 6SA, Telephone: 0300 200 2600, Fax: 0300 200 2601, E-mail : aib@aib.gsi.gov.uk (for general information), Website: www.aib.gov.uk

ABCUL

ABCUL has long had a strong relationship with the Accountant in Bankruptcy and, as well as sitting on the PTD Standing Committee, we are members of the Debt & Insolvency Services Stakeholder Forum. We regularly submit consultation responses on behalf of members in relation to insolvency matters in Scotland, and regularly dissect these issues with the Scottish Policy Panel.

If you would like to discuss any of this, or if you would like to highlight any worrying trends you are seeing in the administration of Protected Trust Deeds, please contact your Member Relationship Manager by emailing them directly, on info@abcul.org or by dialling 0161 832 3694.