Scottish Government Protected Trust Deed Review
Debt written off through protected trust deeds and other tools can have a huge impact on the operations of a credit union, and so we have welcomed moves by the Scottish Government and Accountant in Bankruptcy to reform this area of law over the past few years.
In response to this review we surveyed our members operating in Scotland, although participation has been lower than was previously the case. This most likely reflects a general feeling that Protected Trust Deeds are not as problematic as they used to be for credit unions.
I have outlined our responses to the survey questions below.
Q1A&B: Does £5000 remain an appropriate minimum debt level? If not, what is?
The responses to these questions were divided. Several credit unions suggested that £10,000 may be a more appropriate figure, and several feeling the current figure is appropriate.
Q2A&B: Is the acquirenda period considered to be appropriate? If not, what would be an appropriate timescale?
Yes - Most of those who completed our survey supported a four year acquirenda period.
Q3A&B: Is a contribution period of 48 months appropriate? If not, what period is appropriate?
Again, respondents were divided between those who supported a 48 month period, and those who would prefer to see a 60 month period.
Q3C&D: Where a debtor does not make payments for a period of time during the agreement, is it right if it can be extended? If not, why not?
We support an extension in these circumstances.
Q3E&F: Are there any circumstances in which a debtor should be allowed to take a break from PTD payments? What are those circumstances?
There was no consensus from members on this question. However, those who supported this cited medical issues, a family funeral, or unforeseen emergencies as acceptable circumstances in which a break should be granted. We feel that this would be acceptable to most of our membership.
Q4A&B: Is 48 months an appropriate timescale (before which a DAS should be implemented)? If not, what is?
Yes, we feel this is an appropriate timescale.
Q5A&B: Is the CFT an effective way of ensuring transparency in the calculating the level of contribution paid by each debtor? If not, why not?
Yes, we feel it is.
Q5C&D: Have you experienced any issues with the application of the Common Financial Statement to PTDs? If so, what were they?
Some members have raised concerns about some of the specific items that are allowable within the CTS, which seem to be able to take priority above the payment of creditors, yet are not necessarily essential. These include television packages and a car that is not used to get to work.
We do appreciate that, in finding a solution that will be fair to creditors, the AiB does have to take into account the likelihood that any repayment plan will be adhered to, and so sustainability has to be a factor to be fair to all involved. However, many of our members feel frustrated that the allowances as set out in the CFS are often maximised by advisers, which is not within the spirit of the legislation.
Q6A&B: Is it appropriate that the AiB can refuse to protect a trust deed if it is deemed to have been assessed inappropriately? If not, why not?
Yes, we believe this is appropriate to reduce the impact of the issue highlighted in the previous answer.
Q6C&D: Are there additional grounds in which a trust deed should not be protected? If so, what are they?
It has been suggested that a PTD should not be allowable in circumstances where a loan has been obtained through a fraudulent statement, which may be worth considering.
Q7A&B: Is it appropriate that a trustee can instruct a debtor’s employee to make a deduction? If not, why not?
Yes we believe so.
Q7C&D: If you experienced any issues with this process? If so, what were they?
No - None of our members have noted any issues to us.
Q8A&B: Have the changes addressed the issue of equity in PTDs? If not, why not?
Yes, within the current rules, this is the most appropriate way to deal with it.
Q8C&D: Is a PTD an appropriate solution for someone who has assets, including equity, which exceeds the total value of their debts? If not, why not?
No, most of those of responded to our survey felt a PTD was not appropriate in these circumstances, and many suggested a tool similar to DAS over a longer period might be more appropriate. However, we do realise that any solution needs to be proportionate to the level of overall debt.
Q9A&B: Is 24 months after the granting of a PTD, and every 6 months thereafter, appropriate timescales for the repayment of appropriate dividends? If not, what is appropriate?
Most respondents felt this was appropriate, although several would like to see payments at 12 months, and 6 months thereafter.
Q9C&D: Should creditors have to submit claims within 120 days? If not, what is an appropriate timescale?
The consensus amongst members is that 120 days is appropriate, although one credit union has noted that it would perhaps be preferable to give 120 days from the point of notification to the creditor, rather than the point the trust deed is granted, as there are sometimes delays.
Q10A&B: Is 20% drop in expected dividend an appropriate level for trustees to provide further information to creditors on the viability of the PTD? If not, what is?
No, most of those who replied would like this action to be triggered when the expected dividend drops by 10% or more.
Q10C&D: Have you experienced any difficulties in receiving Form 4? If so, what were they?
No – none of our members have noted any difficulties.
Q10&F: If the information in Form 4 sufficient? What else would you like to see?
Yes, the information is sufficient.
Q11A&B: Has the introduction of a single fixed fee brought greater transparency to the administration fees? If not, why not?
There were some differences of opinion amongst those who completed the survey. However, those who felt not reported that they still feel that, as creditors, they effectively have little control over the additional fees added by administrators, and that many of the costs added are unnecessary.
Q11C&D: Do you consider that most changes are made to the cost and fee structure? What changes are needed?
Again, there was no consensus amongst respondents. However, many member credit unions feel strongly that the fees remain too high, in relation to the level of dividend received by creditors. An example recently highlighted to us was for ‘software fee’, charged for twice in the case of a couples trust deed. It is difficult to see how this reflected an actual additional cost on the part of the administrator.
Q12A&B: Do you agree that third party work completed prior to the PTD should rank equally amongst other creditors claims? If not, why not?
Yes, we feel that this should be the case.
Q13A&B: Can the process for returning funds to creditors be improved upon? What changes would you like made to the legislation?
It was suggested by members that, if every avenue to locate creditors who are owed funds has been explored, any unclaimed dividends should be divided amongst those creditors who did make a claim, and who have not recovered the full sum they were originally owed.
The full response is available to download as a PDF on the right-hand side.