Trust Deeds (Scotland Only)
Introduction
A trust deed is a formal arrangement with your creditors, used in Scotland where a debtor grants a deed in favour of the trustee which transfers their assets to the trustee for the benefit of creditors.
Provided certain conditions are met, the Trust Deed may be registered as "protected", thereby preventing creditors from petitioning for the debtor's sequestration or taking any other steps to recover debts due to them. Financial and personal circumstances vary, so the consequences of signing a Trust Deed will be different for each individual or partnership.
The advantages of a trust deed are that it takes the pressure off as all correspondence and the Trustee deals with queries from creditors. It puts the debtor rather than creditors in control of the debtor's financial situation and reduces the costs - a trust Deed is usually more flexible and less costly to administer than sequestration and allows the debtor the right to fulfil certain public offices - which would not be the case with sequestration.
The disadvantages are that existing arrestments and other diligence continue to be effective, home owners may be forced to sell if creditors cannot be paid in full from other sources and debtors cannot trade on their own account or hold directorships of a limited company.
If you are unsure which step to take to solve your debt problems, please feel free to call one of our advisors to ask our opinion. This is a totally confidential and non-judgemental service.
Trust Deeds
Sequestration is not the only solution for people with serious debt problems.
Granting a trust deed, by which a person voluntarily transfers some or all of his or her assets to a trustee to administer on behalf of the creditors, is both less formal than sequestration and may also avoid some of the legal disabilities which follow from being made legally bankrupt.
Provided it meets certain conditions, a trust deed may be recorded in the Registrar of Insolvencies as a 'protected trust deed'. This prevents a creditor from petitioning for the debtor's sequestration so long as the person granting the trust deed abides by its terms.
Whilst signing a trust deed is less formal than sequestration, it is nevertheless a very serious step to take. Granting a trust deed is a voluntary act but once a person has signed a trust deed he and the trustee are legally bound by it.
Trust Deeds - Frequently Asked Questions
- What is a trust deed?
- Can anyone be appointed as the trustee?
- Can the Accountant in Bankruptcy act as trustee?
- Are the creditors bound by the terms of the trust deed?
- Can those creditors who do not agree to the trust
deed take action to recover
their debts? - Can I prevent diligence being taken against me by creditors who do not agree to the trust deed?
- How does a trust deed become a protected trust deed?
- Who pays for the costs of setting up and administering the trust deed?
- How much must I owe before a trust deed can be signed?
- Are the terms of the trust deed prescribed by law?
- Once the trust deed has been signed, what further obligations do I have to the trustee or to my creditors?
- What can happen if I fail to co-operate with my trustee?
- Is it possible for me to sign a trust deed even if I have no assets?
- What happens if a majority of my creditors object to my trust deed becoming protected?
- When will I be discharged from my debts?
- Does all my property have to be transferred to the trustee?
- Can the trustee sell my house?
- Can I act as a director of a limited company?
- Can I hold other public offices?
- Will the signing of a trust deed result in my being black-listed by credit reference agencies?
- When I am discharged, do I get my property back?
Q.1
What is a trust deed?
A.
It is a voluntary but legally binding agreement by which a person
conveys his or her property to a trustee to be administered for
the benefit of creditors and the payment of debts.
Q.2
Can anyone be appointed as the trustee?
A.
No, the trustee must be a qualified insolvency practitioner.
Q.3
Can the Accountant in Bankruptcy act as trustee?
A.
No
Q.4
Are the creditors bound by the terms of the trust deed?
A.
No, only those creditors who agree to its terms.
Q.5
Can those creditors who do not agree to the trust deed take action
to recover their debts?
A.
Yes, they can still carry out the various form of diligence available
to them, including petitioning for your sequestration.
Q.6
Can I prevent diligence being taken against me by creditors who do
not agree to the trust deed?
A.
Yes, by having the trust deed registered as a protected trust deed.
Q.7
How does a trust deed become a protected trust deed?
A.
The trustee publishes a notice in the Edinburgh Gazette and writes
to all the creditors enclosing a copy of the notice and of the trust
deed and advising them that the trust deed is to become protected.
Unless, within 5 weeks of the date of the notice, written objections
are made by a majority in number of creditors, or from creditors representing
not less than one third of the total debts, the trust deed automatically
becomes protected.
Q.8
Who pays for the costs of setting up and administering the trust deed?
A.
All costs must be met from the estate transferred by the trust deed
or from your
earnings.
Q.9
How much must I owe before a trust deed can be signed?
A.
There is no minimum or maximum amount of debt.
Q.10
Are the terms of the trust deed prescribed by law?
A.
No, the trust deed can contain any terms, which are likely to be acceptable
to the creditors, and it is possible to enter into a trust deed, which
does not transfer all of the assets, but such a trust deed cannot
become a protected trust deed and may not be acceptable to all the
creditors. However, if the trust deed is to become a protected trust
deed, it must transfer everything the debtor owns except household
goods and current income. There are standard forms of trust deed commonly
in use, which meet the requirements for a protected trust deed.
Q.11
Once the trust deed has been signed, what further obligations do I
have to the trustee or to my creditors?
A.
You must co-operate with the trustee and comply with the terms of
the trust deed. You may be required to make a contribution to the
estate from your earnings. The trustee will deal with your creditors.
Q.12
What can happen if I fail to co-operate with my trustee?
A.
The trustee can petition for your sequestration. The trustee can also
petitionfor your sequestration if he considers that would be in the
better interests of your creditors, for example, by obtaining the
greater statutory powers available to a trustee in sequestration.
Q.13
Is it possible for me to sign a trust deed even if I have no assets?
A.
Yes, if you are prepared to pay a proportion of your earnings to the
trustee; there must however be some benefit to your creditors.
Q.14
What happens if a majority of my creditors object to my trust deed
becoming protected?
A.
Provided you owe at least £1,500 and have not been sequestrated
in the previous 5 years, the rejection by the creditors of a trust
deed which was eligible to become a protected trust deed would be
sufficient grounds for you to petition for your own sequestration,
if you so wished. See also booklets AB1 and AB2. The fact that you
have signed a trust deed would also entitle any creditor, or creditors,
to whom you owe not less than £1,500, to petition for your sequestration
in the 5 week period before the trust deed becomes protected. If however
it is not superseded by your sequestration, a trust deed will continue
to operate even if it does not become a protected trust deed.
Q.15
When will I be discharged from my debts?
A.
Provisions for your discharge will usually be included in the terms
of the trust deed and is normally allowed 3 years after the date of
granting. If the trust deed becomes protected, your discharge will
be binding on all of your creditors. If the trust deed does not become
protected, your discharge will only be binding on those creditors
who agreed to it and they would still be able to pursue you for repayment.
Q.16
Does all my property have to be transferred to the trustee?
A.
Yes, but only if the trust deed is intended to become a protected
trust deed; otherwise it is possible to withhold some of your assets.
Such an arrangement may not however be acceptable you your creditors.
Property which is transferred to the trustee may be sold by him whenever
it is in the interest of your creditors for him to do so.
Q.17
Can the trustee sell my house?
A.
The trustee can sell all property which has been transferred to him
by the trust deed; however, if your house is jointly owned or if it
is a family home, the trustee will need the consent of the co-owner
of anyone else who has occupancy rights in the house.
Q.18
Can I act as a director of a limited company?
A.
No.
Q.19
Can I hold other public offices?
A.
Yes; however, the regulations governing some public bodies debar from
holding office anyone who has signed a trust deed or entered into
an arrangement with his creditors; you should check with the body
concerned.
Q.20
Will the signing of a trust deed result in my being black-listed by
credit reference agencies?
A.
Certainly, if the trust deed becomes protected because it will have
been advertised in the Edinburgh Gazette. In other cases the agencies
may become aware of your insolvency from other sources, e.g. from
your creditors.
Q.21
When I am discharged, do I get my property back?
A.
No. Once you have transferred assets to your trustee, it becomes his
duty in law to sell them for the benefit of your creditors. The trust
deed continues to operate after your own discharge so long as there
are assets for the trustee to manage or realise.
IVA's
The IVA Guide
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In the guide we cover such subjects as IVA Approval, early settlment of your IVA, missed IVA payments, IVA failure, additional debt claims and much more.
[click here for IVA Guide]
What is an IVA?
The IVA is an extremely powerful tool enabling you to clear your debt and return to a clean financial bill of health. Visit Money Advice Direct's Guide to Individual Voluntary Arrangements (IVAs).
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