The future of protected trust deeds (PTDs) as a form of statutory debt solution has been called into question by the Faculty of Advocates in a response to a Scottish Government consultation.
Ministers are proposing legislation to ensure that the use of PTDs – voluntary but legally binding agreements to repay part or all of a person’s debts – is confined to what are considered to be appropriate cases, which would be those with higher levels of debt being repaid over a period of say more than five years.
Debtors enjoy certain protections under a PTD, such as securing possessions from attachment. However, a PTD can also have significant consequences on a debtor’s credit rating and the ability to obtain credit.
In its response, Faculty suggests the Government "should keep under review the desirability of continuing to make special legislative provision for trust deeds for creditors. We say this because, in recent years, the legislative landscape has changed".
It continues: "Whereas in the past a debtor in embarrassed circumstances had a binary choice between granting a trust deed on the one hand, and being sequestrated on the other hand, there is now a third way, namely a debt arrangement scheme.
"Given the availability of such a scheme, we consider that there now exists a serious question as to the purpose which trust deeds for creditors are supposed to serve and whether that purpose is one which should receive legislative support."
Faculty observes that "If certain of the proposals upon which the Scottish Government is now consulting come into effect, we consider that two consequences may ensue: first, that many new trust deeds will not enjoy protected status and, secondly, that the prospect of their proposed trust deeds' not enjoying protected status will discourage debtors – or at least those who are acting upon professional advice – from granting the deeds in the first place."
If PTDs are to be retained, Faculty recommends that they are only used where a debtoir owes £15,000 or more, with upward revisal from time to time, to prevent administration costs being disporportionately high compared to the benefits to creditors. Protection should be refused where the full debt could be repaid within 60 months, though it would be "unduly rigid" not to give the trustee a discretion to determine whether a lesser period would be appropriate.