Creditor responses
Creditors reply to the trustee, agreeing or disagreeing that the trust deed should be protected. They must do so within five weeks from the date of registration of the trust deed. (Usually, four weeks after being informed.)
If more than half of the creditors, or a third in total value, do not agree to the trust deed becoming protected, it does not become a PTD.
1s171(1)(c) B(S)A 2016 Creditors who do not respond are deemed to have accepted.
Examples
There are seven creditors and four object to the trust deed gaining protected status, it does not become protected because more than half of the creditors object.
The total debt is £12,000. One creditor who is owed over £4,000 objects to the trust deed gaining protected status. It does not become protected because that creditor is owed a third of the value.
During the five weeks, creditors may also apply to the court for the sequestration of the client’s estate (as signing the trust deed constitutes apparent insolvency), and the trust deed then cannot be used.
On application by a creditor, the sheriff grants the sequestration only if they are satisfied that to do so is in the creditors’ best interests. In this case, the trustee may apply to the court for the client’s bankruptcy and administer the case as a bankruptcy, where the FAB bankruptcy rules apply. These terms should be included in the trust deed itself. This is at the sheriff’s discretion so there is no guarantee that the trust deed will gain protected status and be successful, and the client may end up bankrupt. This can affect the possible exclusion of the family home and clients must be made aware of this.
Insolvency practitioners can give advice on whether they think the trust deed will gain protected status as they will likely know which creditors will agree, and which will oppose it becoming protected.
Speak to the potential trustee about this before making a recommendation.