Debt Advice Handbook Scotland 1st ed - with new materialChapter 6: Statutory debt solutions in Scotland7. Protected trust deeds Dealing with non-performing trust deeds
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Dealing with non-performing trust deeds
In some cases, which could be due to changes in a client’s circumstances, a loss of income or an incomplete CFT having been done, the client may find that they cannot continue to make payments, as agreed, to their trust deed.
In this case, there are a few options open to the trustee.
Continue the trust deed for a longer period
The first option is usually to extend the trust deed for a longer period to see if the client’s situation improves and they can restart their contributions. This can increase the length of the trust deed by months or years.
Discharge of the trustee
Another way to deal with a non-performing trust deed is for the trustee to discharge themself from the case and to give the client back their debts, basically refusing to discharge the client from their liability.
The trustee must inform the AiB why this is the case and complete the appropriate refusal of discharge form.1aib.gov.uk/debt-solutions/protected-trust-deeds/ptd-protocol (This only applies to trustees who are part of the protocol agreement.)
The trustee will use any monies collected to pay fees and, if possible, a dividend to the creditors.
The client is not discharged from their debts, but is freed from the constraints of the trust deed. In effect, the client gets their debt back, plus interest. They can then look at another debt solution such as a DPP under the Debt Arrangement Scheme, or sequestration.
The trustee must inform the AiB why they are not discharging the client.
If the AiB disagrees with the trustee’s decision, the trustee will be contacted to discuss the refusal. Where the trustee and AiB do not agree, the AiB will seek to issue a direction to the trustee which can then be challenged.
 
1     aib.gov.uk/debt-solutions/protected-trust-deeds/ptd-protocol »
Discharge of the trustee and the client
A third way to deal with a non-performing trust deed is for the trustee to discharge the client and themself if they believe that the client has tried their best to conform to the terms of the trust deed but has failed to complete the agreed 48 payments.
The trustee must inform the creditors and ask their permission to discharge the client. If all creditors and the AiB agree, the trustee can discharge the client, then themself and the period of the trust deed is over.
The AiB guidance for trustees states:1PTD protocol, para 9.1, aib.gov.uk/publications/notes-for-guidance-protected-trust-deeds-bankruptcy-scotland-act-2016/8-debtors-discharge/84-effect-of-discharge#publication-content ‘It would not be appropriate to refuse to discharge a client because of circumstances beyond their control, such as:
    •a change of circumstances which prevents them from paying any contribution payable under section 168 of the 2016 Act…
    •if an asset realises an amount less than originally estimated by the trustee on Form 3.’
A client in this situation should explain to the trustee that they cannot keep up the agreed payments, that they have tried their best to do so and the situation is unlikely to improve. They should ask the trustee to discharge them and bring the trust deed to an end.
 
1     PTD protocol, para 9.1, aib.gov.uk/publications/notes-for-guidance-protected-trust-deeds-bankruptcy-scotland-act-2016/8-debtors-discharge/84-effect-of-discharge#publication-content  »
Discharge of the client
Discharge is conditional on the client co-operating with the trustee and the terms of the trust deed. The client does not need to have paid all contributions and realised all assets to be discharged. The trustee must be satisfied that the debtor has co-operated with them and met the obligations of the trust deed. The trustee applies to AiB for the debtor discharge on Form 5.1legislation.gov.uk/sdsi/2016/9780111033173/schedule The trustee can refuse to discharge the client (see below).
The AiB then registers the discharge in the Register of Insolvencies. The date of discharge is the date on which it is registered.2s184(2) and (3) B(S)A 2016
The trustee must notify the client with a copy of Form 5 and every known creditor of the date the client has been discharged. The trustee can charge a reasonable fee for a letter of discharge which is chargeable against the client’s estate.
Form 5 can be used by the client as proof of discharge.
On discharge from the PTD, the client is discharged from any outstanding unsecured debts and obligations for which they were liable at the date that they granted the trust deed.
There are some important exceptions to this rule.
A PTD does not discharge a debtor from:3s184 (6) B(S)A 2016
    •any liability arising after the date on which the PTD was granted;
    •any liability or obligation mentioned in section 145(3) of the Act;
    •any liability for a debt in respect of which a security is held if the secured creditor has agreed not to claim under the trust deed for any of the debt in respect of which the security is held.
 
1     legislation.gov.uk/sdsi/2016/9780111033173/schedule »
2     s184(2) and (3) B(S)A 2016 »
3     s184 (6) B(S)A 2016 »