PTDWG/3.1 Paper for submission to Protected Trust Deed Working Group on subject of: - Sources and Procedure By David G E Brown of AG Taggart & Co Ltd 14 April 2010 Sources a) Advertising Concern has been expressed that misleading advertisements are being employed to attract people into trust deeds when there may be more appropriate alternatives. While I can understand that some group members may want to refer matters to the Advertising Standards Authority, control of internet advertising is a far wider subject than the Group’s remit. It is surely more relevant to consider what happens to the respondent when he/she contacts the IP. IP’s must ensure that any advertising which provides them with work complies with appropriate standards. This is adequately covered in the Insolvency Code of Ethics: - “Obtaining Insolvency appointments Para 67…an IP should satisfy himself that any advertising …is fair and not misleading…complies with relevant codes… Para 71…responsible for ensuring that the third party follows the above guidance.” It was mentioned that where the AiB had made representations to advertisers, the text had been satisfactorily altered. b) Pre-appointment Fact-finding Fees There was concern that payments to fact finders were either not disclosed or were excessive. The Statement of Insolvency Practice dealing with Trust Deeds (SIP3A) requires disclosure of the recipient (Para 8.3). If creditors draw the IP’s attention to this requirement they should have no difficulty in obtaining the information. If they feel the amount is excessive, they have a right to refer accounts for audit by the AiB who may request any details necessary to assess whether the payment should be allowed. This is a matter which can be addressed through existing procedures. The referring source may consider that a debtor is a suitable candidate for a TD, but para 5.7 of SIP3A makes it quite clear that it is up to the IP to independently assess the case before accepting appointment. IP’s must retain evidence that they have explained and considered alternatives. While there may be a need to monitor and ensure compliance with the Legislation, the Code of Ethics, the SIPs, the Regulations and existing guidance from RPB’s and from the AiB, further regulation in this area appears unnecessary. PTDWG/3.1 Procedure a) Protocol As far as the procedure for protection is concerned, with increased membership of creditor organisations such as TiX and Trust Deed Watch, a PTD protocol is in effect already operating in many cases, as was noted in Blair Nimmo’s paper at the first meeting. However, as the objective of the Group is to “…make recommendations for a coherent approach…” I would suggest that the informal protocol could be formalised in order to widen its application. b) Simplified Low Cost Trust Deeds Another purpose of the review is to ensure that the PTD process is fit for purpose. The purpose of PTD’s is mentioned in the introduction to the Executive note on the 2008 Regulations as “An alternative to bankruptcy”. The Citizens Advice paper by Keith Dryburgh addresses the question of how to include those with disposable incomes or assets above the minimum level for a LILA Bankruptcy but below the level necessary to fund a trust deed. While accepting that wider access to debt relief will be available with the new Certificate for Sequestration, it was argued that people who could make regular contributions should be able to access Trust Deeds as an alternative and thus avoid the stigma of Bankruptcy. A sub-group will consider the feasibility of introducing a new procedure to meet the needs of these people. Because simplified low cost trust deeds will suit people with low disposable incomes, the return for creditors is likely to be low, unless the trust deed runs for an extended period. Criteria could include a certificate from an IP that they have been rejected for a standard PTD. It seems to me doubtful whether IP’s will wish to administer these, although they should not be excluded. The AiB will no doubt be able to handle these at a lower cost than bonded, licensed, regulated, inspected, supervised, experienced IP’s. c) Appointment of IP’s In presenting the CAB paper the question was raised as to whether Trust Deeds could only be administered by IP’s. A principal reason for implementing the Insolvency Act in 1985/6 was the need to regulate the activities of people engaged in insolvency work in order to prevent people with insufficient experience and qualifications from engaging in questionable and illegal practices to the detriment of creditors. Insolvency Practitioners must now be bonded and licensed by their professional bodies, which must be recognized for the purpose by the Secretary of State. To maintain recognition, members must be monitored to ensure that they remain suitably qualified. In their evidence to the parliamentary committee dealing with the recent Home Owner and Debtor Protection (Scotland) Bill, Max Recovery (one of the largest creditors in bankruptcies and trust deeds) recommended that the power to issue Certificates for Sequestration should be limited to IP’s. They continued: - “The benefit of utilizing insolvency practitioners in this process is that there is already a system of regulation in place, alongside a requirement for professional indemnity insurance, … relatively straightforward for the licensing bodies to consider the … use of the certification power as part of the monitoring process and to take appropriate action where there is evidence of abuse. THE SAME DEGREE OF RIGOROUS REGULATION DOES NOT APPLY TO THE PTDWG/3.1 MONEY ADVICE SECTOR.” (My emphasis.) Although they were referring to Certificates for sequestration, I believe that their argument applies equally to the administration of Simplified Trust Deeds.
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