Paper for submission to Protected Trust Deed Working Group by huf13890



                           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


    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

    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

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.


    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

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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