Changes to protected trust deeds early in 2025

The Bankruptcy and Diligence (Scotland) Act 2024 (Commencement No. 1, Transitional and Saving Provisions) Regulations 2024 (the Regulations) bring into legislative effect some provisions of the Bankruptcy and Diligence (Scotland) Act 2024.

For trust deeds signed on or after 20 January 2025, a trust deed information document will need to be provided to the debtor (in addition to the debt advice and information pack) the debtor should also be provided with a ‘cooling off period’ to consider the advice and information provided before signing the trust deed.

The Accountant in Bankruptcy (AiB) will produce the trust deed information document which insolvency practitioners (IPs) will need to provide to individuals prior to them signing a trust deed if it is to be protected. The document will set out in very broad terms and at a high level some of key factors which an individual contemplating signing a trust deed should be aware of.

This new requirement in legislation will be in addition to the more extensive requirements in SIP 3.3 on advice to the debtor and the existing requirement in legislation for a Debt Advice and Information Pack (DAIP) to have been given to the debtor.

Somewhat unusually, the trust deed information document has not been published alongside the laying of the Regulations. We have queried this with the Accountant in Bankruptcy who have replied that the trust deed information document will be 'published before the section 10 comes into force on 20 January 2025’. This is highly problematic for both IPs and individuals that may already be in the process of obtaining debt advice, but which results in them deciding to enter into a trust deed on or after 20 January.

The Regulations also commence the provision which requires individuals to be given ‘adequate time’ to consider the advice and information given by the IP. Again, SIP 3.3 already contains this requirement but from 20 January 2025, what is mean by ‘adequate time’ will be dictated by guidance with legislative effect.

Again, somewhat unusually, the AiB has not yet published this guidance, and it is not known when this will be published. It is however understood that this is likely to say that at least 3 business days will be considered adequate time.

There remain many unanswered questions about the practical implementation of this provision, and it’s not known whether the guidance will adequately cover these or not. For instance, will it be clear what action ‘starts the clock running’? Is the end of the period when the debtor signs the trust deed and if so, how is this date established to everyone’s satisfaction where traditional wet ink or simple e-signatures are used? It's also unclear what might ‘suspend’ the period, or indeed if this is possible, or whether some actions during the ‘adequate time’ period might result in the clock being reset.

All of this is important to know as a matter of urgency as firms will require to adapt systems, processes and documentation as well as undertake adequate staff training on the new requirements within a very short timescale, made all the shorter as this takes place over the Christmas and New Year period when many firms will be closed.

Other provisions being commenced

The Regulations also bring into effect on 20 January some other measures and changes to legislation.

Where commissioners in a sequestration have made a determination fixing the outlays and remuneration payable to a trustee and this has been appealed to the AiB, amendments to sections 69 and 134 of the Bankruptcy (Scotland) Act 2016 (the 2016 Act) will allow certain parties to appeal the AiB’s decision to the Sheriff Court within 14 days of the AiB issuing that decision. Under transitional provisions, where the AiB has issued a decision before 20 January 2025, that decision may be appealed to the Sheriff Court up to 14 days after 20 January 2025.

Modifications to sections 76 and 77 of the 2016 Act will mean that commissioners may not be elected in sequestration cases where the AiB is the trustee. Where a commissioner already holds office, that commissioner would cease to hold office if the AiB becomes the trustee.

Sections 22 and 98 of the 2016 Act will be amended to correct cross-reference errors.

Action required by IPs

While there remains uncertainty around some of the detail, given the short implementation timescales being brought about by the Regulations it is important that IPs do not wait until the detail is fully available before taking steps necessary to ensure they are compliant with the new legislative requirements. It’s recommended that steps are taken to action or understand where action will be needed as detail is clarified. This is likely to include for example the need to:

• update checklists

• update letter packs and template documents

• update trust deed styles

• undertake staff training

• consider how those currently in the debt advice cycle will be provided with the new information and when

Diligence amendments

The Regulations will also bring into effect three changes to processes of diligence in Scotland.

A DAIP will be required to be provided to a debtor as part of the process for applying to the court for a warrant for diligence on the dependence under section 15D(1) of the Debtors (Scotland) Act 1987.

It will now be possible for a sheriff officer to execute money attachment on any day or at any time when premises are open for the purposes of trade or business. Previously, the approval of the court would have been required where a money attachment was to be executed outside the hours of 8am to 8pm, even if the business was normally operational out with those times.

An arrestment to found jurisdiction of a ship will now be permitted to take place on a Sunday.

Update - Dear Trustee letter published

Since this article was originally published the Accountant in Bankruptcy has published a Dear Trustee letter providing some additional information and has published the trust deed information document.

This confirms that 'adequate time' for consideration of advice, the trust deed information document and DAIP is 3 days. The AiB Notes for guidance for protected trust deeds has had a new section 2.5 added which will give this time period statutory effect under section 167(5) of the 2016 Act.

The Dear Trustee letter confirms that firm's template documents used to provide the statement required under section 167(3)(c) of the 2016 Act should be updated to reflect confirmation for both the trust deed information document and adequate time requirements.

ICAS shall be seeking further clarification from the AiB in relation to the adequate time guidance. Given the importance that this guidance has in relation to whether a trust deed qualifies for protection or not, it is important that there is much more certainty over the running of the adequate time timescale. The guidance appears to work on the basis that advice is a defined action when in reality advice is a collective of actions often over an extended period. Identifying when the 3 day period starts and what actions might or might not reset such a period needs further clarification. It is also unclear whether the 3 day period applies irrespective of whether the individual for example has vulnerabilities or not. IPs are however reminded that the adequate time requirements of SIP 3.3 are in addition to the statutory requirements and should be assessed in relation to the individuals circumstances. As a result, where vulnerabilities exist, it is possible that to comply with SIP 3.3 a period of more than 3 days will be required.

Update - 15 January 2025

Following discussions between ICAS, the AiB and other parties, the guidance on adequate time within the AiB's Notes for Guidance - Protected Trust Deeds will be updated to provide greater clarity and certainty for debtors and IPs that the trust deed will meet the requirements for protection.

The revised guidance will confirm that any interaction between the insolvency practitioner and the debtor once the advice and materials required to be provided under section 167(3) of the Bankruptcy (Scotland) Act 2016 will not reset the clock on the adequate time provisions and that as long as there is a 3 day period between the advice and materials being provided and the debtor entering the trust deed then the adequate time provisions will be met.

The AiB have also confirmed that the provision of the section 167(3) statement will be sufficient evidence that the requirements have been met for protection, although checks will be carried out as part of PTD audits to ensure that the 3 day time period has been applied correctly.

As a trust deed is entered into as soon as the debtor has signed the trust deed document, in order to ensure that protection conditions are met, it is essential that the trust deed is not signed by the debtor prior to the adequate time provisions having been met. It is inevitable that some debtors may sign a trust deed document if it is provided to them alongside the advice and materials, even if they are informed that they must not sign it before the expiry of 3 days. While it may be possible in due course for firms to find a technological way to issue the trust deed document with not permitting e-signing until a set future date, this is unlikely to be possible in the short period prior to the new provisions coming into effect. For firms that perhaps only do a small number of trust deeds, it may never be a practical option to implement such controls.

It is therefore suggested that IPs do not provide a copy of the trust deed for signing until after the 3 day period has passed. This does of course mean that the debtor might not have sight of the legal document that they will require to sign, somewhat ironically severely limiting the policy intent behind the legislative changes which is to ensure that debtors are able to make an informed choice of whether a trust deed is a suitable option for them. IPs may wish to issue a trust deed without the signing blocks prior to the adequate time being provided if they are certain that it is not possible for the debtor to be able to sign the document. Remember, once a trust deed is signed it is not revokable and there are potential consequences for the debtor of being unable to gain protection of the trust deed. ICAS is seeking advice on whether any possible mitigation measures could be incorporated into a trust deed document.

The AiB have also published the debt solutions comparison table mentioned under the heading "When a PTD might not be right for you" in the trust deed information document which must be provided to the debtor. IPs should either provide a copy of this, or provide a link to the document, when providing the debtor with the trust deed information document.

While the 3 day adequate time period will ensure the conditions for protection are met in statute, IPs are reminded that the SIP 3.3 adequate time provisions remain. In many situations this will be met by complying with the statutory requirements, however, particularly where there are more complex situations or involving a debtor with additional vulnerabilities, the adequate time requirements under SIP 3.3, which are principle based, may be more onerous. IPs should therefore continue to consider and document their conclusion on whether the debtor has had adequate time to consider their position before entering the trust deed.