Notes for Guidance - Bankruptcy (Scotland) Act 2016 (as amended)

It is the responsibility of the trustee to try and realise the maximum amount from a debtor’s estate for the interest of creditors.

The trustee must consider all available options for realising the equity in a moveable asset to try and ensure the most cost effective means of realising the maximum return from the estate.

10.3.1 Monies held in bank accounts

Under section 86(9) of the Act, when a trustee knows, or becomes aware, of any vested estate which comprises funds held by a bank, the trustee must serve a notice on the bank informing them of the bankruptcy, specifying reasonable detail in order to allow the bank to identify the debtor and the funds held.

The notice must be in writing and can be sent by first class post, by recorded delivery or in some other manner (including electronic means) which the trustee reasonably considers the bank will receive on the same or next day. The notice is deemed to have been received the day after it is sent.

The trustee is not entitled to any remedy against a bank in respect of a transaction entered into before the receipt of the notice whether or not the bank is aware of the bankruptcy.

If a debtor withdraws significant funds from their bank account post- bankruptcy the trustee must establish if the bank should have been aware of the bankruptcy prior to the withdrawal before considering any action to seek recovery of the funds from the bank.

10.3.2 Life assurance policies

A trustee should always have their interest noted in a policy even if it has no current surrender value and furthermore they should obtain an acknowledgement from the insurer that their interest has been recorded.

This equally applies to policies when payment is only either made on the death of one of the parties or, is assigned to a third party. Failure to register an interest may result in a trustee being held liable if the failure results in a loss to the estate.

Any policy which has a surrender value will vest in the trustee for the duration of the bankruptcy and the trustee should attempt to realise the asset by surrendering the policy or having a third party buy out the trustee’s interest.

Any policy which does not have a surrender value should be treated as a non-vested contingent asset which will vest in the trustee for a period of four years from the date of bankruptcy.

It may be practical for the trustee to inform the insurance company when they consider the an insurance policy is no longer vested in the estate i.e. on discharge of the trustee or the end of the four year period. This will allow a debtor to access the funds in future years without the requirement to first obtain consent from the former trustee.

10.3.3 Motor vehicles

Only vehicles valued at over £3000 vest in the trustee. The Accountant does not consider it appropriate for a trustee to deduct this amount from the value of a vehicle when calculating the value to the estate.

If a vehicle is valued at over £3000 and the trustee thinks it is cost-effective to sell, it should be sold as soon as possible unless the vehicle is considered essential to the debtor to get to work so they can pay a DCO.

If the debtor is allowed to keep a vehicle that could vest in the trustee, they must maintain the agreed regular payments to a DCO. If they fail to do so without reasonable excuse the trustee should take possession of the vehicle as soon as possible and sell it, if cost-effective.

When the trustee decides to allow a third party, or the debtor on completion of their DCO, to buy out the trustee’s interest in the vehicle the amount agreed should be the full value of the vehicle to the estate. Formal abandonment of the vehicle should be given following completion of the payments.

Trustees are advised they may incur personal liability for any third party claims arising from the debtor’s use of a motor vehicle vesting in, or under the control of, the trustee. Moreover, trustees may be guilty of a criminal offence in terms of Section 143 of the Road Traffic Act 1988 (1988 Act) if they permit the debtor to use such a vehicle without proper insurance. In this context simply leaving a vehicle in the possession or control of the debtor may be sufficient to constitute permission for the purposes of the 1988 Act.

The trustee should consider obtaining a written acknowledgement that while the vehicle remains in their possession, the debtor will:

• have and maintain insurance, covering at least the third party risks
• ensure the vehicle remains taxed
• have, if applicable, a current MOT certificate

When a trustee decides to abandon a motor vehicle to the debtor, because it is of no realisable value, the trustee should inform the debtor in writing.

The notification should specify that from the effective date of abandonment, the debtor is wholly responsible for satisfying all legal requirements in respect of the ownership and use of that vehicle, including insurance.

If the trustee does not do so, there may be an inference they are merely permitting the debtor to use the vehicle and the trustee could be subject to the risk of potential liability under the 1988 Act.

10.3.4 Inheritance

This does vest in the trustee, unless the inheritance is held on trust for or by the debtor, in which case it does not vest. If held in trust for the debtor, it only vests if the debtor becomes entitled to the capital of the trust during the four years from the date of award.