Notes for Guidance - Protected Trust Deeds - Bankruptcy (Scotland) Act 2016

The Home Owner and Debtor Protection (Scotland) Act 2010 amended the definition of trust deed in the 2016 Act in order to include trust deeds which exclude the debtor’s dwelling-house, this being defined as the debtor’s sole or main residence over which there is a secured loan.

A trust deed will be able to meet the statutory definition if it excludes secured creditors who have agreed not to claim under the trust deed.

It is expected that consideration will be given to excluding the dwelling-house if:

• a secured creditor holds a security over it
• there is no, very little, or negative equity in the property

If the secured debt is excluded from the trust deed the terms of repayment are not affected, the secured lender will not vote in the trust deed, nor receive a dividend. The debtor will not be discharged from their secured debts.

To consider if a dwelling house should be excluded, the trustee must obtain the following information:

• a current valuation of the property
• a current redemption figure(s)

This information will be required in order to allow the trustee to assess if it is reasonable to consider excluding the secured debt, or if action will be required to realise equity in a property.

Where there is no security over a dwelling-house, no exclusion will be possible.

Following consultation with the debtor, if they wish to proceed with the exclusion of the dwelling-house, they must consent to the trustee acting on their behalf with any secured creditor(s) holding a security over the dwelling-house. This consent is obtained by the debtor signing Part 1 of Form 1 of the Protected Trust Deeds (Forms) (Scotland) Regulations 2016.  

The secured creditor(s) must then agree not to make a claim for any of the debt in respect of which the security is held. 

To obtain this consent the trustee must send the Form 1A to the secured creditor(s), together with copies of the valuation and redemption and request that they agree to the exclusion by signing Part 2 of the Form 1A.

If agreement is obtained the trust deed must contain the following statements:

• that subject to any exclusion under section 228(1) of the 2016 Act, that all the debtor’s estate (other than property listed in section 88(1) of the 2016 Act or which would be excluded from vesting in a trustee of a sequestrated estate under any other provision of that Act or other enactment) is conveyed to the trustee
• that the debtor agrees to convey to the trustee for the benefit of creditors generally any estate, wherever situated, which is acquired by the debtor for a period of 4 years beginning with the date the trust deed is granted and would have been conveyed to the trustee if it had been part of the debtor’s estate on the date on which the trust deed was granted
• details of any secured creditor who has agreed not to claim under the trust deed under section 228(1) of the Act
• details of the debt in respect of which a secured creditor has agreed not to claim