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

This guidance describes the general functions of Accountant in Bankruptcy and trustees in relation to their responsibilities regarding protected trust deeds (PTDs) which were granted on or after 30 November 2016

2.9 Agreement in respect of a heritable property

This section does not apply to the debtor’s dwelling house if it has been excluded from the trust deed by virtue of section 228(1) of the Act.

The trustee can agree not to realise any property that has been conveyed to him by virtue of the trust deed and to relinquish his interest in such a property and recall any notice of inhibition, on condition that either the debtor:

  • pays an amount, by a specified date, as determined by the trustee
  • pays additional monthly contributions after the end of the 48 month payment period, for a period specified by the trustee
  • co-operates with the trustee

An agreement between the trustee and debtor to pay funds to remove the trustee’s interest in their property must be recorded on Form 1B, as recorded in the Protected Trust Deeds (Forms) (Scotland) Regulations 2016. 

A copy of Form 1B is to be sent to the Accountant and every creditor known to the trustee.

The trustee must determine the amount and period of the contributions to be paid, based on a professional valuation of the heritable property and the redemption figures for any debt secured on the property as at the date of granting of the trust deed. A chartered surveyor or other suitably qualified third party should complete the valuation. The valuation should detail the maximum market value. The valuation should be specified as the current Royal Institution of Chartered Surveyors (RICs), Red Book equivalent of open market, and not impose other restrictions such as a forced sale or the sale price expected for a transaction concluded within a truncated period. The valuation documentation, including detail of the work undertaken to provide the property valuation must be available if requested by creditors.  It is important to recognise that 100% of the assets are conveyed to the trustee in a trust deed. This means that 100% of the difference between valuation and security needs to be shown in the debtor’s statement of affairs. Any differences between the full equity figure recorded in the statement of affairs and the amount that is expected to be realised, as recorded on the Form 1B, must be fully explained.

It is possible at the outset that the options for dealing with heritable property have not been fully established. This could be, for example, where re-mortgaging is an option to be explored prior to consideration of property sale or additional contributions in lieu of equity at the end of the PTD. In these circumstances, it is essential that creditors are presented with a complete and realistic assessment of the actions that may be undertaken by the trustee in relation to property. 

The following should be provided as additional information to the Form 1B:

  • trustee’s intentions with regard to sale of property to realise full equity and reasons for not proceeding with this course of action if appropriate
  • plans for potential re-mortgaging including the timing of any proposed action and the evidence that will sought to verify that reasonable steps have been taken to obtain a mortgage. As an example, this could include the debtor providing decision notices for two separate applications for re-mortgage
  • the proposed additional contributions that will be taken in lieu of equity, including the timing and duration of these
  • a statement detailing the comparison between, the potential dividend to creditors should the equity be fully realised, against, the potential dividend, if additional contributions are taken after the initial 48 month period

In circumstances where the proposals in relation to heritable property remain unclear, the Form 3 should record the minimum expected return on the property. It would only be appropriate to record a higher figure where firm arrangements have been made e.g. a re-mortgaging agreement is in place or another suitable guarantee to purchase an interest in the debtor’s property has been obtained. The Form 3 should not include a speculative figure against total realisations from heritable assets.

If the debtor does not comply with the Form 1B agreement, the trustee may withdraw from the agreement and sell the property.

If the property is sold, regardless of the circumstances that lead to the sale, the trustee will receive the full amount of available equity and the amount agreed and recorded in Form 1B no longer applies.

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