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

Where the dwelling-house has not been considered for exclusion, a professional valuation of any property should be carried out at soon as practicable before the trust deed is presented to creditors for protection.

The cost of a single valuation of any specified heritable estate completed before the granting of a trust deed can be claimed as an outlay of the trust deed.

The trustee must be satisfied that they have obtained current valid information regarding the outstanding amounts of all secured loans.

The trustee must reach an agreement with the debtor on how equity in a property will be realised during the period of the PTD. If this agreement involves the payment of a sum at an agreed date or through contributions that will be taken based on an agreed amount of equity, this agreement is to be recorded using Form 1B and Part 1 of Form 3 to the Schedule to the Protected Trust Deeds (Forms) (Scotland) Regulations 2016. The equity figure used to calculate the sum realised is “frozen” provided that the debtor complies with the agreement that has been reached and documented on the Form 1B. This agreement ceases to apply if the property is sold. Further information relating to the use of Form 1B is set out at section 2.9 – Agreement in respect of heritable property.

A trustee must be satisfied of the available equity to be realised from a property, prior to the initial circular being issued to creditors. The trustee should provide information to creditors in the circular explaining the valuation basis used in relation to property.

If the debtor does not comply with the terms of the agreement recorded on Form 1B, it is the responsibility of the trustee to take any appropriate action to realise the equity in the debtor’s property, in order to maximise the dividend payable to creditors in general.

If the trustee is required to sell a property, the trust estate is entitled to receive the full amount of equity realised from the sale, regardless of the circumstances that have resulted in the sale of the property.

The trustee should not allow a property to be relinquished back to the debtor, if it is calculated that there is equity which, if realised, will generate an increase in dividend payment to creditors, unless the trustee can demonstrate why it is not cost effective to realise the equity.

The Accountant recommends that the trustee agrees with the debtor how he will realise the equity in the property of a debtor as early as possible. This is in line with section 10.2 of the Notes for Guidance - Bankruptcy.

Where a dwelling-house is not subject to a Form 1B agreement and the value of the property increases, before being sold during the term of the trust deed, the full amount of equity released will be conveyed to the trustee. This should be narrated as part of the agreement on Form 1B.