What is a trust deed?

A person can voluntarily make over their assets to a trustee (an insolvency practitioner) who then manages and/or sells the assets to allow creditors to be repaid.

The creditors have to approve a trust deed.  If more than half in number or one third in value object, they can ignore the trust deed and still ask the Court to make you bankrupt.  As a result, there is little point to a trust deed unless it does become protected.

You have to owe £1,500 before you can petition for bankruptcy, but there is no minimum amount for a trust deed.  The trustees fees have to be paid for out of the individual’s assets, or from earnings during the three year period.  An Insolvency Practitioner may only agree to act if there are assets from which he can be paid, or if you are in steady work and can afford to pay a contribution from your earnings.

The trust deed is a contract between the debtor and the trustee. It can transfer some or all of the assets, but if it transfers only some of your assets it cannot become protected - the creditors will object.

As with a bankruptcy, the debtor has to cooperate with the trustee for three years and pay a contribution from earnings. Generally you are not prevented from being a director of a limited company.  Some professional bodies will not allow continued membership of debtors who have signed trust deeds. Some public bodies will also prevent anyone who has signed a trust deed from holding office.

Effect of a protected trust deed

If a trust deed becomes protected the creditors are bound by it. Only the trustee can generally take legal action against the debtor.

The trustee has to advertise the trust deed in the Edinburgh Gazette, and send a notice to all known creditors.  It is also recorded in the Register of Insolvencies kept by the Accountant in Bankruptcy when it becomes protected.

The trustee under a protected trust deed can petition for a debtor’s bankruptcy at any time. Creditors can still ask the Court for bankruptcy if they can show their return would be better in a bankruptcy.

The trustee under a trust deed can sell property, including the debtor’s house.  The trustee should lodge a notice in the Register of Inhibitions to stop the debtor selling heritage without his consent.

The trustee has to realise the assets and collect contributions. If the realisations are enough to pay the expenses and the creditors have been paid in full (plus interest) then the surplus would be refunded to the debtor.