MATRICS – Sequestration and Trust Deeds

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MATRICS would like to thank both the Scottish
Government and the Accountant in Bankruptcy for
their continued support and funding
Introduction
The Home Owner and Debtor
Protection (Scotland) Act 2010
Part 2─Sequestration and Trust Deeds
COMING INTO FORCE:
15TH NOVEMBER 2010
Part 2 of the above Act introduces a
number of changes to personal
insolvency
Introduction
Sections covered in seminar:
Section 9─certificate for sequestration
Section 10─trust deeds
Section 11─power in relation to debtor’s
family home
Section 12─abolition of certain
requirements to advertise in
the Edinburgh Gazette
Objectives
To ensure that attendees are aware of :
1. How the certificated route works and what
constitutes an authorised adviser
2. The change to the nature of trust deeds
3. The increased protection to the debtor’s
family home
4. The abolition of advertisements in the
Edinburgh Gazette
PART 2
Section 9
Certificate for sequestration
Routes into bankruptcy
• Apparent insolvency
• Granted trust deed which did not become
protected
• Meet low income low asset (LILA)
And new route• Have certificate for sequestration from
authorised person
Why new route?
•
•
•
•
•
Still debtors outside present routes
Home owners with low equity
Limited income and large debts
Creditors not willing to take court action
Therefore unable to prove apparent
insolvency
• Not eligible for LILA
Certificate for sequestration
• Intended to open access to bankruptcy for all
debtors
• Those currently excluded:
– Home owners with little/no equity
– Those who cannot establish apparent insolvency
Also removes:
Creditor concurrence route
S9-Certificate for Sequestration
• S9 of the 2010 Act amends The Bankruptcy
(Scotland) Act 1985, abolishing the
concurrence of a qualified creditor route into
sequestration.
• It introduces a new:
“Certificate for sequestration” route
S9-Certificate for Sequestration
• The new certificated route into
sequestration is a route that is available:
– When a certificate is granted by an
authorised person; and
– It certifies that, based on the information
given to the adviser, the debtor is unable to
pay debts as they become due
Authorised Persons
• An authorised person will be:
– Persons qualified to act as insolvency practitioners in
accordance with the Insolvency Act 1985 or work for IP
and have been given authority by that IP to act on their
behalf
– Money advisers working for an agency which has been
accredited at Type II* of the National Standards for
Information and Advice Providers
– Approved Money Adviser for the DAS
– CABx money advisers
– Local authority money advisers
(*Agencies offering a casework service)
• Authorised persons cannot be associates of the debtor as
defined in S74 of the 1985 Act
Certificate for sequestration
• Printed on the headed notepaper of the
organisation to which the authorised person
belongs
Form contains:
– debtor details
– authorised person details, signature and
date
– debtor declaration, signature and date
Form of Certificate
• A nil fee is chargeable for granting a
certificate for sequestration
• The Certificate for Sequestration is valid for
thirty days from the date signed by the
authorised person
• Applications made after the 30 day period will
be rejected and debtor will lose their £100 fee
Certificate for sequestration
DECLARATION AND SIGNATURE OF DEBTOR
I _______________________________(debtor’s name,)
confirm that I have provided the authorised person with
correct and complete information about my financial
circumstances..
I understand that this certificate is valid for thirty days including
the date signed by the authorised person.
____________________________
(signature of debtor)
___________________________
(date)
Advisers role
• Certify that, on the basis of information
provided, the debtor is unable to pay his/her
debts as they become due
• Provide debtor with copy of the Debt Advice
and Information Package
• Advise debtor of consequences of
bankruptcy
S9-Certificate for Sequestration
• Cannot pay debts as they become due
Also known as “Practical insolvency”
Example:
Client’s contractual payments to all unsecured
debts are £350 per month. Money adviser does a
financial statement using information provided by
the debtor: it shows debtors only has £250 per
month disposable income. Debtor, therefore,
cannot afford to pay debts as they become due.
This does not mean, however, they should, be
sequestrated!
S9-Certificate for Sequestration
• Certificates can only be granted on the application
of a debtor, they cannot be granted on the
application of a creditor.
• An authorised person must grant a certificate if and
only if, the debtor can demonstrate they cannot
pay their debts as they become due.
• It is important to remember just because a
debtor cannot pay their debts as they become
due, does not mean they are insolvent!
When to advise on Bankruptcy
• Negative or low disposable income
• No or low assets (especially equity in
property)
• Not possible to make a realistic repayment
offer given all circumstances
• Pressure of debt situation on the client
Common Financial Statement
• Protected Trust Deed Working Group
Report recommending use of a common
financial statement as industry standard
• Accountant in Bankruptcy looking to adopt a
Common Financial Statement
Common Financial Statement
• It is hoped that the AIB will introduce the
MAT/BBA Common Financial Statement
• Remember the CFS’s purpose is to assist
in providing an accurate account of a
debtor’s income and expenditure.
The CFS can be accessed at:
http://www.cfs.moneyadvicetrust.org/
“Different” trigger figures?
• What happens if debtors contractual payments are
£350 per month and money adviser draws up
financial statement showing they can only afford
£250.
• Certificate of sequestration may be signed, but
trustee in bankruptcy draws up financial statement
and decides client can afford £400 per month.
• Client could be asked to pay more than they were
required as their debts fell due for payment.
Should client have been sequestrated?
Eligibility criteria
•
•
•
•
Must owe £1,500
Must be living in Scotland, or;
Have lived in Scotland during last year
Must have not been made bankrupt in last
five years
• Must pay fee of £100 (up front!)
Granting of Certificate
• Prior to granting a certificate of sequestration,
the debtor must first
– Be provided with a copy of a Debtor Advice
and Information Package (DAIP)
– Be advised of options, where appropriate, in
relation to DAS, voluntary repayment plans
and trust deeds; and
– Be advised of the possible consequences of
sequestration
– Awards of bankruptcy are recorded in a public
register
Consequences of Sequestration
• The consequences of sequestration include
the possibility of:
– the debtor being refused credit, or being offered
credit at a higher rate, whether before or after the
date of the debtor being discharged;
– the debtor not being able to remain in his/her
current place of residence
– the debtor being required to relinquish property
which the debtor owns
Consequences of Sequestration
• It can also mean:
– the debtor requiring to make contributions from
income for the benefit of creditors (IPA/IPO)
– damage to the debtor’s business interests and
employment prospects;
– the debtor still being liable for some debts;
– the debtor’s financial transactions over the last
five years being investigated; and
– other restrictions or requirements imposed on the
debtor as a result of the debtor’s own
circumstances and actions (BRU/BRO)
Agencies without authorised person
Still be able to do sequestrations using:
• LILA route
• Apparent insolvency route
Will have to signpost “certificate” clients to
agencies who have authorised person
QUESTIONS?
Debtors Application Pack
New Debtors Application Pack to be issued
to be used from 15th November 2010 in line
with the new regulations.
Forms
Changes:
Redrafted the debtor application – Form 9
Redrafted statement of Assets and
liabilities - now incorporated in application
pack
Looking to do away with the Form 17 declaration
Why a new form?
Part of AIB’s business plan:
• Increase effective management
• To ensure the debtor application process is
sufficiently robust
• Introduction of evidence requirements
supported by new application form
Note-All through consultation with stakeholders
CAVEATS!!!
Questions must be answered in full
The fee is not refundable
There may be a criminal offence if clients:
Do not disclose all information
Deliberately make a false statement
and remember....
The fee is not refundable
Form 9
• Debtor Application Form will be changed
• Debtor will have to submit evidence with the
application form: e.g..
–
–
–
–
–
Payslips
Bank statements
Proof of benefits
Tenancy agreement
Hire Purchase / Motability agreements
• Small Working Group looking at the detail
• Streamline process to make it quicker for debtor
Evidence requirements
Evidence requirements
A lot already in the adviser domain!
•
•
•
•
•
•
Qualifying benefits
Bank statements
Wage slips
Savings
Assets
Goods-HP / Lease /
Motability
• Policies-endowment
/insurance etc
• Date credit obtained
• Credit agreements
(liability)
• Home owner/tenant (AIB
land search)
Evidence requirements
• Some evidence is essential to make decision
on sequestration option
– Wage slips/bank statements
– All assets/policies/insurance
– HP agreements/motability/lease
– Home owner
– Date credit obtained
Without checking above information-how can
make an informed decision on client applying for
sequestration?
Evidence requirements
• AIB working on guidance for advisers
• If advisers already have the information to
hand saves time to pass to AIB
• And one last thought:
The £100 fee is
not refundable
QUESTIONS?
PART 2
Section 10
Trust deeds
Section10: Trust Deeds
• Creates a new type of trust deed where the
debtors principal home will not be included
– Providing a secured creditor holds a security
over it; and
– The secured creditor agrees before the trust
deed is granted not to make a claim for any of
the debt in respect of which the security is held
• Trust Deed will become protected in normal
way.
Section10: Trust Deeds
• Where there is no security, no section 10
trust deed will be possible
• The secured creditor will have to, prior to the
trust deed being granted; complete Form A1
• Form A1 requires the secured creditor to
consent to not participate in the trust deed in
relation to the secured debt, providing it
receives protected status
Section10: Trust Deeds
• 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
• The secured creditor will not be entitled to
– Make a claim in respect of the secured debt
– Do diligence against assets covered by the trust deed
– Or petition for the debtor’s sequestration
• Unless the debtor does not comply with their
obligations owed to the secured creditor in relation to
the secured debt.
Exclusion of a secured creditor
• Only likely to be agreed when very low equity
in property
• If creditors refuse to protect the trust deed
client may have to amend trust deed to allow
property to vest in trustee
• Introduced to bring peace of mind to clients
at outset of trust deed that home will not be
at risk
• If creditors agree to protect trust deed then
property will not vest in trustee
QUESTIONS?
PART 2
Section 11
Power in relation to debtor’s
family home
Sheriff Powers in Relation
to the Family Home
• Currently sheriff’s on application by a trustee (in
bankruptcy) to sell a family home, can:
– refuse to grant the application; or
– postpone granting the application for up to 12 months
• Section 11 of the 2010 Act amends this power to
allow the sheriff to postpone granting the
application for up to 3 years.
• Before applying to the Sheriff, the trustee must give
notice of the proceedings to the local authority in
whose area the debtor’s home is situated.
Sheriff Powers in Relation to the
Family Home
• Where home has vested in trustee in
protected trust deed the sheriff will also be
able to
– refuse to grant the application; or
– postpone granting the application for up to 3 years
– Before applying to the Sheriff, the trustee must give
notice of the proceedings to the local authority in whose
area the debtor’s home is situated.
QUESTIONS?
PART 2
Section 12
Abolition of certain
requirements to advertise in
Edinburgh Gazette
Edinburgh Gazette
• A biweekly newspaper published by
Stationery Office
• Not meant for public-creditors/credit
reference agencies
• It is not necessary for a trustee to send a
notice advertising the awarding of
sequestration to the Edinburgh Gazette
• Proposal to amend PTD Regulations 2008 to
bring trust deeds into line with sequestrations
Amendment of the Debt
Arrangement and Attachment
(Scotland) Act 2002
• Section 11(1)(b) of the 2002 Act
• Articles exempt from attachment
• Vehicle which is reasonably required by the
debtor
• Value not to exceed £3,000
(Raised from previous value of £1,000)
QUESTIONS?
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