A Trust Deed is a legal
process that is used in Scotland where a consumer who is in debt grants a ‘deed’ in favour of the trustee
(e.g the insolvency practitioner) who transfers their assets to the trustee for the benefit of
the organisations the consumer owes money to.
Provided certain conditions are met, the Trust Deed may be registered as “protected”, thereby preventing creditors from petitioning for the debtor’s
sequestration
(called bankruptcy in the rest of the UK).
In England, Northern Ireland and Wales
there is a similar alternative to a Trust Deed called an
Individual Voluntary Arrangement (IVA). There is much more
information on this site about IVAs (FAQs &
an enquiry
form) and the Scottish equivalent of Trust Deeds.
The main advantage of entering into a Trust
Deed is that it takes the pressure off the consumer/debtor. All correspondence
with the creditors is conducted by the Trustee on behalf of
the consumer.
The main disadvantage of a Trust Deed is that existing arrestments and other
diligence continue to be effective, home owners may be
forced to sell if creditors cannot be paid in full from
other sources and debtors cannot trade on their own account
or hold directorships of a Limited company. Granting a Trust
Deed, by which a person voluntarily transfers some or all of
his or her assets to a trustee to administer on behalf of
the creditors, is both less formal than the main alternative
of sequestration and may also avoid some of the legal
disabilities which follow from being made legally
bankrupt.
Provided it meets certain conditions, a trust deed may be
recorded in the Registrar of Insolvencies as a ‘Protected
Trust Deed’. This prevents a creditor from petitioning for
the debtor’s sequestration so long as the person granting
the trust deed abides by its terms. Whilst signing a Trust
Deed is less formal than sequestration, it is nevertheless a
serious step to take. Granting a Trust Deed is a voluntary
act but once a person has signed a Trust Deed he and the
trustee are legally bound by it.
