PTD13s – Discharge on Composition

PTD13s – Discharge on Composition

Can a debtor bring a protected trust deed, granted after the 28th November 2013 to an early end, without making 48 monthly payments or paying the creditors all monies owed to them?

This is a question I have recently been asked as the assumption is that since the Protected Trust Deed (Scotland) Regulations 2013 commenced, this is not possible. I answer it below.

Composition in Protected Trust Deeds

One of the most useful tools that the Personal Insolvency Law Unit have had at its disposal in assisting our clients has been discharges on composition. In many cases, it has allowed us to finalise a debtor’s Protected Trust Deed and release them from their obligations, whilst protecting their home, which they would have lost otherwise.  

To understand what composition is, it’s worth re-reading the comments of Sheriff Reid in the case of Allison Donnelly v Royal Bank of Scotland at paragraph 58:

“….a discharge on composition is a procedure whereby the creditors agree to an absolute discharge of the debtor, usually in return for part-payment of their debts.  Composition may be judicial or extra-judicial, and it may be general (i.e. it applies to all creditors) or partial (i.e. it applies to some creditors) (McBryde, Bankruptcy (2nd ed.), 18-62).  There is only one form of judicial composition and it is general in nature (Bankruptcy (Scotland) Act 1985, section 56 & schedule 4).  In any event, the essence of a composition is that it operates as a complete discharge, freeing the debtor from all debts and obligations for which he was liable at the date of sequestration, terminating the trust or sequestration process, and reinvesting the debtor in his estate to the same extent as it had vested in the trustee (Goudy, supra, 408).

Post 2013 Protected Trust Deeds

In 2013 the Protected Trust Deed (Scotland) Regulations, stated unless the conditions in regulation 4 to 10 were met a trust deed could not gain Protected status (regulation 3(1)).

The conditions required to be met under regulation 8 were:

  • Any payment period proposed in the Trust Deed must be for a minimum period of 48 months (regulation 8 (2) (a)); and
  • This could only be for a shorter period, where the shorter period allowed all the debtors debts to be paid in full (interest included). (regulation 8 (3)).

Termination of Protected Trust Deeds

However, this doesn’t mean a debtor has to pay all 48 monthly contributions or all the debts in full to obtain a discharge and bring the Protected Trust Deed to an end.

Regulation 24 (2) (Discharge of Debtor) states to obtain a discharge a debtor must be considered to have co-operated with his trustee and met all his obligations under the trust deed.

To meet his obligations a debtor may have to make all 48 contributions (although arguably if he can show his circumstances didn’t allow him to, there is still an argument he didn’t refuse to co-operate or that he failed to meet his obligations under the Protected Trust Deed).

We need to look at the Trust Deed document itself, which will vary. Most Trust Deed documents will, however, lay out the basis in which trust deeds can be terminated. This may be because the debtor has refused to co-operate (and, therefore will be terminated by the Trustee – grounds to refuse a discharge), but equally usually includes a clause that allows a discharge on composition.

So in short, Trust Deeds, even those granted after the 28th November 2013 can be brought to an early close. It is the Trust Deed document itself which outlines how Trust Deeds can be terminated. 

A debtor who seeks a discharge on composition is not failing to co-operate or failing in his obligations, but merely bringing the arrangement to an end in line with the provisions included in the deed, if it allows composition.

The conditions outlined in Regulation 8, only need to be satisfied for the Deed to become Protected.

Discharge on composition is an inherently sensible and equitable remedy that debtors can use, with the agreement of their creditors, when the circumstances of a case make it advisable.




Trading Places (with Mike Dailly)

Trading Places (with Mike Dailly)

Mike Dailly, Govan Law Centre’s Principal Solicitor’s, decision to come out in support of the SNP and Scottish Independence has been a painful decision for him (see here). Its clear his heart has been torn over how to move forward after the Brexit vote.

The irony of this, for me, is during the 2014 referendum when Mike was a staunch no supporter, I supported yes. A position that has now been reversed. I had many passionate discussions with him during that time, and for a while we may even have fallen out: a common enough consequence of the referendum for many people.

So how does someone go from being in the Yes camp to the No Camp? Especially considering the direction of travel for many people appears to be in the other direction?

For me, I was never a nationalist: my support for independence over two decades grew out of the democratic deficit of the 1980’s and 1990’s: the poll tax campaigns, the anti-nuclear campaigns and the complete despondency that descended over Scotland in 1992 when John Major won the general election.

The question for me has always been what is best for the people of Scotland? I am no longer convinced that a sharp exit from the EU and the UK (which appears to be the only likely scenario if we get independence) would be good for the Scottish people. Everyone speaks of the difficulties we will face, the short-term hardships: but the truth is no-one knows how long that will last and for the most vulnerable, those hardships are likely to be severe.

Speaking in July 2016, the SNP’s MP George Kerechan said that independence would result in five years of painful cuts, as the Scottish Government in a bid to reassure foreign exchange markets, would have to “cut its budget coat to fits its fiscal means”. These are cuts likely to fall across the board and will impact on the NHS, the Welfare State and Education, as they are some of the largest areas of expenditure the Scottish Government has.

In August 2016, writing in the Herald, Kenny MacAskill, the former Justice Minister, picked up this theme, which seems to be intended to change the tone of any future Independence Referendum from one of the optimism of the 2014 referendum, to one that will prepare Scottish voters for a more austere future. He wrote of how there would need to be a price of being Scottish, of higher taxes and compared an independent Scotland to the Irish Free State.

Having worked in 2015 in Ireland as a Personal Insolvency Practitioner with clients struggling to deal with the historic debt that was left over from the Celtic Tiger years, I certainly know that price. Seven thousand in emergency accommodation, 100,000 on housing waiting lists and 35,000 with more than 2 years’ mortgage arrears. It’s a price that Irish citizens have been paying ever since gaining independence, or as David McWilliams, the economist, explained writing in the Irish Independent (15/1/2017), prior to opening up and joining the European Community, by the 1950’s, the Irish Free State was effectively bankrupt and unable to look after its people, with more than 500,000 having to emigrate during that decade.

Unlike what David Davis said, Scotland’s best days may not still be to come.

The problem with Scottish Independence is it’s a bit like Brexit, we won’t know what we have got until after the vote. The Yes campaign will tell us that will be for us to decide post indy, by picking the Government of our choice, but that is a bit naive.

The options open to any future Scottish Government will be decided largely by terms attached to how we get Independence and these will need to be negotiated. It’s completely possible we could win the political vote and lose the economic deal: not dissimilar to what happened in South Africa when apartheid ended. The ANC may be in power, but millions of black South African still live in adject poverty and are landless.

In an ideal world, the Scottish Government would have secured a mandate for Independence either before or shortly after Article 50 was invoked. That way it may have been possible to negotiate staying in the EU, whilst the rest of the UK was negotiating to get out, forcing them to negotiate Scotland’s exit from the UK at the same time. However, with Nicola Sturgeon having ruled out another independence referendum for 2017, that is no longer likely. Instead it’s likely to be in 2018 as the true impact of Brexit become clear, and people begin fearing for the future. I doubt this will lead to a Yes vote as many leading the Yes campaign hope.

If anything is to be learned from 2014, people won’t vote for independence when they fear the future, which is why campaign fear was so successful. If there is any chance of a Yes vote, the Scottish Government need to begin using its existing powers to protect people and begin insulating them from the caustic and withering winds that will blow across Scotland post Brexit and independence.

A radical programme over the next 2 years of progressive reforms and increased protections for Scottish residents, is only that could give people the confidence that going it alone is possible. Like everything in politics, timing is vital. A Scotland that had obtained it’s Independence in the 1970s, may now have founded itself in the strong position Norway does, but that boat has sailed; a Scotland that become independent as it drops out the EU and UK could easily suffer serious economic damage and lead to lost generations of growth and opportunities.

After the last credit crunch the Scottish Government established a Debt Action Forum that led to the Home Owner and Debtor Protection (Scotland) Act 2010 being introduced which gave added protection to home owners. It was essentially responding to fears that there could be a massive surge in repossessions, similar to what happened in the early 1990s.

It is now time to get ahead of the curve and begin building the levys that are going to be necessary to protect Scotland’s vulnerable. In my own area of expertise, this could include increasing protections so debtors who suffer hardship, don’t lose their homes when they become bankrupt. The reforms would need to cover housing generally, particularly private tenancies, local taxation, income taxation and protecting front line services.

As a strong proponent of using the existing powers of the Scottish Parliament to their maximum, I hope Mike Dailly can influence the SNP in this direction.

This is not a time for timidity.