Protected Trust Deed

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The Protected Trust Deed (PTD) is a formal arrangement that is used in Scotland where a consumer debtor grants a ‘deed’ in favour of the trustee which transfers their assets to the trustee for the benefit of creditors.

Provided certain conditions are met, the Trust Deed may be registered as “protected”, thereby preventing creditors from petitioning for the debtor’s sequestration.

The main advantage of entering into a trust deed are that it takes the pressure off as all correspondence and the Trustee will handle all of the communications from a persons creditors.

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.

Creditors have 5 weeks to object to a trust deed becoming protected. As long as fewer than the majority of creditors in number or creditors representing not more than a third of the value of all the debts do not object, the trust deed becomes protected.

Upon completion of the 36 month period and assuming all aspects of dealing with the debtor’s assets are complete, the debtor will adjudicate on creditor claims and then proportionally distribute the remainder of the ingathered funds to the creditors. The debtor will then receive a letter of discharge.

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.

In England, Northern Ireland and Wales there is a similar alternative to bankruptcy called an Individual Voluntary Arrangement (IVA).

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