The Scottish Government

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Oversight and audit

5.1 The Executive considers that a number of reforms are needed in order for the administration of protected trust deeds to be better regulated:

• There should be a duty on the trustee to keep good records of the business of the trust;
• There should be more information in the statement of the debtor's affairs;
• There should be better oversight of the fees and outlays in a trust;
• There should be better oversight of the amount to be paid to creditors;
• The Accountant in Bankruptcy should have power to direct the trustee;
• The Accountant in Bankruptcy should have discretion to charge the trustee rather than the trust for any audit; and
• The discharge of the trustee by the creditors should not be delayed unduly.

Good record keeping

5.2 Good record keeping is needed to enable proper oversight of protected trust deeds, and in particular to enable a thorough audit when appropriate. The Executive therefore considers that there should be a more formal method of recording decisions and transactions during the life of the protected trust, similar to the sederunt ¹⁵ book currently used in a sequestration. Annex A lists the documents that will be kept, and produced to the Accountant in Bankruptcy on request.

Statement of affairs

5.3 The trustee prepares a statement of the debtor's affairs, and this will be seen both by the creditors and the Accountant in Bankruptcy. It is important therefore that the statement presents a complete picture of the debtor's finances, and there has been criticism that in some cases the expected level of dividend suggested to creditors is unrealistic. The Executive considers that the statement of affairs should include (where appropriate) a calculation of the debtor's surplus income and the weekly/monthly contribution that is offered by the debtor.

Review of fees and outlays

5.4 The Executive accepts that in some cases it may be reasonable to pay a trustee more than the estimated amount of fees and outlays. However, the trustee should be aware of this possibility. The Executive considers that it is reasonable to require the trustee to inform the debtor, creditors and Accountant in Bankruptcy if the expected fees and outlays will exceed the estimate by more than a specified amount. This will enable those with an interest to make an informed choice about further action.

5.5 The Executive considers that the trustee should inform all those concerned if the expected fees and outlays will exceed the estimate by 25% or more. The Executive would welcome views on whether or not that 'trigger' percentage is reasonable. The trustee can of course offer an explanation for why the fees and outlays will be more than expected. Intimation will, however, enable the Accountant in Bankruptcy to examine documents or audit the trust deed, either on her own initiative or by request.

5.6 The Executive has considered what kind of sanction there should be if a trustee were to fail in this new duty. The Executive considers that it is reasonable to leave it to the Accountant in Bankruptcy to deal with any default by disallowing fees and outlays in any case where that is appropriate, and that no further sanction is needed at this time.

Review of amount to be paid to creditors

5.7 The Executive considers that the issues discussed in paragraphs 5.4 to 5.6 for fees and outlays apply equally to the expected dividend for the creditors. For example, property could be lost or payments from the debtor stop. The trustee will also be required to inform the debtor, creditors and Accountant in Bankruptcy if there is a significant change in the amount expected to be paid to the creditors.

5.8 The Executive considers that the trustee should inform all interested parties if the payment is expected to be 75% or less of the original figure. If the payment threshold is 30 pence in the pound the trustee would need to inform those parties if the expected payment falls to 22.5 pence in the pound or less.

Directions to the trustee

5.9 Section 21 of the Bill gives the Accountant in Bankruptcy a new supervisory power over trustees in protected trust deeds. Section 18 of the Bill gives Scottish Ministers power to make regulations making provision relating to the administration of trusts. The Scottish Executive considers that in order to give 'teeth' to the general supervisory power the regulations should give the Accountant in Bankruptcy powers:

• To give directions to the trustee in respect of the administration of a protected trust;
• Where a trustee fails to act on a direction, to require that trustee to resign in favour of any available replacement trustee; and
• If needs be, to revoke the protected status of a trust.

5.10 A direction might include:

• To seek the sale of land or buildings;
• To obtain specific information from the debtor; or
• To seek the sequestration of a debtor who is failing to comply with the terms of the trust deed.

A direction would not cover fees or outlays due to the trustee, as that will be covered by the separate audit rules.

5.11 In the event that the Accountant in Bankruptcy revokes the protected status of a trust, then the debtor should have the same right to cancel the trust as is set out in paragraphs 4.35 to 4.37.

Audit fee

5.12 At present, protected trust deeds are only audited on request. The Accountant in Bankruptcy's charge for such an audit is 5% of the fees and outlays found due to the trustee. The fee is paid by the trust rather than the trustee.

5.13 The Scottish Executive expects that the audit fee will remain the same for a compulsory audit, although this is a matter which should be left to the discretion of the Accountant in Bankruptcy. However, the Executive considers that the Accountant in Bankruptcy should have discretion to direct the trustee to pay the fee rather than the trust ( i.e. the creditors).

Discharge of trustee

5.14 The Scottish Executive considers that the trustee should seek his or her discharge from the creditors as soon as reasonably practicable after the administration is complete, and any final dividend is paid. This will encourage efficient administration of the protected trust.

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