Scottish Trust Deeds and the mandatory cooling-off period

Legislation

New legislation requires insolvency practitioners advising on a Trust Deed to provide the debtor with adequate time to think before entering a Trust Deed, a legally binding personal debt solution available in Scotland.

According to Section 167(5) of the Bankruptcy (Scotland) Act 2016, debtors must be given adequate time to consider advice and materials the Trustee provides before a trust deed is granted. This applies to Trust Deeds entered on or after 20 January 2025.

An adequate period is classed as a minimum of 3 calendar days from when the insolvency practitioner provides advice and supporting materials, excluding the day it is provided. The insolvency practitioner may consider a longer period if the individual’s circumstances necessitate, such as complex vulnerabilities. However, if a minimum cooling-off period of 3 working days is fulfilled, the requirements of Section 167(3) will have been met.

Background

While it has always been a requirement to provide reasonable thinking time to debtors by the Accountant in Bankruptcy, this now takes legislative effect. Insolvency practitioners advising clients on a Trust Deed must give a minimum cooling-off period of 3 days, as legislated by the Bankruptcy (Scotland) Act 2016.

The cooling-off period provides sufficient time for the debtor to review their options, consider alternative debt solutions, and seek further advice. The three-day period gives the debtor ample time to freely weigh their options without time restrictions. As a Trust Deed is a legally binding agreement, the debtor’s decision to enter a Trust Deed must be firm, which the three-day cooling-off period accounts for.

Impact on Trustees

Internal procedural changes must be made to reflect the legislative change. This may involve a strategy for communicating the message to relevant staff and updating internal systems by adding functionality to record the new 3-day requirement. These updates are essential to ensure the firm operates compliantly and that customer rights are observed.

As there is no statutory form of statement, the existing template statement used by insolvency practitioners throughout the Trust Deed process must be updated to record the mandatory cooling-off period. This is required for due diligence and evidence that the firm is procedurally sound. This also prompts internal staff to comply with procedures and adhere to the rule change.

The update to the Bankruptcy (Scotland) Act 2016 must be communicated to staff that advise on and administer Trust Deeds to ensure that they provide breathing space and protect debtor rights.  Staff training may also be required to ensure the new requirement is fulfilled.

Impact on Debtors

The new guidance protects debtors by giving them sufficient time and breathing space to digest professional advice, seek answers, consider alternatives and understand how a Trust Deed can help consolidate personal debts. The mandatory cooling-off period gives debtors peace of mind as they have the flexibility of time to think without undue pressure and urgency.

According to statistics published by the Accountant in Bankruptcy, there were 5,999 trust deeds registered in 2023-24. Trust Deeds are popular personal debt solutions in Scotland and have served a steadily rising number of debtors over the years, particularly since the coronavirus pandemic.

As a Trust Deed is legally binding, the exit process, should debtors change their mind, can be complex as creditor agreement may be required. If a debtor wishes to be discharged from a Trust Deed, however, creditors fail to vote in agreement, legal intervention may be required. The 3-day cooling off period limits such instances and provides debtors with a dedicated window to contemplate the complete picture.

Chelsea Williams, Trust Deed specialist at Scotland Debt Solutions