The Law on Protected Trust Deeds and Successful PPI Claims
Whilst we have all heard the adverts for such claims or received calls from claims companies offering to assist us, those of us who are fortunate enough to succeed in a claim may not always recoup the sums awarded.
Many people who signed up for payment protection insurance (PPI) did so through punitive bank or credit card loans whilst anxious to prevent bankruptcy. Such vulnerable individuals were often mis-sold these PPI policies and, as their debts then spiralled, they found themselves again on the brink of insolvency.
Within Scotland, persons who wish to avoid being declared bankrupt can enter into a Protected Trust Deed (PTD). This is a status less drastic than bankruptcy and, with the benefit of the insolvency practitioner appointed under the PTD, there is scope for the debtor to offer his creditors some form of repayment plan. The PTD is a voluntary process as opposed to bankruptcy, where all control is taken away from the debtor and placed within the hands of his trustee.
Since many PPI claims take several years to resolve, and banks have often been subject to criticism here, this does create difficulties where both the trustee and the individual debtor wish to conclude a PTD and move on.
What therefore happens when, following the discharging of a debtor from a PTD, a payment is then received in respect of a PPI claim?
On one view, if the PTD has been concluded and the trustee has signed off from his duties as having made a “final distribution”, any subsequent funds received should simply be paid to the individual debtor.
On the other, the bank who pays out the PPI claim is often the same party who is due substantial sums within the PTD arrangement. Why should they not be entitled to set-off the one against the other? In not being allowed to do so, the banks have indeed challenged this as being unfair, particularly since the sums due under the claim clearly relate to an earlier period when the PTD was in place.
In the recent case of Donnelly -v- The Royal Bank of Scotland, which was decided by the Sheriff Appeal Court, the Sheriff at first instance permitted that RBS were entitled to set-off sums received under a PPI claim against the balance of outstanding debts owed to them by the debtor. Importantly, these debts had been submitted by RBS to the trustee during the period of operation of same.
At appeal, this set-off approach has been brought into question and, although not wholly clear how it may be further interpreted going forward, it lends support to an earlier decision of Lord Jones in Dooneen Limited and Another -v- David Mond. In that decision, the Lord Ordinary concluded that, once a trustee had stepped out from his duties, he had effectively left office and any sums which then vested with the debtor could not then be brought back under the auspices of the PTD.
With there being many thousands of PTDs in existence in Scotland, many of which involve debtors with potential PPI claims, the issues here are significant, particularly for the banks.
It remains to be seen whether the banks will appeal this decision involving Donnelly, although standing the future sums and issues at stake, this would seem most likely. A balance requires to be struck between the rights of the banks, who may on one level have mis-sold PPI policies, but are on the other due sizeable sums of monies from debtors, with the rights of the debtors who wish to re-build their lives and are prevented from doing so until such time as their PTDs are concluded.
One obvious resolution for any debtor making a PPI claim is to confirm before doing so whether their PTD has been concluded or to raise the issue and receive assurance from their trustee before embarking on any claim process. If so, that may then allow for PPI payments to be paid directly to the debtor and therefore without the involvement of the trustee.
This is a complicated area of law and one where careful advice should be taken. For more information, please contact Martin Sinclair or call 01224 632464.