It’s common for company directors and the self-employed to use personal credit resources to fund their businesses. As our banks are barely lending to businesses, this type of funding has become increasingly common. In this article we look at the options for directors and the self-employed, who reside in Scotland, in the event that they can no longer service their personal credit commitments. In particular we look at the option of a Scottish trust deed in such circumstances.
Scottish trust deed advisers are often asked by company directors whether their directorship will be jeopardised if they enter into a protected trust deed. Thankfully the answer is that there is no rule associated with a trust deed which dictates that a director cannot continue in his or her role.
The key piece of advice is that, prior to signing the trust deed, the director should check the articles of association of their company and any also personal contract they have the company. Assuming that these don’t raise a problem, there should be no obstacle to beginning a Scottish trust deed.
In common with a trust deed, the debt arrangement scheme is unlikely to be a problem in respect of directorships. However, directors must be aware that they will not be able to continue in this position should they enter into sequestration (bankruptcy).
Banking arrangements during protected trust deeds are also a concern for businesses. Sole traders entering a trust deed in Scotland will need to confirm that their business banking arrangements do not overlap with their personal debts. For example, if you have a Bank of Scotland credit card which is going into your trust deed you will not wish to carry on utilising a Bank of Scotland sole trader business account. If you do you will be risking massive disruption from the account being closed or funds being seized from it. Moving business bank accounts in advance of a trust deed might be necessary.
Directors of limited companies should be thoughtful about business banking arrangements during a Scottish trust deed as well. If you are closely personally associated with your business by your bank, and in particular if your business is using credit facilities, your business banking may be disrupted if you personally owe the bank money which then becomes subject to a trust deed.
Owner-managers of limited companies, and sole traders, commonly have quite variable income levels. This is a subject that should be discussed with your trust deed adviser in details before you ever sign the trust deed documentation. They will want to review your previous trading history and forward projections. The idea is to set your monthly trust deed payment at a level which you will be able to sustain and which will also be acceptable to your creditors.
Not all trust deed Scotland advisers will have significant experience of working with sole traders or owner-manager company directors. It’s suggested that you try to locate a smaller trust deeds firm that will support you with access to their more senior members of staff. A protected trust deed may well turn out to be an appropriate way for you to deal with personal debts that you cannot afford, but your circumstances and needs will be much more complex than is the case for someone in regular employment.