Moveables report seeks to open way to business finance

Scottish businesses would find it easier to raise finance against their moveable assets under law reform proposeals published today by the Scottish Law Commission.

The Commission's Report on Moveable Transactions is the culmination of one of the most complex projects it has ever undertaken. Current Scottish law on using moveable property as security is badly outdated, unclear and unduly restrictive, and inhibits economic growth by making it harder for entrepreneurs to get the finance they need.

Businesses can raise money by, for example, selling to a bank their customer invoices for the bank to collect, or borrowing against the security of tangible assets such as equipment and vehicles, or intangible assets such as patents and other intellectual property. 

Under the present law, however, every individual customer must be notified if the transfer of a right to collect invoices is to be effective, and such intimation cannot operate for future claims. Unless the debtor operates as a company and can grant a floating charge, incorporeal moveable property has to be transferred into the name of the creditor for a security to be effective, and corporeal property has to be delivered to the creditor, which is commercially impractical.

After wide consultation, the Commission's main recommendations, which have already attracted strong support, are:

Claims to payment can transfer by registration of the assignation in a new Register of Assignations, to be kept electronically by Registers of Scotland. Such claims can continue to transfer by intimation of an assignation, but now with clear modern rules on electronic intimation.

A new security (a “statutory pledge”) over corporeal moveables can be created by registration of the pledge in a new Register of Statutory Pledges, without the need for delivery or transfer of the asset.

The statutory pledge would also be available in respect of certain types of incorporeal moveable property, initially intellectual property and financial instruments, with power to the Scottish ministers in future to extend it to other incorporeals. While primarily aimed at businesses, the statutory pledge could be used by consumers to raise finance against assets they already own (above a certain value) where hire-purchase is not available.

Dr Andrew Steven, the lead Commissioner on the project, commented:

“Modern and effective moveable transactions laws have been shown internationally to have significant economic benefits for countries which adopt them. Current Scottish law here is woefully inadequate. It rests on Victorian legislation and disparate court decisions. There are many gaps and uncertainties. Scotland has fallen considerably behind modern international standards in this area. Our recommendations provide for a new statutory scheme fit for the needs of business in Scotland in the 21st century.”

Click here to access the report. A feature on the report will be published in the January Journal.