Moveable Transactions (Scotland) Bill
The Bill aims to change the law in relation to two areas of moveable property:
- Assignation of claims – the transfer of a claim from one person to another
- Pledges – a type of security (usually for a loan)
The Bill is at Stage 1
“Moveable” property means property which can be physically moved (for example, cars, machinery and whisky barrels). It can, however, also mean intellectual property like patents and copyrights.
The Bill reforms two elements of the law on moveable property:
- the assignation of claims
- the law of pledges
“Assignation” of claims is the transfer of a claim from one person to another. A claim is most commonly the right to payment of a debt. For example, if someone has a right to be paid for goods or services, they can transfer that right to payment to another person.
A “pledge” is a type of security (usually for a loan) which is taken over moveable property. This works in a similar way to a mortgage on a house. In that case someone grants a loan but the lender has a security over the house in case the loan is not repaid. With a pledge, someone grants a loan and the lender has a security over a piece of moveable property in case the loan is not repaid.
Under the current law, an assignation can only be completed by letting the person who owes the debt know about the assignation (“intimation”). A pledge can only be granted under the current law by delivering the property that has been pledged to the person granting the loan.
The Bill changes this by creating two new registers:
- the Register of Assignations
- the Register of Statutory Pledges
The registers can be used to grant assignations of claims (as an alternative to intimating the assignation to the debtor) or statutory pledges over moveable property.
The Bill still allows intimation of an assignation of a claim. It will also still be possible to grant a pledge by delivery instead of registration (most commonly by a process referred to as “pawn”).
The Bill is based on a Scottish Law Commission (“SLC”) report and in particular the draft Bill prepared by the SLC (see volume 3).
Why the Bill was created
The Bill aims to modernise the law in the areas described in the overview.
The law at the moment is mostly non-statutory. This means the law is reliant on the precedent set in the outcomes of previous legal disputes, rather than legislation. The legislation that does exist is very old. The current law is considered outdated and too restrictive for the way businesses work in modern Scotland.
How would the Bill practically change assignation of claims?
The Bill will allow businesses to raise finance by assigning (that is, selling,) claims that they will have a right to, so that they get money from the person to whom the claim is assigned faster than would be the case if they waited until the claim was paid by the debtor.
For example, if a business does a lot of work in May that clients will pay for in June, that business still needs enough money in May to pay its expenses. The changes introduced in the Bill would allow the business to get money in May by assigning its claim for the money its customers owe in June, for example, to a bank.
If the business needs £1,000 to pay its expenses in May, a bank could lend the business that money in May. In return, the business would give the bank its right to be paid by its customers (who owe £1,000) in June. In June, the customers pay the bank instead of the business.
This will help businesses with cash-flow problems get money when they need it on the strength of money owed to them.
How would the Bill practically change pledges?
The Bill aims to offer more flexibility to raise finance.
For example, a business may need to borrow money and want to grant a pledge over its machinery to secure that loan.
Under the previous law, this could only be done by delivering that machinery to the person granting the loan. That does not work for many businesses who require the use of that machinery to keep operating.
The Bill allows the pledge to be granted without delivering the machinery. Instead the pledge is recorded in the new register. This means the business could keep operating the machinery as it needs to, but the person granting the loan still has a security over the machinery in case the business does not repay that loan.