Chamber and committees

Yes. I will to come on to that later in my remarks. We propose, through amendments, to increase the threshold to £3,000 and for regulation-making powers to allow for that figure to be increased subsequently.

I will pick up from where I was in my remarks prior to taking that intervention, when I was discussing charities and unincorporated organisations. We think it important that such bodies in the form of, for example, sporting clubs, should be able to raise finance on the strength of their own assets. I wanted to ensure that that was on the record.

For a corporeal asset to be pledged by a relevant individual, that asset will also need to be worth a certain amount. That rule previously applied only to individual consumers, but it will now be a rule for sole traders and the other narrow categories of individual who are to be allowed to grant a statutory pledge. It provides added protection on top of the rule that assets need to be of a certain type—essentially, a business asset. The Government has also accepted the committee’s recommendation that the threshold should be raised to £3,000. It can also be raised in future by regulations. That, coupled with the rule about how the asset is owned or used, effectively means that household goods cannot be pledged. As we did previously with consumers, we have taken a power to specify particular assets that cannot be pledged. Although we do not expect to need to use it, it would allow us to plug any gaps were they to arise.

In its stage 1 report, the committee recommended that the Government should consider

“creating more protections in the Bill for sole traders”,

since, in many cases, they will be in a similar position to individual consumers.

I consulted the Federation of Small Businesses on that point. Its view was that no specific protections were required for sole traders, who should be treated as adults in the business world.

However, the Government has lodged amendment 20, which provides that a court order will be required if a pledge is to be enforced against a sole trader. The FSB has indicated that it thinks that that is a useful protection. Sole traders are also protected by amendment 16, of course, in that they are not allowed to pledge assets that are unrelated to their business or that fall beneath the £3,000 threshold, so they will not be able to pledge essential items that are in their home.

Amendments 14, 15, 18, 19, 22 and 38 are consequential amendments that reflect the removal of section 48 and the removal of the ability of individual consumers to grant a statutory pledge.

Amendment 37 adds amendment 16’s new regulation-making power to the list of delegated powers that will be subject to the affirmative procedure.

I turn to Carol Mochan’s amendments. Amendment 16A would exclude from permitted assets household goods that are essential for heating, cooking or laundry purposes, so that it would not be possible to use such items as collateral for a loan under a statutory pledge. That applies only to those such as sole traders who are able to grant a statutory pledge under amendment 16, not the general population.

In our view, the proposed monetary threshold of £3,000 would cover all goods that are used for heating, cooking or laundry purposes in a home, and it is therefore unnecessary to make special provision for those. It also seems very unlikely that any prospective creditor would lend on the basis of such collateral, or that assets that are used for those purposes in a home would meet the business purposes element of the permitted assets test.

The tests that are already applied are designed precisely to exclude ordinary household goods. Adding a further rule may result in complexity and unintended consequences—for example, it might prevent a sole trader who provides cooker installations from granting a pledge over their business stock.

We have the power to carve out further things from the definition of permitted assets, if we need to do so in the future, but we do not want to unnecessarily overcomplicate matters and potentially create a situation in which unintended consequences could arise.

On amendment 16B, I appreciate it may seem a good idea to provide that the monetary limit for the value of property to be pledged be subject to annual update in line with the retail prices index, but that is unnecessary. In the past few years, prior to the recent surge, inflation has been relatively low, and the current figure is expected to fall.

The threshold is already being increased to £3,000. That is ample for excluding household white goods and similar, and there is a power for the threshold to be increased further, as and when appropriate.

It is worth bearing in mind that that figure is not the only means of ensuring that ordinary household items are not pledged. A sole trader would have to be acting in the course of their business, and the asset would have to be one that was used wholly or mainly for the purposes of the business. The threshold is therefore less critical than it was when it was applicable to—and only to—ordinary consumers.

Amendment 16B does not provide for the threshold to be changed on the face of the act—which, we believe, would lead to significant confusion. However, to amend the figure in the act would mean that the regulations would have to be made annually. Since any rise is likely to be of a negligible order, we do not believe that that is the best use of parliamentary time. It would be more efficient simply to update the figure every few years, taking into account the level of inflation that is prevalent at the time. The figure in the act may have to be amended more often if inflation is higher, but less often if it is lower. Therefore, a set period for amendments does not seem appropriate. For all those reasons, I ask Carol Mochan not to move her amendments.

I move amendment 14.

I note that Jeremy Balfour’s amendments 64 and 81 will exempt not-for-profit money advisers from the fee structure that will apply to searches of the assignations record and the statutory pledges record in cases in which those advisers do not charge individuals for their services. I appreciate that that takes forward a recommendation to that effect from the committee’s stage 1 report, but that report was written at a time when the bill would have allowed individual consumers to grant a pledge.

The committee will be aware that I set out the Scottish Government’s position in two letters, and I am happy to reiterate that position now. The Scottish ministers are in consultation with the keeper of the registers of Scotland, who is empowered by section 110 of the Land Registration etc (Scotland) Act 2012 to set the level of fees that applies to cover the costs of maintaining and operating the registers that are under the keeper’s control. Any proposal to exempt any class or group of persons from the fee structure will mean that the costs will need to be met from elsewhere, either by passing them on to other users of the registers—which I think we can all agree would be unfair—or by those costs being met from the public purse. That should be given very careful consideration, given the current budgetary pressures that we face.

Amendment 1 is a technical amendment that relates to the possibility that there could be competing assignation documents in relation to the same claim. In most cases, the claim would transfer to whichever assignee first benefited from intimation or registration of the assignation document, because that will usually be the final requirement to be met under section 3(2) and so will give rise to the transfer. However, in some cases, it might not be the final requirement to be satisfied.

Amendment 1 deals with the scenario in which the final requirement to be met is the claim becoming identifiable. That might happen if it is a future claim. Amendment 1 provides that, if the final requirement for transfer is met when the claim becomes identifiable as one that is covered by the assignation, the claim transfers to the person who first benefited from registration or intimation in their favour.

Although it should be very unusual for the same claim to be assigned by one person to different people, amendment 1 would ensure clarity by breaking what would otherwise have been a tie. It would also ensure that section 3(5)(c) deals consistently with all the possible ways in which a tie could arise.

Amendments 2 and 3 are technical amendments that relate to the possibility that a claim might be assigned in whole or in part. Although assignation in part is likely to be rare, it is still important that a suitable provision is made for it.

Amendment 2 would have two effects. First, it would provide that what matters is whether it is likely that assignation will make the obligation more burdensome on a debtor, and the question whether the claim can be assigned in part will therefore be assessed when the assignation is made, rather than it potentially appearing to be valid at the time but becoming challengeable when unforeseen events occur later.

Secondly, at the moment, section 5 provides that the requirement for a claim to be divisible in order to be partially assigned applies only where the debtor does not consent to partial assignation. However, a claim that is not divisible cannot be assigned in part. Amendment 2 therefore makes it clear that the requirement for divisibility applies whether or not the debtor consents.

Amendment 3 provides that an agreement about any expense that is attributable as a result of a claim being assigned in part rather than as a whole may be made with the assigner or with the person who was a holder of the claim at the time of agreeing it. That simply recognises that an agreement with a previous holder is valid and that matters do not have to be renegotiated every time that the holder changes.

On amendment 9, it has been suggested that it should be competent to register an assignation document that assigns different claims to different people. The intention would be to restrict the associated application for registration to only the claims that are relevant to the particular assignee in question, and amendment 9 would provide for that.

Amendment 12 would remove section 38, which would disapply the Transmission of Moveable Property (Scotland) Act 1862 in relation to assignations to which part 1 of the bill applies. It would replace it with a section that would repeal the 1862 act in its entirety. That is because, following discussions with the SLC advisory group, we have satisfied ourselves that there is no purpose for which we would want to preserve the 1862 act, even if assignations of financial collateral arrangements were not brought into the bill by a section 104 order, as we expect them to be.

On amendment 61, in the name of Mr Balfour, I understand that the Law Society of Scotland believes that the question of how long a notice should take to be deemed to have arrived ought to be subject to a determination as to the method of service under section 8(6). Our understanding is that amendment 61 is intended to achieve that; unfortunately, however, it does not work and is unnecessary. If someone tries to intimate using a method of service that is not allowed under a determination entered into by the parties, it will not, under section 8(6)(a), be a valid intimation. As such, it is irrelevant when the notice is taken to arrive under section 8(9), because it will not achieve anything.

If someone tries to intimate by post in a case where a particular postal address has been agreed between the parties under the determination, intimation to a different address will be invalid, because of section 8(5)(b). Again, it will be irrelevant when the notice to the wrong address is taken to arrive, because it will not achieve anything.

If someone intimates by post to the address that has been agreed between the parties under the determination, the rule on when it is deemed to arrive under section 8(9) already applies. Indeed, section 8(9)(a) includes an express reference to the fact that the relevant address might have been modified by the parties under subsection (6)(b). Amendment 61 is therefore unnecessary and will simply confuse matters, and I ask Mr Balfour not to move it.

Mr Balfour’s amendment 65, which was also suggested by the Law Society, would mean that those acting in the place of assignees such as trustees and agents would be included in the definition of “assignee”. The Government does not believe that that is necessary. Legislation does not normally deal expressly with trustees and agents, given that the general law deals suitably with such aspects, and it would be cumbersome always to have to mention every possible representative capacity in which a person could act. In this case, however, we already have a provision under section 116(2) that explicitly provides that someone who is required to do a thing can have someone else do it for them. I therefore ask Mr Balfour not to move this amendment on the basis that it is unnecessary.

I move amendment 1.

I recognise the point that Mr Balfour makes and the original intention behind Ms Mochan’s amendment. The Government has regular dialogue with a range of business representative organisations, and there is regular dialogue and engagement at ministerial level, so should any issues arise, there would be an opportunity in the first instance for that direct communication to the Government and, as a consequence of that direct engagement, the Government could consider whether any review or further action was required.

Beyond that, Parliament has a very important role to play. All ministers are accountable to Parliament and are subject to questions by other parliamentarians and by committees. Should concerns arise, there are avenues through direct engagement with the Government from representative organisations or through the activities of parliamentarians holding the Government to account for concerns to be flagged and for any review to be undertaken. I add that it would not be only for the Government to have that opportunity, should it be required; Parliament, at any time and in any capacity, via committees or otherwise, can choose to instigate a review of any piece of legislation. That is routine and good practice.

In light of the continued close engagement that takes place between the Government and business and the fact that ministers and the Government are held to account by Parliament, which provides an opportunity for questions and updates on how the provisions of the bill operate in practice, I ask Ms Mochan not to press her amendments.

The Government amendments are intended to respond to criticism of the effect of section 13 from stakeholders and practitioners in the field in relation to rights of compensation and other similar rights that the debtor may have against the assignor. Amendments 5, 6 and 7 respond to concerns of members of the Scottish Law Commission’s advisory group on moveable transactions that relate to the impact of the provision on compensation, set-off, retention, balancing of accounts or counterclaims, rather than on defences.

Amendments 5 and 6 remove wording that it was considered might not exactly replicate the existing common-law rule whereby a debtor can, after the claim is assigned, assert a right of compensation, set-off and so on that the debtor had against the assignor against the assignee.

Those provisions are replaced by amendment 7, which is intended to preserve the current position, in which notice of the assignation is intimated but has the effect of ensuring that the registration of an assignation is not to be treated in the same way as intimation. Whereas giving notice of intimation of the assignation would have the effect that subsequent dealings between the assignor and the debtor would not be included in any calculation of compensation and so on that the debtor could not assert against the assignee, registration is not to have that effect, unless accompanied by other actings, which would be treated as notice to the debtor that the claim had been assigned.

Given the progress that we are making with a section 104 order, which will ultimately ensure that the bill achieves the effect that the SLC intended for it to achieve, and given that we look for those provisions to come into effect when the registers go live, the approach that we have set out in the bill is sufficient to meet the SLC’s objectives.

I recognise that there is a keen interest in ensuring that the provisions come online and understand the desire to seek any compromise options. However, given that the registers will—we hope—commence next summer, subject to Parliament agreeing to the bill at stage 3, I ask Jeremy Balfour not to press the amendments.

Amendments 62 and 63, in the name of Jeremy Balfour, were included in the written evidence from the Law Society of Scotland to the committee during stage 1 of the bill. I understand that the Law Society’s view was that, if the assignee can demonstrate that the processes for intimation have been complied with, the onus should be on the debtor to demonstrate that they were acting in good faith.

The amendments remove protection for a debtor who would have been able to rely on the provisions in section 10. Under the current law, a claim would transfer only if the assignation was intimated to the debtor. However, the effect of the changes in the bill is to extend the scope of intimation and to enable registration as a method of effecting the transfer of a claim. That being the case, the debtor might not know that a claim has been assigned and might in good faith pay an assignor who is no longer the creditor. The onus is placed on the person making the assertion that a debtor has performed other than in good faith. Whether or not a debtor has performed in good faith will depend on the facts of the case.

It is my view that the amendments do not take into account the extension to the scope of intimation and that, in reversing the burden of proof, the amendments would be unfair to the debtor. How could a debtor prove a negative? That is in effect what a debtor would be required to do if they had not, in fact, received notification, even though they might be deemed to have done so. The person intimating the assignation could choose to do so in a way that allows for delivery to be recorded, and therefore gives evidence of delivery, whereas the debtor would have no control over that. For that reason, I ask the member to withdraw amendment 62 and not to move amendment 63.

The new section that is introduced by amendment 4 would provide further protection for a debtor performing in good faith, both where the debtor is unaware of a condition pertaining to the assignation of a claim and where the debtor is aware of the condition but mistakenly thinks that it has been met and performs to the assignee. The claim will not have transferred because the condition has not been satisfied, but, in the circumstances that I have described, which mean that the debtor performs to the assignee, the debtor will be discharged from the claim to the extent of that performance because they will have acted in good faith.

Section 14 applies where notice of an assignation document has been given to a debtor by the assignee, rather than by the assignor. It has the effect that the debtor may request from the assignee reasonable evidence of the assignation document having been granted. Where an assignation document has been granted, the debtor will be entitled to withhold performance from each of the assignor and the assignee until the evidence is provided by the assignee. Where an assignation document has not been granted, the debtor will be entitled to withhold performance until either the purported assignee, or the purported assignor, confirms in writing that an assignation document has not been granted in respect of the claim.

Section 14 also allows a debtor who has not received intimation of an assignation but becomes aware that an assignation document may have been granted, to ask a purported assignor to confirm whether that is the case, and to withhold performance until they receive that confirmation.

Amendment 8 makes it clear that, if the debtor is a co-debtor, and if only one co-debtor makes a request for information, the protection that is given by section 14 to withhold information until the evidence is provided is available only to the co-debtor who made the request and not to other co-debtors. The other co-debtors are likely to be unaware of the request for information, so it follows that their obligation should not also be suspended.

Section 105 makes it clear that a person entered into the register as the secured creditor in respect of a statutory pledge should be obliged to respond to a request for certain information about that pledge. Section 105(1)(a) sets out that the information to be provided in response to a request will vary, depending on the facts. If the person is the secured creditor, they can be asked, first, to specify whether property specified in the request is encumbered property and, secondly, to describe the secured obligation. If the person registered as a creditor is no longer or has never been the secured creditor, they must provide information to that effect and, if relevant, details of the person to whom they assigned the pledge and any further known details of subsequent assignees.

Section 105(1)(a)(ii) provides that the secured creditor should also provide a description of the secured obligation. However, the committee has received representations to the effect that it is not clear why a secured creditor should disclose the nature or extent of the secured obligation to anyone other than the provider of the pledge, who will have that information anyway. We understand that that disclosure requirement does not arise in relation to other types of security interest, so it is felt that there ought to be a limit to what information an entitled person should be permitted to obtain, pursuant to section 105, given that they will obtain confirmation of whether the relevant property comprises encumbered property under section 105(1)(a)(i), which is what should be important.

The deletion of section 105(1)(a)(ii), as provided under amendment 32, will remove the requirement to provide details of the secured obligation. Amendments 31 and 33 are consequential on that change.

Amendments 10 and 34 deal with a different aspect of information requests. If an entitled person does not receive a response to a request for information about a statutory pledge, they can apply to the court in respect of that failure under section 105(6). Amendment 34 simply permits a court to stipulate a period other than 14 days to require a secured creditor to respond to a request for information under a court order, although 14 days will remain the default period.

Amendment 10 makes a similar change in relation to section 34, under which an entitled person may ask a person identified in the assignations record as the assignee for information on whether a claim has been assigned or whether a condition has been satisfied. If the request is not complied with, the court may order a response.

I move amendment 10.

Amendment 10 agreed to.

Section 34, as amended, agreed to.

Section 35—Liability of Keeper

I have nothing further to add.

Amendment 13 agreed to.

Section 42, as amended, agreed to.

Section 43—Constitutive document

Amendment 13 relates to section 42 of the bill, which reforms and codifies the law on the delivery of property to a secure creditor for the purpose of creating a possessory pledge. In relation to section 42(1)(c), it had been thought that it would be necessary to provide that a person who is holding property on behalf of a creditor should be a fully independent third party. However, representations were made to the committee that that might not always be possible or desirable.

We understand that delivery of warehouse goods is sometimes effected for the purposes of creating a pledge by instructing the custodian to hold the goods for the pledge when the custodian is a sister company of the pledger, on the basis that the pledger does not control the custodian. Reference to such custodians as being independent of the pledge provider appears to eliminate the current option and might require increased custody costs to be incurred by the pledge provider. Amendment 13 therefore simply removes the requirement for the holder of the property to be fully independent.

Amendment 21 makes a minor change to the position where a secured creditor wishes to purchase all or any of the property that is the subject of a pledge enforcement notice. That already has to happen by means of a public auction. However, instead of the price having to bear a reasonable relationship to market value, it will now have to be that price or more. That will allow a secured creditor to purchase something at above market value, if they wish to do so.

Amendment 27 tweaks the effect of section 92(6) of the bill, which deals with whether an entry in the statutory pledges record would be considered to be seriously misleading in relation to the description of property that is encumbered by a statutory pledge. The amendment is technical and is intended to remove any doubt that if it is not quite clear whether property is of one type or another, it may be described as two different types of property.

At present, the registration would be ineffective if the view was taken that one of those descriptions was erroneous. The amendment will ensure that the registration would be effective, so long as the property is described

“as being of a type that it is”.

A search of either type would disclose the property.

Amendment 29 relates to the procedures around correction of the register of statutory pledges in a case where the registered creditor has failed to comply with a demand for correction from a person with an interest in the pledge. The amendment relates to the right of a secured creditor to object to a proposed correction under section 97(4).

It may be that, in some rare cases, the party who is the registered secured creditor may not actually be the secured creditor, due to an error or an off-register assignation. It would seem appropriate that the true secured creditor should be entitled to object to the proposed correction. The amendment therefore broadens the right to apply to the court to oppose the making of a correction to cover the actual secured creditor as well as the registered secured creditor. The amendment also makes provision for the registered creditor to pass on the notice of the proposed correction, subject to their being able to do so.

Amendments 39 and 41 respond to the committee’s comments on the delegated powers memorandum, and to the committee’s recommendation in its stage 1 report

“that the ... Government ... amend the Bill at Stage 2 to make regulations under section 53(8) subject to the affirmative”

resolution in all cases, so

“that there can be enhanced scrutiny of and proposal to specify the classes of motor vehicle that”

certain protections should

“not apply to.”

The committee recommended that the powers should be amended to be subject to affirmative procedure in all cases, and I am happy to comply with that request.

I turn to Mr Balfour’s amendments. I understand that amendment 79 is intended to clarify that only prior ranking diligence can extinguish a pledge. However, section 76, which this amendment seeks to amend, is not concerned with the ranking of such things; it is concerned only with when an application for correction must be made.

The level of description that is used there will have no effect on the law of the interaction of pledges and diligence. Indeed, I am concerned that amendment 79 could have the opposite effect from that which is intended, because it could be read as implying that only a particular type of diligence is to result in a correction but all diligence would extinguish the pledge. I therefore ask Mr Balfour not to move the amendment. If he has particular concerns about the general law in that area, I am happy to put those concerns to the SLC’s advisory group on his behalf.

Amendment 83 seeks to add trustees and agents to the definition of “secured creditor” in the bill. However, that definition already includes

“any successor in title, or representative, of a secured creditor”.

Further provision is made on representatives in section 116(2). As a result, we believe that amendment 83 is unnecessary and potentially confusing. I ask Mr Balfour not to move it, on the basis that the policy that I believe that these amendments are designed to achieve is already provided for.

I move amendment 13.

Amendment 53, in the name of Carol Mochan, and amendment 85, in the name of Jeremy Balfour, are, as Mr Balfour has acknowledged, almost identical in terms and would place a requirement on the Scottish ministers to undertake a review of the act and report on that review after the end of the review period, which would be three years after the legislation receives royal assent.

In addition, amendment 53 requires that the review places a particular emphasis on the impact of the statutory pledge provisions on sole traders and small businesses. I appreciate that those are based on a recommendation contained in the committee’s stage 1 report, although they have been modified slightly from the report’s proposal in order to reflect the removal of individual consumers from the statutory pledge provisions. I responded to the committee in writing back in December about that recommendation and it may be helpful if I restate my concerns about including such a requirement in the bill.

As I referred to earlier in relation to other amendments, there is nothing to stop either the Scottish Government or the Scottish Parliament from carrying out a review of any aspect of a piece of legislation at any time. That is, of course, a good thing. Undertaking such reviews, as and when the need for them becomes apparent, is, in my view, a more flexible and responsive approach.