Chamber and committees

Amendments 54, 67 and 74, all in the name of Mr Balfour, come from a suggestion by the Law Society of Scotland that it would be helpful to replicate a provision at section 2(4) of the bill in respect of the assignation of a claim that is subject to a condition. That provision enables a condition to be specified by reference to another document.

The amendments would add the provision in respect of assignation documents, constitutive documents for pledges, and documents that amend pledges. We do not think that the amendments are strictly necessary. Section 2 of the bill is about the requirement to specify information. In contrast, the sections now being amended are just about the requirement to identify something. That much more readily admits to the idea of doing so by reference to an external document. However, if stakeholders consider that such a clarification would be helpful, we have no objections to making the necessary changes.

There are, however, some issues with the precise detail of the amendments. In particular, amendment 54 is technically defective. When read with section 1(2) of the bill, it provides that an assignation document must identify the claim, including by making reference to another document. That could be read as meaning that the assignation document must include reference to another document, which is not the intention.

The other technical difficulties with the amendments are that they refer to data as well as documents. That is unnecessary because of the definition of a document in the Interpretation and Legislative Reform (Scotland) Act 2010. Including it here but not in section 2(4) might also cause difficulties.

I am therefore happy to commit to working with Mr Balfour to lodge suitable amendments at stage 3, if he decides not to press his amendments today. Alternatively, if he wishes to press them, I am happy to support them on the understanding that they will need to be adjusted at stage 3.

I reiterate my sincere thanks to the committee for its input on this issue. I also put on record my sincere thanks to the money advice organisations and those in the small business community who have engaged on this. Clearly, the key challenge has been to get the balance right; I believe that the suite of amendments from the Government has achieved that balance. We are protecting individual consumers but not denying small businesses and sole traders the opportunity to utilise the provisions in the legislation. I know that that will be warmly welcomed.

I recognise the well-intentioned nature of Carol Mochan’s amendments, but I do not think that they are required. On the risk relating to household goods, as has been touched on, the existing provisions in the amendments effectively mean that household goods would not fall under the category of goods that could be used as collateral for a statutory pledge, owing to the fact that they are goods that are not predominantly used for business, and indeed are likely to be under the £3,000 monetary threshold.

I acknowledge the intent behind amendment 16B, which pertains to an annual increase in the monetary threshold, but a better approach would be to have greater flexibility. The way in which the amendment is drafted means that there would be no change on the face of the bill, which would necessitate complex calculations, unless ministers were to bring forward annual updates. However, as I outlined in my earlier remarks, such updates could be negligible, particularly as we move towards a period of lower inflation.

On that basis, I ask Carol Mochan not to move her amendments, and ask the committee to support my amendments.

Amendment 14 agreed to.

Amendment 15 moved—[Tom Arthur]—and agreed to.

Amendment 67 moved—[Jeremy Balfour]—and agreed to.

Section 43, as amended, agreed to.

After section 43

Amendment 16 moved—[Tom Arthur].

Amendment 16A not moved.

Amendment 16B moved—[Carol Mochan].

My amendments in this group give effect to the Scottish Government’s undertaking to remove the ability of individual consumers to grant a statutory pledge.

Amendment 17 will remove from the bill section 48, which allowed the provider of a statutory pledge to be an individual as long as the pledge met certain criteria.

Amendment 16 is the most important amendment in the group. It provides that it will not be competent for individuals to grant a statutory pledge unless the individual falls within a specified exception. The primary exception is where the

“individual is acting in the course of”

their own business and

“the encumbered property is a permitted asset”

that will be used

“wholly or mainly for the purposes of the individual’s business”.

The amendment will also permit individuals to grant a pledge if they are acting as a trustee of a charity or as a member of an unincorporated association. In such cases, a permitted asset would have to be an asset of the charity or owned on behalf of the unincorporated organisation.

This is a technical group of amendments relating to section 91 of the bill. A number of other sections of the bill protect good-faith purchasers more generally, but this section is concerned specifically with the situation in which people rely on the register but the register is wrong.

Section 91 provides that a person who acquires encumbered property for value in good faith and exercising reasonable care will acquire the property free from the pledge, in certain circumstances. Those circumstances are where the person searches the register but the entry in the statutory pledge as recorded at the time of acquisition has come to include an inaccuracy in the entry that is seriously misleading or an inaccuracy by reason of the removal of an entry from the record.

Amendment 23 can be taken in two parts but the changes both relate to encumbered property that has an identifying number—for example, a vehicle identification number. First, the effect of amendment 23 is that, in relation to an entry where the property has an identifying number, the purchaser will receive the property free from the pledge in the circumstances that I have just mentioned only if that identifying number is wrong or absent and it was a requirement under the register’s rules to include it. If there was no such requirement, but the person who was registering the statutory pledge included the number voluntarily, the property would be immune from the reach of section 91. That reflects the fact that people should not be penalised for including additional information, and it brings the section into line with the rules that apply under section 92 at the time that the pledge is created.

Secondly, it is possible that an identifying number that is correctly included at the time of registration could later be removed by some malfunction or mistake. The entire entry could also be removed in error, which means that the fact that the entry previously had a searchable identifying number will be of no help. Even though that is likely to be a very rare occurrence, it could have significant consequences for those involved. Amendment 23 therefore provides that, in such circumstances, the good-faith buyer will be protected and will acquire the property free from the pledge.

Amendment 30 will adjust the rules about what register search facilities must be provided to take account of the fact that, in light of amendment 23, there will be no significance to an identifying number for property being wrong in cases in which that information was not mandatory.

Amendments 24 to 26 and 28 are consequential to amendment 23. They will simply update cross-references.

I move amendment 23.

As the committee is aware, the bill makes it possible for intimation to take place by means of registration of the assignation document in a new register of assignations. That is intended to address concerns about the current system being expensive and cumbersome due to the need to intimate to all debtors, and about the inability to deal with future claims and debtors.

There is a misconception that, currently, in a bulk assignation of consumer debt, assignations are intimated to debtors and that the bill will remove the need to intimate to such debtors. In fact, the committee has heard evidence that, due to the various workarounds—such as using English law—that have been put in place to, in effect, circumvent the difficulties with the current system, debtors are currently not being notified. That is not problematic because either the parties are happy for the debtor to continue to pay the original person or there is protection for debtors who do not know to pay the new person in cases in which the payment right ought to have transferred across.

It is therefore difficult to see how amendment 52 would work in practice, as it is based on a misunderstanding that, currently, such intimation routinely takes place. In particular, the amendment refers to

“the removal of the need”

to intimate to debtors. As I have just mentioned, that ignores the fact that, at present, in a bulk assignation of consumer debt, debtors are commonly not notified due to the various workarounds.

Amendment 11 amends section 35 so that failure of the keeper’s search system in relation to the assignations record and the register of assignations will be added to the list of scenarios in which the keeper will be liable to pay compensation for any loss that is suffered as a result of a failure to identify the assignor correctly. The issue applies equally to the register of statutory pledges, so amendment 35 makes a similar amendment to section 107 in relation to when a search fails to correctly disclose the provider of a statutory pledge.

I want to be clear that the amendments do not relate to wrong information being submitted by the applicant or entered into the register by Registers of Scotland. Rather, they cover situations in which the register is correct but the search engine malfunctions and does not disclose information that is sought correctly. In those circumstances, the keeper should be liable if a searcher suffers loss as a result of that failure.

I move amendment 11.

Amendment 11 agreed to.

Section 35, as amended, agreed to.

Sections 36 and 37 agreed to.

Section 38—Disapplication of Transmission of Moveable Property (Scotland) Act 1862 to assignations to which this Part applies

Amendment 12 moved—[Tom Arthur]—and agreed to.

Section 38, as amended, agreed to.

After section 38

The provision is to introduce a new register of assignations, which is about simplifying the existing process. At the moment, we have a de facto process whereby intimation is not taking place, which requires complex workarounds. The introduction of a register of assignations will mean that those complex workarounds will no longer be required, so intimation will still be an available option. Intimation is not, as amendment 52 suggests, being removed. It is not the reality that intimation routinely takes place when the workarounds are already in place.

In my view, the amendment reflects a misunderstanding of the reality of the current situation, which is that the workarounds are being used regularly. Among other things, the bill seeks to ensure that, rather than having to use those complex workarounds in Scotland, we will have access to the new register of assignations, which will help to simplify the process.

As I set out in my letter to the committee earlier this month, when I met a range of consumers and money advice representatives to discuss stage 2 amendments, their view was that nothing more was needed in relation to consumers and the assignation of debt. In the event that their view were to change in the future, we would, of course, engage with them on that. However, the prescriptive nature of a predetermined review would not lend itself well to that.

I hope that that reassurance aids the committee’s understanding that amendment 52 is not needed, and I ask that it not be pressed.

I appreciate the comments that Mr Mundell makes, but my view is that there is nothing in the legislation that precludes the possibility of a review and my concern is primarily around having it to a fixed timescale—for example, three years from royal assent. The registers will not come online until next summer at the earliest, so that is already a year lost. We are not looking at a three-year period of the act being in operation, but at a two-year period, so it is important that there is flexibility.

I recognise Parliament’s interest in the issue and why it wants to nail something down in statute to ensure that a review takes place, but it is incumbent on Government and, indeed, on Parliament more widely to keep all legislation under review and to respond to issues as and when they arise. I take the view that a more flexible approach will allow us to respond at a more opportune time and consequently not find ourselves in a situation where we would be undertaking a review prematurely.

I am not going to give any commitments on that right here, other than to say that I would be more than happy to engage with any members to discuss that ahead of stage 3. We would want to consider exactly what was being proposed and consider the proposals in the round. However, I recognise the need for flexibility, and if there is an opportunity for compromise, I am happy to have that discussion. I hope that the committee will appreciate that as an example of the flexible and pragmatic approach that I have sought to demonstrate throughout the work that we have undertaken on the legislation. If members of the committee—or, indeed, any members of Parliament—wish to have that discussion ahead of stage 3, my door is always open and I would very much value the opportunity to do that.

In my response to the committee’s stage 1 report, I provided the following example:

“if this legislation had been in force earlier and had included such a review provision, the disruption to business caused by the coronavirus pandemic would likely have rendered any review premature because many relevant business activities would have been quite different from normal for a substantial amount of the period under review, but it would nonetheless have been necessary for the review to proceed.”

Conversely, if we felt that it was appropriate to carry out a review of the legislation sooner and wanted to do so after two and a half years, the amendments would still cause us difficulties. They would require us to carry out yet another review just six months later, because the amendments provide that the review cannot be undertaken until

“after the end of the review period”.

Those are just some of the difficulties with trying to second-guess when will be the most appropriate time to review legislation. However, I want to assure the committee that we will still want to work closely with organisations such as the Federation of Small Businesses to gauge how the legislation is helping them—or, possibly, hindering them—and we will learn from that engagement. It is my view that that would be a more dynamic, responsive and proportionate approach, as opposed to the more prescriptive method provided for by the amendments. Committee members will be aware that the legislation contains a range of ministerial powers that will enable us, with the Parliament’s approval, to modify the legislation in the light of that engagement.

For those reasons, and given my openness to engage in further dialogue ahead of stage 3 around a perhaps more flexible approach, I would ask that the amendment 53 is not pressed and amendment 85 is not moved.

I have nothing further to add, convener.

Amendment 23 agreed to.

Amendments 24 and 25 moved—[Tom Arthur]—and agreed to.

Section 91, as amended, agreed to.

Section 92—Seriously misleading inaccuracies in the statutory pledges record

Amendments 26 to 28 moved—[Tom Arthur]—and agreed to.

Section 92, as amended, agreed to.

Sections 93 to 96 agreed to.

Section 97—Response to application for correction under section 96(6)

Amendment 29 moved—[Tom Arthur]—and agreed to.

Section 97, as amended, agreed to.

Sections 98 to 101 agreed to.

Section 102—Searching the statutory pledges record

Amendment 30 moved—[Tom Arthur]—and agreed to.

Amendment 81 moved—[Jeremy Balfour].