Secured Transactions Reform in Scotland Dr Hamish Patrick, Tods Murray and Dr Andrew Steven, Scottish Law Commission

AThe current law Scots law is dated and restricted when it comes to security over moveable property. “a hypothec [charge] of a great flock of sheep... retenta possessione, is unknown in law; and such pledges were very inconvenient, for there is no register to certiorate [tell] the lieges [people] of such impignorations when they continue in the impledger’s hand.” Ker of Greenhead v Scot and Eliot (1695) Mor 9122.

AThe current law So what express securities over personal property do we have? (1)Pledge of corporeal moveables (chattels); (2)Since 1961 the floating charge for companies etc.

(3) Functional securities eg (a) Retention of title (for all sums): Armour v Thyssen Edelstahlwerke AG 1990 SLT 891; (b) Trusts; (c) Assignation (assignment). No proper security over incorporeal moveables (intangibles) is possible. Can only be done once. AThe current law

Even our leading textbook is over a century old: Gloag and Irvine, Law of Rights in Security (1897). We have no equivalent to Beale, Bridge, Gullifer and Lomnicka, The Law of Security and Title- Based Financing (2 nd edn, 2012).

BEarlier attempts at reform “The law on the subject of security-rights over corporeal moveables is beset with difficulties; and is not perhaps in a very satisfactory state, as a result of its rules is often to deprive the owners of such property of the power to make use of it as a security for its debts. It is open to question whether the rigidity of the law of Scotland on this subject should not now be relaxed by the adoption of a system analogous to the English bill of sale.” Gloag and Irvine, Law of Rights in Security (1897) p 187.

BEarlier attempts at reform Crowther Report (1971) (UK) – proposed notice filing Halliday Report (1986) (Scot) – proposed notice filing Murray Report (1994) (Scot) – rejected notice filing Bankruptcy and Diligence etc (Scotland) Act 2007 Part 2 – reforms Scottish floating charges law

C Moveable transactions project Discussion Paper on Moveable Transactions (Scot Law Com DP No 151, 2011) available at projects/security-over-corporeal-and-incorporeal- moveable-property/ projects/security-over-corporeal-and-incorporeal- moveable-property/

C Moveable transactions project Three strands: (a)transfer of incorporeal moveable property; (b)security over incorporeal moveable property; (c)security over corporeal moveable property.

C Moveable transactions project UCC9/PPSA approach rejected. Why? “The UK has a high degree of economic unity, and that fact gives rise to pressure for legal approximation or even unification – not in all areas, but in many. That this is a fact cannot be ignored... how practical would a [recharacterisation approach] be if the same course, or at least a similar approach, were not being adopted elsewhere in the UK?” Discussion Paper para 1.22.

Corporate insolvency law is reserved to Westminster so the fixed/floating distinction is a given. The attachment/perfection distinction of the PPSAs is somewhat alien to Scots law. C Moveable transactions project

Thus what is proposed is deliberately limited in its ambitions. While not finalised and approved by Commissioners the new scheme is likely to be along the following lines. C Moveable transactions project

(1)The Register of Moveable Transactions (RMT) A new electronic register would be established. C Moveable transactions project

(2)A new security A new “moveables security” would be established. It would be created by registration in the RMT. It could be granted over corporeal moveable property without the creditor having to take possession. C Moveable transactions project

(2)A new security It could be granted over incorporeal moveable property without the property having to be transferred to the creditor. It would be the broad equivalent of the English fixed charge, but it could be created by any person (with appropriate protection for consumers). C Moveable transactions project

(2)A new security Information sharing arrangements between the RMT and Companies House would be explored to avoid the need for double registration for company granters. Floating charges would remain competent for companies etc. C Moveable transactions project

(3)A new way to assign claims Under current Scots law an assignation of a claim can only be made effective by notifying the account debtor. There is no equivalent to equitable assignment. The proposed reform is that an assignation could alternatively be made effective by registration in the RMT. C Moveable transactions project