Scottish Law Commission Publishes Three-Volume Report on Moveable Transactions

22 February 2018

By Emily Amirkhani

On December 19, 2017, the Scottish Law Commission (SLC) published a three-volume Report on Moveable Transactions. It recommends the substantial reform of Scots moveable transactions law, which the news release calls “badly outdated, unclear, and unduly restrictive.” “Moveables” in Scots law is a class of property largely analogous to personal property in the English common law system, describing property which is neither land, nor attached to land.

The SLC says reform in this area is essential to a productive economy, as it would facilitate business growth and entrepreneurship. Reform would allow Scotland to become a more attractive jurisdiction in which to conduct business, as the SLC states it is currently unfavourable when compared to neighbouring jurisdictions.

The SLC took a comparative approach to this project, examining secured transactions law in US jurisdictions that employ article 9 of the Uniform Commercial Code, and other jurisdictions, like the common law provinces of Canada, which have Personal Property Security Acts or similar legislation based on that model. The SLC also considered transnational instruments, like the UNIDROIT Convention on International Factoring and the UNCITRAL Legislative Guide on Secured Transactions, as sources of guidance.  Its recommendations, however, reflect an effort to assimilate the functionality of these systems into Scots law rather than one of wholesale adoption.

Over its three volumes, the report focuses on three areas for reform:

(1) assignation of claims (similar to assignment of book debts as security);

(2) security interests in corporeal (tangible) moveable property; and

(3) security over incorporeal (intangible) moveable property.

Assignation of Claims

Assignation (or transfer) of claims is the focus of Volume 1. It deals with the right of a debtor to use claims against others, like an invoice or agreement for rent, to secure a loan by assigning their interest in that claim to the creditor. For example, a landlord could secure financing by assigning his or her claim to rents owing to a creditor as security for a loan.

Currently, Scots law requires that notification be provided to every invoiced customer before their claim can be assigned. However, the report notes this is burdensome and prevents advanced assignation of future claims. The SLC proposes the creation of a Register of Assignation (RoA), which would allow assignation of future claims where notification is not yet possible. The RoA would add an option for financing through assignation of claims, while the traditional system of notification would remain an option for existing claims.

Security Interests Over Corporeal and Incorporeal Moveable Property

The second and third areas of reform are both discussed in Volume 2. Security over corporeal moveable property deals with the ability of a debtor to use moveable tangible assets, like vehicles or equipment, as collateral to secure a loan. As it stands, Scots law requires debtors to physically give their moveable property to a creditor to secure a loan, which is impractical for businesses that require those assets to operate.

Security over incorporeal moveable property is similar. It deals with the use of intangible moveable property, like financial instruments or intellectual property rights, to secure a loan. Scots law currently requires title to be transferred to the creditor, which can cause complications when certain rights are attached to that title, as is often the case with shares in a business.

In response to the issues surrounding both corporeal and incorporeal moveable property, the report recommends introducing a “statutory pledge,” which would allow debtors to maintain title over their moveable assets, while creditors hold a subordinate right in security, similar to the system used for security over land. This would be created through a new public Register of Statutory Pledges.

Draft Bill

Volume 3 of the report provides a Draft Moveable Transactions (Scotland) Bill, containing these and other recommendations for a reformed, statutory law of moveable transactions.

More information about this project is available on the SLC’s project page.

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