This is one of a series of articles we at Morton Fraser are producing to guide our clients through the wholesale change proposed in Scots law in relation to security over goods, intellectual property and shares, on the one hand, and invoice finance or the purchase of receivables, on the other. For a general introduction to what the Bill covers, see read our article. The Bill is slated to move through the Scottish Parliament this session, so, while detail may change during that passage and statutory instruments will be required before it can become effective law, it is now timely to start preparing for the new regime. This article is concerned with the new Statutory Pledge to be introduced for the first time into Scots law by the Bill.
Summary of the points discussed in this article
- For the first time ever a new form of fixed security over goods, intellectual property and financial instruments (in the article we concentrate on shares in Scottish companies) is to be introduced on the current Bill passing through the Scottish Parliament - the Statutory Pledge
- It is easy to create but there must be a document signed or, in electronic cases, authenticated. It need only identify the property pledged and the obligation secured by the pledge
- It can be over future as well as currently owned property as long as the future property fits the description in the pledge
- It takes effect as a fixed security on registration in the new Register of Statutory Pledges or, in the case of future property, on the later of that registration and the asset being owned by the provider. There is no time limit for that registration to be effected but if the pledge is granted by a company or LLP it still needs registered at Companies House within 21 days of its date irrespective of when it is registered in the Register of Statutory Pledges
- As a fixed security, unlike a floating charge, it ranks on the provider's insolvency ahead of the preferred debts, the portion reserved for unsecured creditors, and the administrator's expenses
- Creditors will need to consider when Scots law is the applicable law, where the new pledge will be the necessary form of security if they want a fixed security. Particular issues affect what country's laws should be considered when taking security over intellectual property
- Consumers, sole traders and partnerships can grant a Statutory Pledge. There are some limitations on the property which consumers can pledge; these limitations also apply to sole traders but not in respect of their business assets
- A good faith purchaser of goods who doesn't know about the pledge can get good title to the goods, notwithstanding they are subject to a pledge, if he buys from someone who sells in the ordinary course of the seller's business or if, within some parameters, the goods are for the purchaser's personal or domestic use. There are similar but slightly different rules if the goods are a motor vehicle.
- On insolvency of the provider:
- the pledge is effective over the property pledged provided it comes into the ownership of the provider before the onset of the insolvency.
- there can be more than one pledge over the same property, in which case they rank in order of registration in the Register of Statutory Pledges, though the creditors can amend this by written agreement
- in competition with creditors doing diligence on the pledged property, the pledge ranks first if created before the diligence is executed but only for sums already advanced before that execution or which the creditor was bound to advance
- Interesting issues arise where a fixed security is taken under the laws of another jurisdiction but where the property is mobile and is in Scotland at the time of enforcement. Can, say, an English fixed charge on mobile goods or an English chattel mortgage be registered directly in the Register of Statutory Pledges, given the simple requirements laid down for creation of the pledge, or does the creditor need to take a specific Scottish form Statutory Pledge to be able to effect registration in that Register?
- Creditors are under an obligation to give information to entitled persons within 21 days of a request for information and can charge the reasonable cost of the response.
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