So when does Scots law apply? Just because the asset finance company as seller is Scottish doesn’t necessarily mean that Scots law applies; likewise the customer. What matters is the law governing the contract with the customer. If that customer contract is written under English law, then English law applies to the sale of the receivables under it. However, if the customer contract is governed by Scots law, what is the issue and how is it readily solved to give the blocker the title it needs to the receivables?
In Scots law there can’t be a secret transfer of title to an asset (any asset, and whether the transfer is outright, as on sale, or by way of security). The transfer must be at least known to those affected by it. Regarding the sale of receivables, there are two key requirements: there has to be some assignment (“assignation” in Scotland) or transfer of the receivable; and the transfer is of no effect against third parties, such as the seller’s administrator or liquidator, until it has been notified to the debtor. (This last bit, the notification, is what qualifies as making the transfer public.) Also, the transfer possibly can’t be made until the receivable exists – a transfer of future receivables of a certain description may not work.
There are reasonably simple ways round this. The blocker needs to do three things. First, it needs to put clear wording in its block discounting agreement sufficient
to create a trust over the purchased receivables, ensuring the trust complies with stringent Scots law requirements. Second, it needs to make an amendment to its Listing Schedule, essentially an additional sentence specifying that this is an assignment of existing not future receivables. Third, it needs to add a sentence to the Listing Schedule advising the blocker that those Scottish receivables are now held in the trust created in the block discounting agreement.
If you follow these rules, there is no reason why block facilities can’t extend to Scotland too.
First published as part of a series in Leasing World magazine, issues 123, 124 and 125.