Scots law does create obstacles which English law does not, but these can be overcome - otherwise, there would be no invoice finance in Scotland. So this note addresses two things:
- What these obstacles are and how to overcome them
- That English law may often be more relevant than Scots law with Scottish borrowers
Lets take the second of these first.
We often see a knee-jerk reaction that where a borrower is Scottish, then all the Scottish problems come into play. This is simply not true. It is not the location of your borrower which dictates how you acquire a receivable. To put this in a wider context, the general international rule is that the acquisition of title to any asset, outright or in security, is governed by the law of the place where the asset is. It would never occur to anyone to think otherwise if, say, a house were the asset in question. Exactly the same is true of an asset such as a receivable. The difficulty is that it is not so obvious where a receivable is situated. The EU (RIP?) has a regulation which covers this. The Rome I Regulation tells us that for all purposes between EU member states (and this has been extended to apply within the UK), the law which has to be satisfied to determine whether or not the purchaser of a receivable has obtained title to it, is the law of the contract under which the receivable arises. While this is an EU rule, it also commonly applies between countries outside the EU under general conflicts of law principles.
To clarify this: it is the law of the contract between the assignor and its customer (the debtor) which determines what a purchaser of the receivables under that contract has to do to get title to them. Therefore, if you have a contract between A in Scotland and B in England which is governed by English law, the EU Regulation tells us that it is only English law which has to be satisfied to buy the relevant receivables.
On this basis, block discounting facilities made available to a Scottish borrower whereby the finance company buys receivables arising under contracts entered into by that Scottish borrower with its customers under English law should be validly assigned if assigned in accordance only with the English requirements.