Hansard

That is a long-standing issue, but one of the opportunities of the reform will be the provision of greater clarity through the statutory register. Under the bill, it will become possible for assignations of both current and future claims to be registered in a new register of assignations, which is to be maintained and operated by Registers of Scotland.

The system of invoice factoring works in practice on the basis that an invoice factoring company will normally give the entity that is assigning the debt 80 to 90 per cent of the money that is due. That will provide cash flow to that entity and will hopefully permit it to develop and expand. When the invoice factoring company has collected all the debt, it will pay the balance of the money that is due, less its fee. Clearly, in such cases, the party that has assigned the debt will not receive 100 per cent of its money, but it will receive most of it timeously without having to pursue it itself, and early payment may be crucial to its survival and success.

The registration of the assignation in a public register will permit searching to find out whether a last known holder of a claim to a debt has assigned it or still holds it. Debtors will not be expected to search the register, though, and there are protections for debtors who pay the wrong person in error.

The other main reform relates to the use of moveable assets as collateral for loans, which under the current law is difficult and expensive. The current law is predicated on the idea that possession of a moveable asset has to be handed over to a creditor if it is used as collateral, as in a pawn arrangement. Clearly, that will not work for businesses, as they need to retain assets such as vehicles, equipment and intellectual property in order to be able to function. Legal workarounds are used to circumvent that problem, but they are complex, expensive and again involve the use of English law. We understand that at least one major financial institution will not lend on plant and machinery in Scotland because of the state of the law on moveable transactions here.

Under the bill, businesses will be able use such assets as collateral to obtain loan finance without giving up possession of them. That would be done by means of the new statutory pledge. The statutory pledge will be created by the registration of the document, which constitutes the pledge in a new register of statutory pledges, which will also be maintained and operated by Registers of Scotland. That will lead to greater and much easier access to finance for businesses in Scotland, thus benefiting the general economy.

The bill will not only modernise moveable transactions law in Scotland, but will actually leapfrog most comparator jurisdictions.

I am aware that the committee has heard evidence from Citizens Advice Scotland and money advice agencies, which have suggested that the bill should apply only to businesses and not to individual consumers. They have also suggested that, if the bill is to apply to individual consumers, the consumer protections in the bill should be strengthened. When the Economy, Energy and Fair Work Committee took evidence on the proposals in the previous parliamentary session, the vast majority of respondents indicated that they thought that the consumer protections in the bill were adequate.

We have always been clear that the main benefits of the reform of the law relating to moveable transactions in Scotland would be felt by businesses, since it would make it much easier for those businesses to raise finance to invest in their future development. We understand that comparator jurisdictions extend their moveable transactions law to individuals as well as to businesses. We do not, however, believe that the provisions of the bill would be utilised by individuals to any great extent. It was never the intention, as a matter of policy, that individuals would have been able to pledge ordinary household goods as collateral for a loan under a statutory pledge. It is also very unlikely that financial institutions would lend money using ordinary household goods as collateral, since such items are likely to depreciate in value very quickly, to the point where their value may not cover the amount loaned.

If individuals were unable to use ordinary household goods as collateral under a statutory pledge, the other kind of moveable property owned by most people that might be used in relation to statutory pledge, mainly for acquisition purposes, would be motor vehicles. We understand, however, from UK Finance, which incorporates the Asset Based Finance Association, that its members are unlikely to move from using hire purchase to statutory pledge as the legislative means to finance car acquisition. That is because, first, they are used to using hire purchase, since the Hire Purchase Act 1964 has been in force for nearly 60 years and, secondly, their computer and other systems are set up for hire purchase.

In addition, and contrary to initial indications, it does not appear that high street banks have plans to introduce new borrowing arrangements based on the statutory pledge for individuals and would continue to use its existing consumer loan products. The application of the bill to individuals has been something to which the Government has given considerable thought. Although we have seen no hard and fast evidence that the provisions of the bill on statutory pledge, in particular, would be abused by predatory lenders, we do not believe that the use of the bill by individuals would be significant, and that does not justify the risk, however small, in view of the potential for distress. We therefore propose the removal of the application of the part 2 statutory pledge provisions of the bill to individuals, though not to sole traders, by stage 2 amendment.

Very careful consideration will have to be given to appropriate stage 2 amendments to ensure that we get the balance right in relation to sole traders. The Federation of Small Businesses has highlighted that sole traders and other smaller unincorporated businesses should be able to access finance by using the provisions of the bill even if its application to individuals is removed. We are therefore keen to ensure that sole trader and smaller unincorporated businesses should be able to benefit from the reforms in the same way as all other businesses in Scotland, and we will have this in mind when lodging stage 2 amendments. At some point in the future, consideration could be given to extending the application of moveable transactions law to individuals, with strengthened consumer protections, if a convincing argument could be made in support of such an extension.

Introducing the bill has been described as a win-win solution for Scotland. For the relatively low cost of the establishment of the two new registers, it will provide important modernised technical legal machinery through which finance secured over Scottish moveable assets can be made more readily available to businesses. If implemented, the bill will make various types of commercial transactions more efficient, less expensive and less complicated than they currently are, through the introduction of the two new registers. It will assist business in raising finance to enable them to invest and expand, and it will thus benefit the Scottish economy generally.

I move,

That the Parliament agrees to the general principles of the Moveable Transactions (Scotland) Bill.