Chamber and committees

I thank the minister for his amendments on electronic documents in the previous group, which were really helpful. I welcome them completely.

My amendment 85 is almost identical to amendment 53. I have nothing further to add. If amendment 53 is agreed to, I will not move my amendment.

Amendment 55 deletes part of section 1(5), which will ensure that part 1 of the bill operates without prejudice to the rules relating to financial collateral arrangements.

Section 1 deals with the assignation or transfer of claims. At paragraph 11, the explanatory notes state:

“Subsection (5) provides that nothing in Part 1 applies to the assignation of a claim as part of a financial collateral arrangement within the meaning of the Financial Collateral Arrangements (No.2) Regulations 2003.”

Financial collateral arrangements are defined as

“a title transfer financial collateral arrangement or a security financial collateral arrangement, whether or not these are covered by a master agreement or general terms and conditions”.

Financial collateral arrangements are a form of security arrangement designed to simplify the process of obtaining financial collateral. Financial collateral is defined as

“either cash or financial instruments”.

Having spoken to the Law Society and others in practice, I believe that the current terms of section 1(5), which makes the proposition that nothing in part 1

“applies to the assignation of a claim as part of a financial collateral arrangement”,

lack clarity. Instead, we consider that the provisions of part 1 should be without prejudice to the rules for financial collateral arrangements.

I will now speak to amendment 56 and my other amendments in the group. As the minister and the committee will be aware, the inclusion of individuals in the bill is perhaps the most interesting and controversial part of the bill. The bill does not include the provisions on stocks and shares that were in the Scottish Law Commission’s provisional draft bill. The committee has debated the issue, and I know that the minister has made the Scottish Government’s view clear. These are probing amendments, so I do not intend to move any of them.

I am looking for clarity on why the Government thinks that it is not possible to have such provisions in the bill. When the Law Commission drafted its bill, it thought that the provisions would be legally competent, and others have given legal advice that they would be legally competent. When the minister gave evidence to the committee previously, he said that, according to the legal advice that he had received, it would be incompetent to have the provisions in the bill. Could he expand on that? In practical terms, this is one of the most important parts of the bill, because it will allow much greater freedom for business to take place, which is what we all want, so it would seem sensible to include such provisions in the bill. I ask the minister to say a bit more about the legal advice.

If the Government’s view is that such provisions cannot be included because of whatever reason the minister gives in a moment, I would like to push the minister on another matter. I appreciate that, in his letter to the committee, he said that, once the bill becomes an act, there can be more engagement with the United Kingdom Government on the matter, but I hear questions from those in practice about how long that will take. I appreciate that that involves two Governments working together, but can the minister give some sort of timescale for when that will happen in practice?

I move amendment 55.

I thank the minister for his comments so far. He is right that amendment 79 seeks to clarify that only the execution of prior ranking diligence will extinguish a statutory pledge. In the light of his comments, however, I will not move that amendment, and I will go away and reflect on the matter with regard to stage 3.

With regard to amendment 83, I go back to a debate that we had earlier this morning. Again, this amendment seeks to extend the interpretation of a “secured creditor”. I note that the minister believes that that is already in the bill, and I accept that. However, I still think that my amendment would provide greater clarity, and I will explain briefly why. The bill does not include a “trustee or agent” in the interpretation of a “secured creditor”. The amendment provides a fuller definition of the parties defined as a “secured creditor”.

In corporate finance transactions, it is likely that a club or syndicate of lenders jointly lend to a corporate debtor. Here, one will take security in their own name as security agent or security trustee to hold the security for the benefit of all lenders. Thus, for example, HSBC, the Bank of Scotland and the Royal Bank of Scotland could jointly agree to advance a loan to ABC Ltd, in various proportions, with one of them—say, the Bank of Scotland—holding all the security granted in respect of the aggregate amount of the loan owed to all the lenders. Although the Bank of Scotland would have the benefit of the security, it would be misleading to think of it as the sole beneficiary of the security as it would be holding it as trustee or agent for all the lenders.

Amendment 83 would bring clarity and, in practical terms, it would be helpful for business. I will seek to move it in due course.

I thank the minister for his helpful remarks. I am pleased that the timescale of next summer is still achievable. I will reflect on what he said before stage 3 but I will not press amendment 55.

Amendment 55, by agreement, withdrawn.

Amendment 56 not moved.

Section 1, as amended, agreed to.

Section 2 agreed to.

Section 3—Transfer of claims

I thank the minister for his helpful remarks and explanation. If it is okay with the minister, it would be helpful for the amendments to be agreed to now, but I would welcome working with him to get them absolutely right for stage 3. It would be helpful to have them ready for that, however, so I intend to press amendment 54.

Amendment 54 agreed to.

I support the minister’s amendments 4 and 8.

There is a balance to be struck between the rights of debtors and creditors. I accept what the minister has said and will go away and reflect on his comments. For that reason, I seek permission to withdraw amendment 62.

Amendment 62, by agreement, withdrawn.

Amendment 63 not moved.

Section 10 agreed to.

Sections 11 and 12 agreed to.

After section 12

Amendment 4 moved—[Tom Arthur]—and agreed to.

Section 13—Asserting defence or right of compensation

The committee will be bored with hearing my voice by the end of the meeting. All my amendments deal with insolvency. I will briefly go through each one.

Amendment 58 replaces an existing ground on which an individual will be considered to be insolvent. The reason for that is that section 4 provides for the legal effect of an assignation document in the event of the assignor’s insolvency. Section 4(6) provides for circumstances where

“an assignor who is an individual, or the estate of which may be sequestrated by virtue of section 6 of the Bankruptcy (Scotland) Act 2016, becomes insolvent”.

Those circumstances are set out in sections 4(6)(a)(i) to (vi). As initially drafted, they included those where the assignor grants a trust deed for creditors or makes a composition or an arrangement with creditors. I have spoken to practitioners, who consider—as do I—that those circumstances are too vague: a trust deed could only include a privately agreed trust arrangement and a particular specified statutory protected trust deed. I consider that only the latter should apply. In respect of compositions and arrangements with creditors, I note that “composition” was a specific technical term until 2014, when its technical use was repealed. I also note that “arrangement” is a technical term in English law, but not in Scots law. I therefore consider that references to compositions and arrangements should be removed.

Amendment 58 would clarify that where the Accountant in Bankruptcy registers such a protected trust deed, that is a basis for recognition of the assignor’s insolvency, and it removes references to “compositions”—a historical technical term in Scotland, which is of no continuing importance—and “arrangements”, which are a technical term in England, but not in Scots law.

Amendment 59 would ensure that a company voluntary arrangement—CVA—only constitutes the insolvency of an assignor for the purposes of the assignation provisions in the bill if it affects the relevant claim in question. That would prevent irrelevant CVAs from affecting assignations and would reflect the position adopted in respect of administration receivers set out in section 4(6)(b)(iii).

Amendment 60 would ensure that a restructuring plan that affects an assigned claim under part 26A of the Companies Act 2006 would constitute the insolvency of an assignor. Part 26A deals with arrangements and reconstructions of companies in financial difficulty. Section 901A sets out provisions for part 26A to apply to a company where it is encountering financial difficulties that

“may affect ... its ability to carry on business as a going concern”

and where

“a compromise or arrangement is proposed between the company”

and its creditors or shareholders with a view to

“eliminate, reduce or prevent, or mitigate”

the financial difficulties that it is experiencing. In other contexts—for example, in section 233B of the Insolvency Act 1986—part 26A arrangements are recognised as being relevant insolvency procedures. The bill makes no reference to such arrangements under the 2006 act, and I consider that it should do so to ensure consistency with the wider insolvency law. In line with the approach taken in respect of administrative receiverships, that should apply only to the extent that it affects the claim.

Amendment 71 ensures that a restructuring plan under part 26A of the 2006 act, which affects the encumbered property, constitutes the insolvency of a provider. Part 26A deals with arrangements and reconstructions of companies in financial difficulty. Section 901A sets out provisions for part 26A to apply to a company where it is encountering financial difficulties that

“may affect ... its ability to carry on business as a going concern”

and where

“a compromise or arrangement is proposed between the company”

and its creditors or shareholders with a view to

“eliminate, reduce or prevent, or mitigate”

the financial difficulties that it is experiencing. In other contexts—for example, in section 233B of the Insolvency Act 1986—part 26A arrangements are recognised as being relevant insolvency procedures. The bill makes no reference to such arrangements under the 2006 act and I consider that it should do so to ensure consistency with wider insolvency law. In line with the approach taken in respect of administrative receiverships, that should apply only to the extent that it affects the encumbered property.

Amendment 70 would replace an existing ground on which a provider who is an individual will be considered to be insolvent. Section 47 of the bill provides for the legal effect of a creation of a pledge in the event of the provider’s insolvency. Section 47(3) provides the circumstances where

“a provider who is an individual, or the estate of which may be sequestrated by virtue of section 6 of the Bankruptcy (Scotland) Act 2016, becomes insolvent”.

Those circumstances are set out in sections 47(3)(i) to (vi). As initially drafted, they include the provider granting a trust deed for creditors or making a composition or arrangement with creditors. Having spoken to those within the profession, it is my view that we should consider that those are too vague. A trust deed could include a privately agreed trust arrangement and a particular specified statutory protected trust deed. The Law Society and I consider that only the latter should apply. In respect of compositions and arrangements with creditors, I note that “composition” was a specific technical term until 2014, when its technical use was repealed. As I have said previously, it is a technical term that is used in English law but not, as I understand it, in Scots law. We therefore consider that references to compositions and arrangements should be removed for clarity.

Amendment 70 would clarify that when the Accountant in Bankruptcy registers such a protected trust deed, that is a basis for recognition of the provider’s insolvency, and it would remove references to “compositions”—a historical term in Scotland—and “arrangements” which is a technical term in England but not Scotland.

Finally—you will be glad to hear, convener—I move to amendment 72, which would ensure that a company voluntary arrangement only constitutes the insolvency of a provider for the purposes of the pledge provisions in the bill if it affects the relevant encumbered property in question. That would prevent irrelevant CVAs from affecting statutory pledges, and reflect the position adopted in respect of administrative receivers set out in section 47(3)(b)(iii).

I appreciate that those are all fairly technical amendments and no doubt lawyers will discuss them for years if they are accepted. However, it is important to pass them because we need clarification around insolvency and how the bill relates to other acts. For that reason, I hope that the committee will accept them.

I move amendment 58.

A system whereby people could appeal to a tribunal was included in the 2005 act. That has now changed. My question arises from my own ignorance: does that tribunal still exist in law, and, if so, should we not remove it from the legislation?

For clarity, do you think that those issues have been addressed in the bill?

If, for example, a charity has one remaining trustee and OSCR decides to bring in another couple of interim trustees to keep the charity going but that present trustee does not want those people to be appointed, there is no appeal mechanism for that. Are we saying that OSCR can supersede a present trustee’s role and appoint interim trustees whenever that is necessary? What does the charity do if it does not like the trustees who have been appointed?