Moveable Transactions (Scotland) Bill - Stage 3 debate: Ministerial statement

Deputy Presiding Officer,

I would like to begin by thanking the members of the Delegated Powers and Law Reform Committee for their careful and helpful consideration of the Bill. I have very much welcomed the Committee’s thorough scrutiny of the Bill. 

It is clear that members have appreciated the importance of getting things right but they have also appreciated that the process is not always straightforward.  

I also want to thank the committee clerks for all their hard work and those stakeholders who contributed views and opinions as part of the parliamentary scrutiny of the Bill.

The Bill is a Scottish Law Commission Bill and I would therefore also like to thank them for the considerable work which went into this law reform project.  In particular, I would like to thank Professor Andrew Steven and the members of the Scottish Law Commission’s working group on this project. 

Even though Professor Steven is no longer a Commissioner he, and his colleagues, have given very generously of their time, insight and expertise throughout the process and it has been much appreciated.

And I would also like to put on record my sincere thanks to Scottish Government officials and the Bill team for their stirling work on this.

The Scottish Government has also had some very useful engagement with stakeholders across a range of perspectives. I met with the Federation of Small Businesses and I met twice with representatives of the consumer advice and money advice sector: their practical experience was important in helping me reach policy decisions on the content of the Bill.

There were mixed, but some strong, views on the inclusion of individual consumers in the Bill. We listened carefully to those views and to those of the Committee and the Bill was amended as a result.

But despite any concerns about individuals, it was clear that there was a consensus that the law in Scotland on moveable transactions is outdated and that the changes proposed in the Bill would make a significant and positive difference for businesses in Scotland.

The Bill is a product of extensive consultation and consideration both by the Scottish Law Commission and the Scottish Government over the past decade or so, and at its heart is the aim of modernising the law of Scotland relating to moveable property transactions - which is vital to the economy of any country with a developed legal system.  

I would just like to briefly remind the Chamber about some of the key provisions in the Bill and what they are intended to achieve.

Part 1 of the Bill reforms the law in relation to the assignation of debt. It will introduce a new Register of Assignations which will provide an alternative to intimation as a means of assigning debt. This should be of considerable benefit to businesses.

The Federation of Small Businesses in Scotland has indicated that 3,500 small businesses in Scotland fail each year - not because the business is unsustainable but because the firm cannot get its customers to pay invoices which are due.

The Late Payment of Commercial Debts (Interest) Act 1998 was introduced to give small and medium sized enterprises (SMEs) the right to claim interest on late payments. It is, however, understood that 80% of small businesses do not do so, for fear of jeopardising business relationships with customers who often have greater bargaining power.

This information was set out in the Policy Memorandum to the Bill but I think it bears repeating here today. 

In their written evidence, the FSB provided a worrying update on these figures and believe the issue is “becoming more acute”. Over one in ten Scottish firms say late payment is now threatening the viability of their business.

The ability of a business to assign the debts owed to them is a vital way of improving their cash-flow and that is the life blood of many businesses, especially micro and small businesses and new start-ups.  The present system is cumbersome, expensive and often impractical and it does not work in respect of future claims.

I would like to once again quote from the Federation of Small Businesses’ written evidence to the Committee at Stage 1 because that is a key sector of the economy that this legislation will help.  They said “(t)he need for Scotland’s small businesses to be able to access such finance options is plain. There is a maxim that it is not a lack of profitability that kills businesses but a lack of cash. And small firms’ cashflow is often interrupted by the late payment of sums owed to them”.

The provisions in Part 1 of the Bill are intended to address the current problems businesses face.

Part 2 of the Bill deals with security over moveable property.  In Scotland there is no such thing as a mortgage over moveable, as opposed to heritable, property in the way there is in England.  Businesses here are faced instead with adopting difficult alternative arrangements which are often impractical and invariably more costly. 

For example, the current system of pledge requires the delivery of the property to the creditor, yet businesses require possession of their assets (such as vehicles plant and machinery) in order to trade.  

It is understood that at least one major financial institution will not lend on plant and machinery in Scotland because of the current state of the law on moveable transactions. Others will lend, but at a higher rate of interest due to the complex workarounds. This is simply not good enough. It needs to change and the Bill will change it.

We heard this in evidence at Stage 1 from UK Finance when they said that “In terms of lending against wider assets, the Register of Statutory Pledges will be an important step-forward. Large (including global) businesses seeking to borrow on the strength of extremely valuable stock that is subject to Scots law are, again, generally only able to do so on the basis of floating charge at present.

The most obvious example of this would be whisky stock. The new regime would allow specific fixed security to be taken against such assets, facilitating new lines of finance”.

In their view too and I quote, "the absence of first charge security attracts greater risk and thus a higher cost of funding for the lender which will inevitably need to be passed on to the customer business either in whole or in part. Introducing the possibility of having specific security over a range of wider assets - through the Register of Assignations and the Register of Statutory Pledges - would help close that gap for smaller businesses, in particular”.

Presiding Officer, I am convinced that the provisions in this Bill will result in reforms to the law which will be of benefit to businesses across Scotland and improve the lending environment to facilitate business growth.

So I move, that the Parliament agrees that the Moveable Transactions (Scotland) Bill be passed.