Seòmar agus comataidhean

I appreciate the comments that Mr Mundell makes, but my view is that there is nothing in the legislation that precludes the possibility of a review and my concern is primarily around having it to a fixed timescale—for example, three years from royal assent. The registers will not come online until next summer at the earliest, so that is already a year lost. We are not looking at a three-year period of the act being in operation, but at a two-year period, so it is important that there is flexibility.

I recognise Parliament’s interest in the issue and why it wants to nail something down in statute to ensure that a review takes place, but it is incumbent on Government and, indeed, on Parliament more widely to keep all legislation under review and to respond to issues as and when they arise. I take the view that a more flexible approach will allow us to respond at a more opportune time and consequently not find ourselves in a situation where we would be undertaking a review prematurely.

I am not going to give any commitments on that right here, other than to say that I would be more than happy to engage with any members to discuss that ahead of stage 3. We would want to consider exactly what was being proposed and consider the proposals in the round. However, I recognise the need for flexibility, and if there is an opportunity for compromise, I am happy to have that discussion. I hope that the committee will appreciate that as an example of the flexible and pragmatic approach that I have sought to demonstrate throughout the work that we have undertaken on the legislation. If members of the committee—or, indeed, any members of Parliament—wish to have that discussion ahead of stage 3, my door is always open and I would very much value the opportunity to do that.

In my response to the committee’s stage 1 report, I provided the following example:

“if this legislation had been in force earlier and had included such a review provision, the disruption to business caused by the coronavirus pandemic would likely have rendered any review premature because many relevant business activities would have been quite different from normal for a substantial amount of the period under review, but it would nonetheless have been necessary for the review to proceed.”

Conversely, if we felt that it was appropriate to carry out a review of the legislation sooner and wanted to do so after two and a half years, the amendments would still cause us difficulties. They would require us to carry out yet another review just six months later, because the amendments provide that the review cannot be undertaken until

“after the end of the review period”.

Those are just some of the difficulties with trying to second-guess when will be the most appropriate time to review legislation. However, I want to assure the committee that we will still want to work closely with organisations such as the Federation of Small Businesses to gauge how the legislation is helping them—or, possibly, hindering them—and we will learn from that engagement. It is my view that that would be a more dynamic, responsive and proportionate approach, as opposed to the more prescriptive method provided for by the amendments. Committee members will be aware that the legislation contains a range of ministerial powers that will enable us, with the Parliament’s approval, to modify the legislation in the light of that engagement.

For those reasons, and given my openness to engage in further dialogue ahead of stage 3 around a perhaps more flexible approach, I would ask that the amendment 53 is not pressed and amendment 85 is not moved.

I have nothing further to add, convener.

Amendment 23 agreed to.

Amendments 24 and 25 moved—[Tom Arthur]—and agreed to.

Section 91, as amended, agreed to.

Section 92—Seriously misleading inaccuracies in the statutory pledges record

Amendments 26 to 28 moved—[Tom Arthur]—and agreed to.

Section 92, as amended, agreed to.

Sections 93 to 96 agreed to.

Section 97—Response to application for correction under section 96(6)

Amendment 29 moved—[Tom Arthur]—and agreed to.

Section 97, as amended, agreed to.

Sections 98 to 101 agreed to.

Section 102—Searching the statutory pledges record

Amendment 30 moved—[Tom Arthur]—and agreed to.

Amendment 81 moved—[Jeremy Balfour].

The committee is aware that, when considering the draft bill that was attached to the Scottish Law Commission’s report on moveable transactions, the Scottish Government arrived at the view that the provisions relating to financial collateral arrangements and financial instruments were not within the Scottish Parliament’s legislative competence. For that reason, the bill, as introduced, did not include those provisions. Instead, as we have always made clear, our intention is to seek a section 104 order under the Scotland Act 1998 to make the necessary provision.

We recognise and share stakeholders’ view that it is important that the bill’s provisions apply to financial collateral and financial instruments. I know that you, convener, recently wrote to the Scotland Office in connection with progress on the section 104 order and I have had the benefit of seeing the response. I hope that the committee is assured that good progress is being made. As I have offered before, I will continue to keep the committee updated on further progress.

I reiterate that any eventual section 104 order will be capable of being made only once the bill has been passed, so the timescales will be dictated by the parliamentary timetable. Our target for commencing the legislation—assuming that the Scottish Parliament passes it—has always been the spring or summer of next year, as that is when the registers and regulations should be in place. That should give us ample time to get the necessary agreements on the section 104 order so that the provisions that are not in the bill, as introduced through the section 104 order, will be able to commence at the same time as the registers.

The bulk of the amendments in the group are outwith the Scottish Parliament’s legislative competence, so I am unable to support them, as they would put the passing of the bill at risk. Therefore, I ask Jeremy Balfour not to press them—I appreciate the remarks that he made with regard to them being probing amendments.

Although most of the amendments in the group simply seek to reinsert the provisions that we removed prior to introduction because we considered them to be outwith legislative competence, there are two amendments that are slightly different, albeit that they raise competence concerns of their own.

Amendment 56 attempts to change the position that would apply pending the passing of the section 104 order. I am aware that that was initially suggested by a number of academics, as well as the Law Society of Scotland. However, we have engaged with the academics and practitioners on the SLC’s working group on that point and they are now content that matters should be left as they are pending the passing of a section 104 order. The Scottish Government believes that any attempt to say that the two regimes can coexist without making bespoke provision to reconcile any conflicting rules would be unclear, be unhelpful and raise legislative competence issues.

Amendment 84 imposes a reporting duty in relation to progress on the section 104 order. I hope that, from my correspondence with the committee to date, it is clear to members that there is no need for such a duty because I am fully committed to keeping the committee up to date on progress. Those updates will be provided as and when progress is made rather than be tied to an arbitrary date that might not be appropriate.

For those reasons, I ask Jeremy Balfour not to press any of the amendments.

On amendment 65, I simply reiterate the point that I made in my earlier remarks that I do not deem it necessary. Indeed, I would highlight again the provision in section 116—“Interpretation of Act”—specifically subsection (2), which states:

“Where, under or by virtue of a provision of this Act, however expressed, a person (“P”) is required or permitted to proceed in some way, the provision is to be construed as if any reference in it to P includes a reference to any person authorised by P to proceed in such a way on P’s behalf.”

I hope that that reassures Mr Balfour and the committee that amendment 65 is not required.

Amendment 1 agreed to.

Section 3, as amended, agreed to.

After section 3

Amendment 57 not moved.

Section 4—Assignation of claims: insolvency

Carol Mochan’s amendments would remove the ability of debtors and assignors to agree to waive defences that, in relation to a claim, the debtor might have against the assignee. Her amendments seek to remove that right as a whole but also, alternatively, to remove specifically the right of individuals who are not acting in the course of a business and sole traders to make such an agreement.

I know that the committee said in its stage 1 report that it had considered whether the option to waive defence clauses should be removed for all but that it was mindful of the potential impact of that on business freedom and on small businesses that may wish to retain that possibility.

I recognise that Ms Mochan asked for reassurance. I would therefore like to state on the record that I met Colin Borland, policy lead for the Federation of Small Businesses in Scotland, and asked whether it had any concerns about waiver of defence clauses. The FSB indicated that it had not received any representations from its members on that subject and did not have strong views on it.

The Scottish Government has also not received any representations from members of the public about the practice of waiver of defence clauses. It therefore seems that they are not an issue of concern to stakeholders, and it would be unfortunate if business freedom to make such agreements were to be removed in the absence of any harm being identified.

Amendment 51 would place a duty on the Scottish ministers to prepare and publish a report setting out the impact of the waiver of defence clause in section 13(1). We will want to continue dialogue with organisations such as the Federation of Small Businesses to gauge how the legislation is helping or, possibly, hindering them, and we will learn from that engagement. A formal review after a prescribed period of time seems unnecessary given the lack of any indication of current problems. That would be dictating now the use of future resources when there may never be any issue with the provision, and attention may be better used elsewhere.

Yes. I will to come on to that later in my remarks. We propose, through amendments, to increase the threshold to £3,000 and for regulation-making powers to allow for that figure to be increased subsequently.

I will pick up from where I was in my remarks prior to taking that intervention, when I was discussing charities and unincorporated organisations. We think it important that such bodies in the form of, for example, sporting clubs, should be able to raise finance on the strength of their own assets. I wanted to ensure that that was on the record.

For a corporeal asset to be pledged by a relevant individual, that asset will also need to be worth a certain amount. That rule previously applied only to individual consumers, but it will now be a rule for sole traders and the other narrow categories of individual who are to be allowed to grant a statutory pledge. It provides added protection on top of the rule that assets need to be of a certain type—essentially, a business asset. The Government has also accepted the committee’s recommendation that the threshold should be raised to £3,000. It can also be raised in future by regulations. That, coupled with the rule about how the asset is owned or used, effectively means that household goods cannot be pledged. As we did previously with consumers, we have taken a power to specify particular assets that cannot be pledged. Although we do not expect to need to use it, it would allow us to plug any gaps were they to arise.

In its stage 1 report, the committee recommended that the Government should consider

“creating more protections in the Bill for sole traders”,

since, in many cases, they will be in a similar position to individual consumers.

I consulted the Federation of Small Businesses on that point. Its view was that no specific protections were required for sole traders, who should be treated as adults in the business world.

However, the Government has lodged amendment 20, which provides that a court order will be required if a pledge is to be enforced against a sole trader. The FSB has indicated that it thinks that that is a useful protection. Sole traders are also protected by amendment 16, of course, in that they are not allowed to pledge assets that are unrelated to their business or that fall beneath the £3,000 threshold, so they will not be able to pledge essential items that are in their home.

Amendments 14, 15, 18, 19, 22 and 38 are consequential amendments that reflect the removal of section 48 and the removal of the ability of individual consumers to grant a statutory pledge.

Amendment 37 adds amendment 16’s new regulation-making power to the list of delegated powers that will be subject to the affirmative procedure.

I turn to Carol Mochan’s amendments. Amendment 16A would exclude from permitted assets household goods that are essential for heating, cooking or laundry purposes, so that it would not be possible to use such items as collateral for a loan under a statutory pledge. That applies only to those such as sole traders who are able to grant a statutory pledge under amendment 16, not the general population.

In our view, the proposed monetary threshold of £3,000 would cover all goods that are used for heating, cooking or laundry purposes in a home, and it is therefore unnecessary to make special provision for those. It also seems very unlikely that any prospective creditor would lend on the basis of such collateral, or that assets that are used for those purposes in a home would meet the business purposes element of the permitted assets test.

The tests that are already applied are designed precisely to exclude ordinary household goods. Adding a further rule may result in complexity and unintended consequences—for example, it might prevent a sole trader who provides cooker installations from granting a pledge over their business stock.

We have the power to carve out further things from the definition of permitted assets, if we need to do so in the future, but we do not want to unnecessarily overcomplicate matters and potentially create a situation in which unintended consequences could arise.

On amendment 16B, I appreciate it may seem a good idea to provide that the monetary limit for the value of property to be pledged be subject to annual update in line with the retail prices index, but that is unnecessary. In the past few years, prior to the recent surge, inflation has been relatively low, and the current figure is expected to fall.

The threshold is already being increased to £3,000. That is ample for excluding household white goods and similar, and there is a power for the threshold to be increased further, as and when appropriate.

It is worth bearing in mind that that figure is not the only means of ensuring that ordinary household items are not pledged. A sole trader would have to be acting in the course of their business, and the asset would have to be one that was used wholly or mainly for the purposes of the business. The threshold is therefore less critical than it was when it was applicable to—and only to—ordinary consumers.

Amendment 16B does not provide for the threshold to be changed on the face of the act—which, we believe, would lead to significant confusion. However, to amend the figure in the act would mean that the regulations would have to be made annually. Since any rise is likely to be of a negligible order, we do not believe that that is the best use of parliamentary time. It would be more efficient simply to update the figure every few years, taking into account the level of inflation that is prevalent at the time. The figure in the act may have to be amended more often if inflation is higher, but less often if it is lower. Therefore, a set period for amendments does not seem appropriate. For all those reasons, I ask Carol Mochan not to move her amendments.

I move amendment 14.

I note that Jeremy Balfour’s amendments form part of the Law Society of Scotland’s response to the committee’s call for written evidence at stage 1. I understand that the Law Society considers amendments 58 and 70 necessary because it thinks that the existing references are too vague and considers that only a statutory protected trust deed should be in scope. We tend to think that the wording in the bill as introduced is amply flexible to cover a number of situations; to remove that and replace it with what the amendments propose would only allow for when a protected trust deed is registered by the Accountant in Bankruptcy, at which point it becomes protected. It is therefore too restrictive, and the more flexible wording, in the bill as drafted, would include the granting of a voluntary trust deed as well as a protected trust deed.

The Law Society considers that amendments 59 and 72 are necessary to ensure that what it considers to be irrelevant company voluntary arrangements are prevented from affecting assignations and statutory pledges. Our view is that that is not necessary. The relevant subsections are for ascertaining whether an assignor or provider is insolvent. Whether any voluntary arrangements include this claim or property is not important to that consideration.

Amendments 60 and 71 are considered necessary by the Law Society on the basis that the bill makes no reference to such arrangements under the Companies Act 2006, and it considers that it should do so to ensure consistency with wider insolvency law. Those amendments seek to add a further catch to the corporate insolvency net. Part 26A of the 2006 act enables companies to apply to the court for an order sanctioning an arrangement or a reconstruction agreed with a majority of members or creditors should they find themselves in financial difficulty. Section 901F of the 2006 act refers to the process of the court sanctioning any such agreement.

We previously considered the issue and took the view that provisions under part 26A mainly refer to companies that are in difficulty, as opposed to those that are insolvent, and we tend to think that amendments 60 and 71 have no utility in expanding the corporate insolvency provisions in the bill as introduced. The Scottish Law Commission recognised that the law on insolvency as it relates to assignations and pledges is complex. It was partly for that reason that it included a power to adjust the definition of insolvency, if necessary.

Although we should not defer this matter to regulations if we are convinced that a change is appropriate now, we are not convinced that it has been shown that that is, indeed, the case. I am concerned that the group of changes that are proposed through amendments 60 and 71 might not be sufficiently cohesive. For example, the suggestion seems to be that voluntary trust deeds should not be included but that voluntary restructuring plans should be. In addition, amendments 60 and 71 do not seem to have been as fully considered as they need to be, given that amendment 71 would erroneously change the definition of when an individual is insolvent when the item in question is about being subject to a company restructuring plan.

My preference is therefore that we do not rush into making any changes just now and, instead, that we take the time that is needed to consult relevant academics and the Accountant in Bankruptcy, safe in the knowledge that we will be able to adjust it at a later stage, if it is agreed that changes are appropriate.

For those reasons, I ask Jeremy Balfour not to press amendment 58 and not to move amendments 59, 60 and 70 to 72.

I note that Jeremy Balfour’s amendments 64 and 81 will exempt not-for-profit money advisers from the fee structure that will apply to searches of the assignations record and the statutory pledges record in cases in which those advisers do not charge individuals for their services. I appreciate that that takes forward a recommendation to that effect from the committee’s stage 1 report, but that report was written at a time when the bill would have allowed individual consumers to grant a pledge.

The committee will be aware that I set out the Scottish Government’s position in two letters, and I am happy to reiterate that position now. The Scottish ministers are in consultation with the keeper of the registers of Scotland, who is empowered by section 110 of the Land Registration etc (Scotland) Act 2012 to set the level of fees that applies to cover the costs of maintaining and operating the registers that are under the keeper’s control. Any proposal to exempt any class or group of persons from the fee structure will mean that the costs will need to be met from elsewhere, either by passing them on to other users of the registers—which I think we can all agree would be unfair—or by those costs being met from the public purse. That should be given very careful consideration, given the current budgetary pressures that we face.

This group of amendments, which relates to electronic signatures, responds to the committee’s recommendation that the bill be amended to require only simple electronic signatures, given that advanced or qualified electronic signatures can create barriers to conducting business for most users. The matter was originally raised by Jeremy Balfour at stage 1, and I am grateful to him for doing so.

Section 116 currently defines the term “authenticated” with reference to section 9B(2) of the Requirements of Writing (Scotland) Act 1995, which provides that

“An electronic document is authenticated if the electronic signature of”

the person who is authenticating it

“is incorporated into, or logically associated with, the electronic document ... was created by the person by whom it purports to have been created, and ... is of such type, and satisfies such requirements (if any), as may be prescribed by the Scottish Ministers in regulations.”

Regulation 2 of the Electronic Documents (Scotland) Regulations 2014 requires a signature to be “an advanced electronic signature”, whereas section 9G(1)(d) of the 1995 act further provides that

“it is not competent ... to record or register”

an electronic document

“in any other register under the management and control of the Keeper of the Registers of Scotland”

unless sections 9G(2) and (3) both apply to the document. That means that the document must be presumed, under section 9C or 9D or by virtue of section 9E of the 1995 act, to have been authenticated by the granter, and the document, electronic signature and any certification must be

“in such form and of such type as are prescribed by the Scottish Ministers in regulations.”

Regulation 3 of the 2014 regulations provides that

“For an electronic document to be presumed authenticated ... under section 9C ... the ... signature ... must be ... an advanced electronic signature; and ... certified by a qualified certificate”

for signature. That means that assignation documents under part 1 of the bill and constitutive documents for statutory pledges under part 2 must be signed using an advanced electronic signature, and for them to be registered, they must also be certified by a qualified certificate.

The Government has consulted stakeholders on this issue, including the Federation of Small Businesses and the Registers of Scotland, with the FSB indicating that it thought that forms of authentication beyond simple electronic signatures were costly to small businesses. It is understood that the jump in cost and complexity between each level of signature is likely to be significant. Therefore, I believe that, to encourage the use of the new registers and to avoid unnecessary costs, with smaller start-up businesses in mind, simple electronic signatures would offer the best option.

Amendment 45 is the critical amendment in the group, as it removes the requirement for electronic signatures to be authenticated through the use of an advanced or qualified electronic signature. Therefore, it will be possible to use a simple electronic signature. However, it will still be possible to use advanced or qualified electronic signatures if parties wish to do so.

Amendments 42 and 44 will remove the current definitions of “authenticated” and “executed”. Although amendment 45 replaces the definition of “authenticated” with rules for the authentication of a document, it retains a substantive definition of the execution of a document.

Amendment 45’s new section 116(1B) will allow ministers to modify sections 116(1A)(a) and (b) in place of section 116(3), which amendment 46 removes.

Amendment 40 amends section 114 to replace the reference to section 116(3) with one to section 116(1B). That will ensure that regulations under section 116(1B) will be subject to the affirmative procedure.

Amendment 43 consequentially defines “electronic signature” in section 116(1) for the purposes of the bill, because the definition in section 12(1) of the Requirements of Writing (Scotland) Act 1995 is no longer imported into the meaning of “authenticated”, as amendment 42 will remove the cross-reference to section 9B(2) of the 1995 act.

Section 9G(1)(d) of the 1995 act stipulates that it is not competent

“to record or register ... a document in any ... register under the management and control of the Keeper of the Registers of Scotland”,

unless it includes a qualified electronic signature. Amendment 36 makes it clear that section 9G(1)(d) of the 1995 act will not apply to the registration of documents under the bill, so a simple electronic signature will suffice for authentication, although there is nothing to stop parties using advanced electronic signatures or qualified electronic signatures if required to do so.

I move amendment 36.

Amendment 36 agreed to.

Section 113 agreed to.

After section 113

Amendment 84 not moved.