Reform of the law on moveable transactions, and an end to the need for “workarounds” by business, has been supported by the Faculty of Advocates.
The comments come in a submission to the Scottish Parliament’s Economy, Energy & Fair Work Committee, which is examining the Scottish Law Commission's proposals for a draft Moveable Transactions (Scotland) Bill.
Currently, it can be difficult for businesses in Scotland to raise money using moveable assets, i.e. property such as plant, intellectual property rights or customer debts. Regimes in other countries, including England, are said to make it easier to raise business finance.
"First, the need for a workaround means that the law does not reflect reality”, Faculty observes.
"Secondly, and related to this, the extent to which specialist legal advice is required to operate workarounds must increase transaction costs, and therefore confer a benefit on those who can afford those increased costs at the expense of those who cannot.
"Thirdly, workarounds inevitably create uncertainty and increase risk. Workarounds by definition are ways of working around rules which are unsatisfactory. Workarounds may not therefore achieve the desired result. This might only become apparent if the issue is tested in court. Most transactions are not tested in court, and so a workaround might not be exposed as inadequate for quite a number of years, until a case raising the issue comes to court."
Faculty has previously broadly supported the Commission's proposals, while voicing a concern that they do not address the substantive law of insolvency, "that being the most obvious context in which many of the proposals would be likely to be tested".