Statutory pledge
Section 45 – Constitutive document
209.This section is the first of a number of sections that make provision for a statutory pledge. This type of pledge does not require delivery of the encumbered property, and is therefore a non-possessory pledge.
210.Subsection (1) provides that a statutory pledge must have a constitutive document, so that it is not competent to grant an oral non-possessory pledge. There is no equivalent rule for a possessory pledge as a security of that type is created by delivery of the encumbered property.
211.Subsection (2)(a) requires that the constitutive document is subscribed by the provider using a physical signature (“executed”) or signed electronically (“authenticated”). Section 120(2) of the Act defines “executed” and “authenticated” for that purpose.
212.Subsection (2)(b) sets out that the document must also identify the encumbered property. As a result of subsection (3), this may be done by reference to an identifiable class of property (for example, “my computers”), or by reference to a description in another document.
213.Where property is identified by reference to a class of property, the Act’s information rights will be particularly relevant. An entitled person, as defined in section 107(2) of the Act, is able to obtain from the secured creditor further information about the encumbered property by making a request to that effect under that section.
214.Subsection (2)(c) requires the secured obligation to be identified.
215.Subsection (4) makes it clear that a statutory pledge may be granted over property not owned by the provider at the time the property is identified in the document. This subsection should be read with section 48 of the Act which has the effect that the pledge is not created until (and if) the property becomes the provider’s property.
216.Subsection (5) makes it clear that the rules about identifying encumbered property and secured obligations can be satisfied by cross-referring to another document (see paragraph 9 of these Notes for a discussion of the term “document”).
Section 46 – Competence of individual acting as provider of a statutory pledge
217.This section generally (with some exceptions) prevents individuals – as opposed to corporate bodies – from granting a statutory pledge. Under subsections (1) and (2)(a), the situations where an individual is entitled to grant a statutory pledge are as follows—
the individual is acting in the course of their business and the asset is used (or to be used) wholly or mainly for the purposes of that business,
the individual is acting in the course of the activities of a charity of which they are a charity trustee and the asset is an asset of the charity, or
the individual is acting in the course of the activities of an unincorporated association of which they are a member and the asset is owned on behalf of, or jointly with the other members of, that unincorporated association.
218.In addition, subsection (2)(b) provides that any corporeal property to be pledged must have a monetary value exceeding £3,000 immediately before the granting of the document under which it is to become encumbered property (though there is a power for the Scottish Ministers to adjust this sum by regulations – see subsection (3)(a)). The effect is that it will not be possible for an individual acting in the course of a business to grant a statutory pledge over low-value but essential items which are used primarily but not exclusively for business purposes (for example, a washing machine which is used for a laundry business but also occasionally for home purposes).
219.The Scottish Ministers also have a specific regulation-making power to exclude particular types of property from being pledged by those categories of individuals who are allowed to grant a statutory pledge (see subsection (3)(b)). For example, this could be used to exclude the pledging of a motor vehicle (or, using the power in section 118 to provide for different purposes, to exclude the pledging of a motor vehicle unless it is being pledged to secure its purchase).
Section 47 – Competence of creating statutory pledge over certain kinds of property
220.Subsection (1) sets out the types of moveable property in respect of which it is not competent to grant a statutory pledge. A statutory pledge is not competent in respect of property that is subject to the alternative security regimes specified in that subsection:
for aircraft and for certain ships (and shares in ships) it is possible to create an aircraft or ship mortgage, and
for aircraft objects it is possible to create an international interest under the Cape Town Convention as implemented – following ratification by the United Kingdom on 27 July 2015 – by the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015 (S.I. 2015/912).
221.The Cape Town Convention is an international treaty intended to standardise security transactions involving certain types of moveable property, and it creates (in particular) international standards for security interests, and various legal remedies for default in financing agreements (including repossession).
222.Subsection (2) limits the scope of a statutory pledge over incorporeal moveable property to the types of property listed in that subsection. However, subsection (3) gives the Scottish Ministers a regulation-making power to expand the list.
Section 48 – Creation of statutory pledge by registration: general
223.This section has the effect that a statutory pledge is created by—
registration of the constitutive document in the Register of Statutory Pledges (see section 113 of the Act for the meaning of references to “registering” or similar expressions),
the property being the provider’s property, and
the property being identifiable as property that is subject to the pledge.
224.The pledge is only created when each of the requirements is met, regardless of which occurs first. It follows for example that a pledge is not created at the time of registration if the property is not the provider’s at that time.
Example
Adam grants a pledge in June to the Haddington Bank over motor vehicles he has recently acquired, to be listed in a schedule to be given to the Bank. The Bank registers the pledge in the RSP in July. Adam sends the schedule to the Bank in August. The statutory pledge is created in August when all three conditions in subsection (2) are met.
225.Subsection (3) provides that subsection (2)(b) is subject to section 91 of the Act, with the effect that registration only counts if it is effective. It is ineffective if the entry in the statutory pledges record does not include a copy of the constitutive document, the document is invalid, or the entry has a seriously misleading inaccuracy.
226.Subsection (4) further qualifies the effect of this section by making it subject to section 50 of the Act. The effect of this is that a pledge over property yet to be acquired may be ineffective if the property is acquired after the provider becomes insolvent.
Section 49 – Creation of statutory pledge over added property
227.This section provides for the creation of the security over property added to a statutory pledge.
228.It has the same effect for property added to a pledge by an amendment document as section 48 has for property identified in the constitutive document. See paragraphs 223 and 224 of these Notes.
229.Subsection (3) sets out that subsection (2)(b) is subject to section 92 of the Act (dealing with ineffective registration). It has comparable effect to section 48(3) in that registration only counts if it is effective. However, in this case it is matters relating to the amendment which are relevant. As such, registration is ineffective if the entry in the statutory pledges record does not include a copy of the amendment document, the amendment document is invalid, or, as a result of the amendment, the entry has an inaccuracy which is seriously misleading.
230.Subsection (4) sets out that this section is subject to section 50 of the Act (dealing with insolvency). It has the same effect as section 48(4) of the Act (see paragraph 226 of these Notes).
Section 50 – Creation of statutory pledge: insolvency
231.Sections 45(4) and 58(5) of the Act set out that the property to be encumbered as described in the constitutive document of a statutory pledge, or an amendment document, may be property to be acquired by the provider of the pledge. This section provides for the effect of the intervening insolvency of the provider.
232.Subsection (2) provides that a statutory pledge will not be created over property acquired at a time when the provider is insolvent (as defined in subsection (3)). The effect is that the property in question is treated as an asset of the provider for the purposes of the insolvency. It may for example be sold or realised for the benefit of the creditors as a whole.
233.Subsection (4) confers a power on the Scottish Ministers to modify subsection (3) by regulations. That power could for example be used to add a further type of insolvency to the list in subsection (3).
