Section 51 – Property encumbered by statutory pledge: transfer by provider
234.The creation of a statutory pledge will in all cases involve the registration of the pledge in the Register of Statutory Pledges. The result is that the provider of the pledge will usually keep possession of the encumbered property.
235.Subsection (1) therefore gives statutory effect to a general principle of the law of rights in security by providing that the statutory pledge will normally continue to encumber the property if it is transferred. However, there are some exceptions to this—
where it is transferred with the explicit written consent of the secured creditor to the particular transfer in a way that meets the conditions of subsection (2),
where a third party acting in good faith acquires the property unencumbered under one of the Act’s protections for innocent acquirers under section 53 to 55, or
where, in accordance with a provision of the Act, the pledge is otherwise extinguished by the provider’s transfer to a third party.
236.The final of these – the pledge being otherwise extinguished by the transfer – covers it being extinguished under the following sections: section 52 (where the secured creditor has acquiesced in trying to circumvent the rules on statutory pledges); section 93 (where there is a supervening inaccuracy in the register) or section 108 (where property is erroneously stated not to be encumbered).
237.As far as the exception relating to obtaining the secured creditor’s explicit written consent to the transfer is concerned, the secured creditor will not be able to agree in advance that the provider is free to deal with the encumbered property as they wish. That would enable the pledge to operate in the same manner as a floating charge. As such—
Subsection (2) sets out that the consent of the secured creditor must be in writing, and must relate to the particular transfer. Thus the consent cannot be to a transfer to any unnamed person, or to a class of persons. It must be a consent to a transfer first to a specific person, and second to that person taking the property unencumbered by the pledge. Subsection (2) also requires that the consent must be given not more than 14 days before the transfer.
Subsection (3) sets out that the decision on whether or not to give consent must be at the discretion of the secured creditor. Thus a contractual provision under which the secured creditor must consent to any or all disposals would be ineffective.
238.Where the secured creditor acquiesces in the transfer but outwith the express consent regime provided for by this section, section 52 will apply and will result in the pledge being extinguished.
239.Subsection (4) gives the Scottish Ministers power to amend the consent provisions. This would for example enable Ministers to take account of possible future developments under English law, in relation for example to the fixed/floating characterisation of charges in an insolvency.
240.This section does not apply to possessory (common law) pledge, as the fact that the secured creditor holds the property limits the provider’s ability to deal freely with the property.
