In our first and second summaries on the key differences in taking security between Scotland and England, I summarised the positions on the Scots law of assignation and share security respectively. This is the third summary in that five part series and considers the position on floating charges in Scotland.
In the recent Sheriff Court judgment in the case of The Accountant in Bankruptcy v Peter A Davies, the Sheriff sought to clarify how a family home should be dealt with following the sequestration of an individual.
Background
The debtor was sequestrated in October 2010.
In October 2020, the Accountant in Bankruptcy (‘AiB’) applied to the Sheriff under section 40 of the Bankruptcy (Scotland) Act 1985 (now section 112 of the Bankruptcy (Scotland) Act 2016) to permit the sale of the debtor’s family home.
The terms "ranking agreement" and "intercreditor agreement" are used interchangeably but generally refer to the same types of agreement - being those which regulate the priority of repayment of indebtedness owed to the creditors of an obligor. Strictly speaking, a ranking agreement is the Scottish equivalent to the English law deed of priorities and is typically used for shorter form ranking arrangements. As is the case in England, a Scottish intercreditor agreement is typically reserved for more complex arrangements and usually ranks both securities and liabilities in point of priority.
One of the main differences in insolvency law between Scotland and England & Wales relates to the challengeable transactions regime under the Insolvency Act 1986.
In both jurisdictions, transactions that are entered into before a formal insolvency process begins can be attacked if they are detrimental to the creditors of the insolvent company. However, although both systems use similar language and address similar concerns, the law in the two jurisdictions is different, most notably with different time periods and defences to a challenge.
At the recent R3 Scotland Forum[1], experts in the hospitality and leisure sector came together with the restructuring and insolvency profession to discuss the issues the sector is facing as the country emerges from lockdown. The panel discussion which was chaired by Judith Howson, Senior Manager at French Duncan and member of the R3 Scotland Committee was led by Steven Fyfe, head of the Scotland Hotels Divisions within Savills.
In England, it is common and quite straightforward for companies and LLPs to grant all assets security by way of a debenture which includes a series of fixed charges over specified assets, an assignment of material leases, insurances and other contracts and a floating charge over assets which are not expressly subject to those fixed charges. That same approach does not work in Scotland, at least not without some adaptation.
Last year, temporary changes to the bankruptcy process were brought in by the Scottish Government, to help individuals financially impacted by the pandemic. Scottish ministers have now introduced the Bankruptcy (Miscellaneous amendments) (Scotland) Regulations 2021, to make some of those changes permanent.
The main purpose of these measures is to improve access to minimal asset process bankruptcy ( "MAP" a form of bankruptcy typically aimed at people with low income and few assets) and to reduce the cost for debtors seeking bankruptcy more widely.
CVAs remain the restructuring tool of choice for businesses with multi-let properties. Since the start of the first UK lockdown, there has been a marked increase in the number of CVAs in the hospitality and retail sectors. Whilst vaccines are now being dispensed, the economic ramifications of the pandemic will persist for some time to come and as a result we expect to see many more CVAs being proposed, particularly in these sectors. The introduction of R3's Standard Form COVID-19 CVA Proposal could lead to an increase in the use of CVAs in the SME market too.
The Coronavirus (Scotland) (No.2) Bill (the “Bill”) has been introduced by the Scottish Parliament today, 11 May 2020. The aim of the Bill is to respond to the financial impact the COVID-19 pandemic is having on individuals and small businesses (by that Scottish Ministers mean sole traders, not companies incorporated under the Companies Act 2006).
The Coronavirus (Scotland) (No2) Bill was passed on 20 May, gained royal assent on 26 May and came into force 27 May. This will be known as The Coronavirus (Scotland) (No. 2) Act.
Why do we need another Act?