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The Attachment of the Floating Charge in Scots Law Alisdair DJ MacPherson Presented for the degree of Doctor of Philosophy University of Edinburgh 2017 Abstract This thesis examines the attachment of the floating charge to property in Scots law. The work is divided into two main parts. The first part focuses on how the charge interacts with property in a general sense. The second part considers attachment and its consequences in relation to the regimes for particular types of property. It is contended that the floating charge does not directly affect property prior to attachment. And even upon attachment its status as a “real right” is questionable. This is primarily because the charge is patrimonially limited by its enforcement mechanisms. It can only be enforced through a liquidator, receiver or administrator, and the powers of these parties are seemingly confined to property in the chargor’s estate. The thesis also demonstrates that ownership is a useful tool for examining what is required for a charge to attach to property. The most suitable approach is for ownership by the chargor to be both necessary and sufficient for attachment, but this is not the case under the present law, at least for certain property and transactions. Other currently prevailing views regarding the charge’s attachment are also challenged. This includes the belief that the charge attaches as if it is the relevant form of security for the property in question. Instead, it is suggested that the charge should be considered to attach as a “sui generis” fixed security. In addition, there are a range of difficulties that arise when the charge’s attachment and ranking are considered alongside the rules of transfer and security for specific property types. Uncertainty in the background law, and failure to take account of this when the charge was introduced, and subsequently, has meant that the charge may not operate effectively when, for example, property has been transferred for security purposes. All of this is explored in detail in the second part of the thesis. 3 Lay Summary If a creditor is lending to a debtor, it will often seek to obtain a security interest in the debtor’s property to protect itself against the risk of the debtor’s non-repayment. In Scots law, debtor companies are able to grant a special form of security right called a floating charge. This is a security that can be granted over all types of property, from land to patents and from vehicles to claims for payment against customers. Unlike some other security rights, the floating charge does not require the creditor to possess the secured property. The charge enables a chargor to freely trade with charged property and the charge no longer covers property disposed of by the chargor, but does encompass newly acquired property. The chargor’s freedom to trade with the property lasts until attachment takes place. Attachment occurs within the context of certain insolvency-related processes: liquidation, receivership and administration. It gives the chargeholder an interest in each piece of charged property belonging to the chargor. The attached property can be sold by the appointed insolvency practitioner and the proceeds used to pay the debt due to the chargeholder. In examining the attachment of the floating charge, this thesis principally considers the charge from a property law perspective. Throughout, there is an emphasis on interpreting the floating charge in a way that is coherent with wider Scots property law. The first part of the thesis contains analysis of some general issues involving the floating charge’s attachment: the nature of the charge prior to attachment, the events that cause attachment to take place, the property that is attached by a charge, and the effect of attachment. The final chapter in the first part focuses on the limitations placed upon the charge’s operation by the insolvency-related processes in which the charge is enforced. As well as the floating charge affecting attached property in a uniform way, it must also interact with legal regimes for specific types of property. The second part of the thesis considers these interactions. This includes analysis of when the charge can attach property like land, goods, and claims, when ownership of such property is being transferred by or to the chargor. It also identifies certain difficulties in the relationships between an attached charge and competing security interests. 5 Declaration I, Alisdair David James MacPherson, do hereby declare that I have composed this thesis, that the work contained in it is my own, and that it has not been submitted for any other degree or professional qualification. Alisdair DJ MacPherson Edinburgh August 2017 7 Acknowledgements It would be possible to acknowledge a great many people for their assistance over the last four years. However, only a handful can be mentioned here. First of all, I am grateful to my supervisors. Scott Wortley has been a source of guidance, support and encouragement from the very beginning of my PhD research. His role has been a vital one in enabling me to complete this thesis. My second supervisor, Professor George Gretton, has helped to improve my work immeasurably. I have learnt much from him and I was delighted that he agreed to continue as my supervisor despite his recent retirement. I am honoured to be his final student. I would also like to express gratitude to my examiners, Dr Andrew Steven and Donna McKenzie Skene. They made my viva a pleasant experience and their comments on the thesis have been useful. I thank Professor Reinhard Zimmermann for his generosity in giving me the opportunity to spend a year at the Max Planck Institute for Comparative and International Private Law in Hamburg. The experience was both enjoyable and enlightening. And I am grateful to Professor Kenneth Reid for arranging my research stay at the Institute. This thesis could not have been undertaken without the financial support of the Edinburgh Legal Education Trust. I greatly appreciate ELET’s sponsorship of my work and the financial assistance provided by the Max Planck Society and the Clark Foundation for Legal Education. Finally, I wish to thank Claire Michie for her unfailing patience and optimism. This thesis is dedicated to her. 9 Contents Abstract 3 Lay Summary 5 Declaration 7 Acknowledgments 9 Contents 11 Abbreviations 13 Chapter 1: Introduction 21 PART 1: GENERAL PART Chapter 2: The Floating Charge before Attachment 27 Chapter 3: Attachment Events 45 Chapter 4: The Property Attached 75 Chapter 5: The Attachment Hypothesis 105 Chapter 6: Enforcement of the Floating Charge 119 PART 2: SPECIAL PART Chapter 7: The Floating Charge and Heritable Property 161 Chapter 8: The Floating Charge and Corporeal Moveable Property 207 Chapter 9: The Floating Charge and Incorporeal Property 233 Chapter 10: Conclusion 267 Bibliography 271 11 Abbreviations 1893 Act Sale of Goods Act 1893 1929 Act Agricultural Credits (Scotland) Act 1929 1948 Act Companies Act 1948 1961 Act Companies (Floating Charges) (Scotland) Act 1961 1970 Act Conveyancing and Feudal Reform (Scotland) Act 1970 1972 Act Companies (Floating Charges and Receivers) (Scotland) Act 1972 1979 Act Sale of Goods Act 1979 1985 Act Companies Act 1985 1986 Act Insolvency Act 1986 1986 Rules Insolvency (Scotland) Rules 1986/1915 2002 Act Enterprise Act 2002 2006 Act Companies Act 2006 2007 Act Bankruptcy and Diligence etc (Scotland) Act 2007 2012 Act Land Registration etc (Scotland) Act 2012 13 2015 Act Small Business, Enterprise and Employment Act 2015 2016 Act Bankruptcy (Scotland) Act 2016 Anderson, Assignation RG Anderson, Assignation (2008) Anderson, Possession C Anderson, Possession of Corporeal Moveables (2015) Bankton A McDouall, Lord Bankton, An Institute of the Law of Scotland in Civil Rights (1751-53) [reprinted 1993-95] Bell, Commentaries GJ Bell, Commentaries on the Laws of Scotland and on the Principles of Mercantile Jurisprudence, 5th edn (1826) 2 vols Bell, Principles GJ Bell, Principles of the Law of Scotland, 4th edn (1839) [reprinted 2010] Bell’s Dictionary G Watson, Bell’s Dictionary and Digest of the Law of Scotland, 7th edn (1890) [reprinted 2012] Bennett, “Companies” DA Bennett, “Companies” in The Laws of Scotland: Stair Memorial Encyclopaedia, Reissue (2013) BGB Bürgerliches Gesetzbuch Burnett’s Tr Burnett’s Tr v Grainger [2004] UKHL 8; 2004 SC (HL) 19 14 Carey Miller, Corporeal D Carey Miller (with D Irvine), Corporeal Moveables Moveables in Scots Law, 2nd edn (2005) Cork Report Report of the Review Committee on Insolvency Law and Practice (Cmnd 8558) (1982) Eighth Report Law Reform Committee for Scotland, Eighth Report of the Law Reform Committee for Scotland: