October 2010 - Law Society of Scotland

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The result of this is that the directors cannot sell any goods subject to a
retention of title agreement without the approval of either the creditor or the
court. Retention of title agreements are now so commonplace that there can be
few businesses where most of their stock is not covered by a retention of title
agreement and trading would be very difficult/impossible in practice as no
creditor would agree to the goods being sold without their being paid and
paragraph 20(6) provides that the net proceeds of such sale shall be applied to
discharging the sums payable under the hire-purchase agreement.
Even in a business of little complexity it would be difficult for directors to put a
system in place to deal with this and any Monitor appointed in respect of the
Moratorium would be concerned that he is being asked to confirm that the
directors are dealing with this properly.
Unless this issue is addressed, the consultation and any legislation which may
flow from it will be a waste of time, cost and effort.
In addition to the above there are some peculiarities in Scots Law which need
to be addressed. They are as follows:
1. The Insolvency Act 1986 Sch B1 moratorium refers specifically in para
43(5) to irritancy (as the Scottish equivalent to forfeiture of leases) where
the Sch.A1 version mentioned in the paper does not. This will need
changed in any legislation to ensure irritancy is also precluded.
2. The reference in para 4.21 of the paper to altering the "onset of
insolvency" for the purposes of the challenge of prior transactions
doesn't work for the Scottish provisions in sections 242 & 243 of the
Insolvency Act 1986 as they are formulated in a different way. The
Scottish common law provisions probably do not require to be altered as
they have no time limits anyway.
3. The adjusted cut-off date for set-off referred to in para 4.25 will need to
be looked at specifically for Scotland as Scottish insolvency set-off
operates in a different way from English insolvency set-off. It is not
governed by the Scottish insolvency rules but rather by a combination of
general set-off rules under the 1592 Compensation Act and the common
law, adjusted by common law principles in their application in insolvency.