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The reality is that a lot of the various scenarios—for example, tables and chairs being set up—that we associate with permitted development rights are already not captured as development. As such, the appropriate regulatory provisions are found in the Roads (Scotland) Act 1984. If there are requirements for a permit, local authorities define that permit in various terms—“cafe permit”, “pavement permit” and so on. There is a means through that process for a decision to be made and, indeed, enforcement action to be taken. If issues around accessibility and obstruction are identified, there is a remedy available to the local authority. Of course, local authorities are democratic bodies that are accountable to the people within their authority area. I can give a reassurance that that means exists.

As I have set out, should any issues arise as a consequence of the regulations coming into force, there is a means, through the article 4 provisions, for local authorities, with the approval of ministers, to restrict PD rights in particular areas or to remove PD rights entirely in particular areas. It is not the case that, if a local authority found itself in a situation in which it had seen development take place that would usually require planning permission but planning permission or a planning application was not required because of PD rights, it would have no recourse—it would not be centrally mandated and something that it could not change. Notwithstanding the provisions in the 1984 act, there would be means to seek an article 4 direction, which, with the agreement of ministers, could remedy the situation.

I am about to come on to a couple of practical points, Mr Mundell. You will be aware that I have lodged amendments to remove individuals from being able to grant a statutory pledge under part 2 of the bill. If that change is made, it is unclear to me why not-for-profit money advisers would routinely be searching the register of statutory pledges on behalf of their clients.

As I indicated in my recent letter, there is also some doubt over whether searches of the register of assignations would be of much assistance to not-for-profit money advisers, given that, when debts have been assigned in a bulk assignation transaction, it is highly unlikely that the debtor’s name will be on the register, and because the register can be searched only by reference to the assignor of the debt, not the debtor.

In addition, the system has been designed so that the debtor is not expected to search the register. That is why the bill provides that a simple failure to search the register does not mean that the debtor is acting in bad faith if they make payment to the original creditor.

It is also important to recognise that the fees that will apply for registration events and searches in the two new registers will be the subject of consultation before the fee structure is established in regulations under the bill. That consultation is, in my view, the best vehicle for a proper examination of all the issues, and I am happy to reassure members of the committee that the consultation will explore the issue of fee exemptions.

Therefore, I think that it would be inappropriate to bring forward any part of the fee structure for the two new registers in advance of that consultation. It is for those reasons that I ask the member not to press amendment 64 or to move amendment 81.

I note that Jeremy Balfour’s amendments form part of the Law Society of Scotland’s response to the committee’s call for written evidence at stage 1. I understand that the Law Society considers amendments 58 and 70 necessary because it thinks that the existing references are too vague and considers that only a statutory protected trust deed should be in scope. We tend to think that the wording in the bill as introduced is amply flexible to cover a number of situations; to remove that and replace it with what the amendments propose would only allow for when a protected trust deed is registered by the Accountant in Bankruptcy, at which point it becomes protected. It is therefore too restrictive, and the more flexible wording, in the bill as drafted, would include the granting of a voluntary trust deed as well as a protected trust deed.

The Law Society considers that amendments 59 and 72 are necessary to ensure that what it considers to be irrelevant company voluntary arrangements are prevented from affecting assignations and statutory pledges. Our view is that that is not necessary. The relevant subsections are for ascertaining whether an assignor or provider is insolvent. Whether any voluntary arrangements include this claim or property is not important to that consideration.

Amendments 60 and 71 are considered necessary by the Law Society on the basis that the bill makes no reference to such arrangements under the Companies Act 2006, and it considers that it should do so to ensure consistency with wider insolvency law. Those amendments seek to add a further catch to the corporate insolvency net. Part 26A of the 2006 act enables companies to apply to the court for an order sanctioning an arrangement or a reconstruction agreed with a majority of members or creditors should they find themselves in financial difficulty. Section 901F of the 2006 act refers to the process of the court sanctioning any such agreement.

We previously considered the issue and took the view that provisions under part 26A mainly refer to companies that are in difficulty, as opposed to those that are insolvent, and we tend to think that amendments 60 and 71 have no utility in expanding the corporate insolvency provisions in the bill as introduced. The Scottish Law Commission recognised that the law on insolvency as it relates to assignations and pledges is complex. It was partly for that reason that it included a power to adjust the definition of insolvency, if necessary.

Although we should not defer this matter to regulations if we are convinced that a change is appropriate now, we are not convinced that it has been shown that that is, indeed, the case. I am concerned that the group of changes that are proposed through amendments 60 and 71 might not be sufficiently cohesive. For example, the suggestion seems to be that voluntary trust deeds should not be included but that voluntary restructuring plans should be. In addition, amendments 60 and 71 do not seem to have been as fully considered as they need to be, given that amendment 71 would erroneously change the definition of when an individual is insolvent when the item in question is about being subject to a company restructuring plan.

My preference is therefore that we do not rush into making any changes just now and, instead, that we take the time that is needed to consult relevant academics and the Accountant in Bankruptcy, safe in the knowledge that we will be able to adjust it at a later stage, if it is agreed that changes are appropriate.

For those reasons, I ask Jeremy Balfour not to press amendment 58 and not to move amendments 59, 60 and 70 to 72.

This group of amendments, which relates to electronic signatures, responds to the committee’s recommendation that the bill be amended to require only simple electronic signatures, given that advanced or qualified electronic signatures can create barriers to conducting business for most users. The matter was originally raised by Jeremy Balfour at stage 1, and I am grateful to him for doing so.

Section 116 currently defines the term “authenticated” with reference to section 9B(2) of the Requirements of Writing (Scotland) Act 1995, which provides that

“An electronic document is authenticated if the electronic signature of”

the person who is authenticating it

“is incorporated into, or logically associated with, the electronic document ... was created by the person by whom it purports to have been created, and ... is of such type, and satisfies such requirements (if any), as may be prescribed by the Scottish Ministers in regulations.”

Regulation 2 of the Electronic Documents (Scotland) Regulations 2014 requires a signature to be “an advanced electronic signature”, whereas section 9G(1)(d) of the 1995 act further provides that

“it is not competent ... to record or register”

an electronic document

“in any other register under the management and control of the Keeper of the Registers of Scotland”

unless sections 9G(2) and (3) both apply to the document. That means that the document must be presumed, under section 9C or 9D or by virtue of section 9E of the 1995 act, to have been authenticated by the granter, and the document, electronic signature and any certification must be

“in such form and of such type as are prescribed by the Scottish Ministers in regulations.”

Regulation 3 of the 2014 regulations provides that

“For an electronic document to be presumed authenticated ... under section 9C ... the ... signature ... must be ... an advanced electronic signature; and ... certified by a qualified certificate”

for signature. That means that assignation documents under part 1 of the bill and constitutive documents for statutory pledges under part 2 must be signed using an advanced electronic signature, and for them to be registered, they must also be certified by a qualified certificate.

The Government has consulted stakeholders on this issue, including the Federation of Small Businesses and the Registers of Scotland, with the FSB indicating that it thought that forms of authentication beyond simple electronic signatures were costly to small businesses. It is understood that the jump in cost and complexity between each level of signature is likely to be significant. Therefore, I believe that, to encourage the use of the new registers and to avoid unnecessary costs, with smaller start-up businesses in mind, simple electronic signatures would offer the best option.

Amendment 45 is the critical amendment in the group, as it removes the requirement for electronic signatures to be authenticated through the use of an advanced or qualified electronic signature. Therefore, it will be possible to use a simple electronic signature. However, it will still be possible to use advanced or qualified electronic signatures if parties wish to do so.

Amendments 42 and 44 will remove the current definitions of “authenticated” and “executed”. Although amendment 45 replaces the definition of “authenticated” with rules for the authentication of a document, it retains a substantive definition of the execution of a document.

Amendment 45’s new section 116(1B) will allow ministers to modify sections 116(1A)(a) and (b) in place of section 116(3), which amendment 46 removes.

Amendment 40 amends section 114 to replace the reference to section 116(3) with one to section 116(1B). That will ensure that regulations under section 116(1B) will be subject to the affirmative procedure.

Amendment 43 consequentially defines “electronic signature” in section 116(1) for the purposes of the bill, because the definition in section 12(1) of the Requirements of Writing (Scotland) Act 1995 is no longer imported into the meaning of “authenticated”, as amendment 42 will remove the cross-reference to section 9B(2) of the 1995 act.

Section 9G(1)(d) of the 1995 act stipulates that it is not competent

“to record or register ... a document in any ... register under the management and control of the Keeper of the Registers of Scotland”,

unless it includes a qualified electronic signature. Amendment 36 makes it clear that section 9G(1)(d) of the 1995 act will not apply to the registration of documents under the bill, so a simple electronic signature will suffice for authentication, although there is nothing to stop parties using advanced electronic signatures or qualified electronic signatures if required to do so.

I move amendment 36.

Amendment 36 agreed to.

Section 113 agreed to.

After section 113

Amendment 84 not moved.

Yes. I will to come on to that later in my remarks. We propose, through amendments, to increase the threshold to £3,000 and for regulation-making powers to allow for that figure to be increased subsequently.

I will pick up from where I was in my remarks prior to taking that intervention, when I was discussing charities and unincorporated organisations. We think it important that such bodies in the form of, for example, sporting clubs, should be able to raise finance on the strength of their own assets. I wanted to ensure that that was on the record.

For a corporeal asset to be pledged by a relevant individual, that asset will also need to be worth a certain amount. That rule previously applied only to individual consumers, but it will now be a rule for sole traders and the other narrow categories of individual who are to be allowed to grant a statutory pledge. It provides added protection on top of the rule that assets need to be of a certain type—essentially, a business asset. The Government has also accepted the committee’s recommendation that the threshold should be raised to £3,000. It can also be raised in future by regulations. That, coupled with the rule about how the asset is owned or used, effectively means that household goods cannot be pledged. As we did previously with consumers, we have taken a power to specify particular assets that cannot be pledged. Although we do not expect to need to use it, it would allow us to plug any gaps were they to arise.

In its stage 1 report, the committee recommended that the Government should consider

“creating more protections in the Bill for sole traders”,

since, in many cases, they will be in a similar position to individual consumers.

I consulted the Federation of Small Businesses on that point. Its view was that no specific protections were required for sole traders, who should be treated as adults in the business world.

However, the Government has lodged amendment 20, which provides that a court order will be required if a pledge is to be enforced against a sole trader. The FSB has indicated that it thinks that that is a useful protection. Sole traders are also protected by amendment 16, of course, in that they are not allowed to pledge assets that are unrelated to their business or that fall beneath the £3,000 threshold, so they will not be able to pledge essential items that are in their home.

Amendments 14, 15, 18, 19, 22 and 38 are consequential amendments that reflect the removal of section 48 and the removal of the ability of individual consumers to grant a statutory pledge.

Amendment 37 adds amendment 16’s new regulation-making power to the list of delegated powers that will be subject to the affirmative procedure.

I turn to Carol Mochan’s amendments. Amendment 16A would exclude from permitted assets household goods that are essential for heating, cooking or laundry purposes, so that it would not be possible to use such items as collateral for a loan under a statutory pledge. That applies only to those such as sole traders who are able to grant a statutory pledge under amendment 16, not the general population.

In our view, the proposed monetary threshold of £3,000 would cover all goods that are used for heating, cooking or laundry purposes in a home, and it is therefore unnecessary to make special provision for those. It also seems very unlikely that any prospective creditor would lend on the basis of such collateral, or that assets that are used for those purposes in a home would meet the business purposes element of the permitted assets test.

The tests that are already applied are designed precisely to exclude ordinary household goods. Adding a further rule may result in complexity and unintended consequences—for example, it might prevent a sole trader who provides cooker installations from granting a pledge over their business stock.

We have the power to carve out further things from the definition of permitted assets, if we need to do so in the future, but we do not want to unnecessarily overcomplicate matters and potentially create a situation in which unintended consequences could arise.

On amendment 16B, I appreciate it may seem a good idea to provide that the monetary limit for the value of property to be pledged be subject to annual update in line with the retail prices index, but that is unnecessary. In the past few years, prior to the recent surge, inflation has been relatively low, and the current figure is expected to fall.

The threshold is already being increased to £3,000. That is ample for excluding household white goods and similar, and there is a power for the threshold to be increased further, as and when appropriate.

It is worth bearing in mind that that figure is not the only means of ensuring that ordinary household items are not pledged. A sole trader would have to be acting in the course of their business, and the asset would have to be one that was used wholly or mainly for the purposes of the business. The threshold is therefore less critical than it was when it was applicable to—and only to—ordinary consumers.

Amendment 16B does not provide for the threshold to be changed on the face of the act—which, we believe, would lead to significant confusion. However, to amend the figure in the act would mean that the regulations would have to be made annually. Since any rise is likely to be of a negligible order, we do not believe that that is the best use of parliamentary time. It would be more efficient simply to update the figure every few years, taking into account the level of inflation that is prevalent at the time. The figure in the act may have to be amended more often if inflation is higher, but less often if it is lower. Therefore, a set period for amendments does not seem appropriate. For all those reasons, I ask Carol Mochan not to move her amendments.

I move amendment 14.

I note that Jeremy Balfour’s amendments 64 and 81 will exempt not-for-profit money advisers from the fee structure that will apply to searches of the assignations record and the statutory pledges record in cases in which those advisers do not charge individuals for their services. I appreciate that that takes forward a recommendation to that effect from the committee’s stage 1 report, but that report was written at a time when the bill would have allowed individual consumers to grant a pledge.

The committee will be aware that I set out the Scottish Government’s position in two letters, and I am happy to reiterate that position now. The Scottish ministers are in consultation with the keeper of the registers of Scotland, who is empowered by section 110 of the Land Registration etc (Scotland) Act 2012 to set the level of fees that applies to cover the costs of maintaining and operating the registers that are under the keeper’s control. Any proposal to exempt any class or group of persons from the fee structure will mean that the costs will need to be met from elsewhere, either by passing them on to other users of the registers—which I think we can all agree would be unfair—or by those costs being met from the public purse. That should be given very careful consideration, given the current budgetary pressures that we face.

Amendment 1 is a technical amendment that relates to the possibility that there could be competing assignation documents in relation to the same claim. In most cases, the claim would transfer to whichever assignee first benefited from intimation or registration of the assignation document, because that will usually be the final requirement to be met under section 3(2) and so will give rise to the transfer. However, in some cases, it might not be the final requirement to be satisfied.

Amendment 1 deals with the scenario in which the final requirement to be met is the claim becoming identifiable. That might happen if it is a future claim. Amendment 1 provides that, if the final requirement for transfer is met when the claim becomes identifiable as one that is covered by the assignation, the claim transfers to the person who first benefited from registration or intimation in their favour.

Although it should be very unusual for the same claim to be assigned by one person to different people, amendment 1 would ensure clarity by breaking what would otherwise have been a tie. It would also ensure that section 3(5)(c) deals consistently with all the possible ways in which a tie could arise.

Amendments 2 and 3 are technical amendments that relate to the possibility that a claim might be assigned in whole or in part. Although assignation in part is likely to be rare, it is still important that a suitable provision is made for it.

Amendment 2 would have two effects. First, it would provide that what matters is whether it is likely that assignation will make the obligation more burdensome on a debtor, and the question whether the claim can be assigned in part will therefore be assessed when the assignation is made, rather than it potentially appearing to be valid at the time but becoming challengeable when unforeseen events occur later.

Secondly, at the moment, section 5 provides that the requirement for a claim to be divisible in order to be partially assigned applies only where the debtor does not consent to partial assignation. However, a claim that is not divisible cannot be assigned in part. Amendment 2 therefore makes it clear that the requirement for divisibility applies whether or not the debtor consents.

Amendment 3 provides that an agreement about any expense that is attributable as a result of a claim being assigned in part rather than as a whole may be made with the assigner or with the person who was a holder of the claim at the time of agreeing it. That simply recognises that an agreement with a previous holder is valid and that matters do not have to be renegotiated every time that the holder changes.

On amendment 9, it has been suggested that it should be competent to register an assignation document that assigns different claims to different people. The intention would be to restrict the associated application for registration to only the claims that are relevant to the particular assignee in question, and amendment 9 would provide for that.

Amendment 12 would remove section 38, which would disapply the Transmission of Moveable Property (Scotland) Act 1862 in relation to assignations to which part 1 of the bill applies. It would replace it with a section that would repeal the 1862 act in its entirety. That is because, following discussions with the SLC advisory group, we have satisfied ourselves that there is no purpose for which we would want to preserve the 1862 act, even if assignations of financial collateral arrangements were not brought into the bill by a section 104 order, as we expect them to be.

On amendment 61, in the name of Mr Balfour, I understand that the Law Society of Scotland believes that the question of how long a notice should take to be deemed to have arrived ought to be subject to a determination as to the method of service under section 8(6). Our understanding is that amendment 61 is intended to achieve that; unfortunately, however, it does not work and is unnecessary. If someone tries to intimate using a method of service that is not allowed under a determination entered into by the parties, it will not, under section 8(6)(a), be a valid intimation. As such, it is irrelevant when the notice is taken to arrive under section 8(9), because it will not achieve anything.

If someone tries to intimate by post in a case where a particular postal address has been agreed between the parties under the determination, intimation to a different address will be invalid, because of section 8(5)(b). Again, it will be irrelevant when the notice to the wrong address is taken to arrive, because it will not achieve anything.

If someone intimates by post to the address that has been agreed between the parties under the determination, the rule on when it is deemed to arrive under section 8(9) already applies. Indeed, section 8(9)(a) includes an express reference to the fact that the relevant address might have been modified by the parties under subsection (6)(b). Amendment 61 is therefore unnecessary and will simply confuse matters, and I ask Mr Balfour not to move it.

Mr Balfour’s amendment 65, which was also suggested by the Law Society, would mean that those acting in the place of assignees such as trustees and agents would be included in the definition of “assignee”. The Government does not believe that that is necessary. Legislation does not normally deal expressly with trustees and agents, given that the general law deals suitably with such aspects, and it would be cumbersome always to have to mention every possible representative capacity in which a person could act. In this case, however, we already have a provision under section 116(2) that explicitly provides that someone who is required to do a thing can have someone else do it for them. I therefore ask Mr Balfour not to move this amendment on the basis that it is unnecessary.

I move amendment 1.

I recognise the point that Mr Balfour makes and the original intention behind Ms Mochan’s amendment. The Government has regular dialogue with a range of business representative organisations, and there is regular dialogue and engagement at ministerial level, so should any issues arise, there would be an opportunity in the first instance for that direct communication to the Government and, as a consequence of that direct engagement, the Government could consider whether any review or further action was required.

Beyond that, Parliament has a very important role to play. All ministers are accountable to Parliament and are subject to questions by other parliamentarians and by committees. Should concerns arise, there are avenues through direct engagement with the Government from representative organisations or through the activities of parliamentarians holding the Government to account for concerns to be flagged and for any review to be undertaken. I add that it would not be only for the Government to have that opportunity, should it be required; Parliament, at any time and in any capacity, via committees or otherwise, can choose to instigate a review of any piece of legislation. That is routine and good practice.

In light of the continued close engagement that takes place between the Government and business and the fact that ministers and the Government are held to account by Parliament, which provides an opportunity for questions and updates on how the provisions of the bill operate in practice, I ask Ms Mochan not to press her amendments.

The Government amendments are intended to respond to criticism of the effect of section 13 from stakeholders and practitioners in the field in relation to rights of compensation and other similar rights that the debtor may have against the assignor. Amendments 5, 6 and 7 respond to concerns of members of the Scottish Law Commission’s advisory group on moveable transactions that relate to the impact of the provision on compensation, set-off, retention, balancing of accounts or counterclaims, rather than on defences.

Amendments 5 and 6 remove wording that it was considered might not exactly replicate the existing common-law rule whereby a debtor can, after the claim is assigned, assert a right of compensation, set-off and so on that the debtor had against the assignor against the assignee.

Those provisions are replaced by amendment 7, which is intended to preserve the current position, in which notice of the assignation is intimated but has the effect of ensuring that the registration of an assignation is not to be treated in the same way as intimation. Whereas giving notice of intimation of the assignation would have the effect that subsequent dealings between the assignor and the debtor would not be included in any calculation of compensation and so on that the debtor could not assert against the assignee, registration is not to have that effect, unless accompanied by other actings, which would be treated as notice to the debtor that the claim had been assigned.

Given the progress that we are making with a section 104 order, which will ultimately ensure that the bill achieves the effect that the SLC intended for it to achieve, and given that we look for those provisions to come into effect when the registers go live, the approach that we have set out in the bill is sufficient to meet the SLC’s objectives.

I recognise that there is a keen interest in ensuring that the provisions come online and understand the desire to seek any compromise options. However, given that the registers will—we hope—commence next summer, subject to Parliament agreeing to the bill at stage 3, I ask Jeremy Balfour not to press the amendments.

Amendments 62 and 63, in the name of Jeremy Balfour, were included in the written evidence from the Law Society of Scotland to the committee during stage 1 of the bill. I understand that the Law Society’s view was that, if the assignee can demonstrate that the processes for intimation have been complied with, the onus should be on the debtor to demonstrate that they were acting in good faith.

The amendments remove protection for a debtor who would have been able to rely on the provisions in section 10. Under the current law, a claim would transfer only if the assignation was intimated to the debtor. However, the effect of the changes in the bill is to extend the scope of intimation and to enable registration as a method of effecting the transfer of a claim. That being the case, the debtor might not know that a claim has been assigned and might in good faith pay an assignor who is no longer the creditor. The onus is placed on the person making the assertion that a debtor has performed other than in good faith. Whether or not a debtor has performed in good faith will depend on the facts of the case.

It is my view that the amendments do not take into account the extension to the scope of intimation and that, in reversing the burden of proof, the amendments would be unfair to the debtor. How could a debtor prove a negative? That is in effect what a debtor would be required to do if they had not, in fact, received notification, even though they might be deemed to have done so. The person intimating the assignation could choose to do so in a way that allows for delivery to be recorded, and therefore gives evidence of delivery, whereas the debtor would have no control over that. For that reason, I ask the member to withdraw amendment 62 and not to move amendment 63.

The new section that is introduced by amendment 4 would provide further protection for a debtor performing in good faith, both where the debtor is unaware of a condition pertaining to the assignation of a claim and where the debtor is aware of the condition but mistakenly thinks that it has been met and performs to the assignee. The claim will not have transferred because the condition has not been satisfied, but, in the circumstances that I have described, which mean that the debtor performs to the assignee, the debtor will be discharged from the claim to the extent of that performance because they will have acted in good faith.

Section 14 applies where notice of an assignation document has been given to a debtor by the assignee, rather than by the assignor. It has the effect that the debtor may request from the assignee reasonable evidence of the assignation document having been granted. Where an assignation document has been granted, the debtor will be entitled to withhold performance from each of the assignor and the assignee until the evidence is provided by the assignee. Where an assignation document has not been granted, the debtor will be entitled to withhold performance until either the purported assignee, or the purported assignor, confirms in writing that an assignation document has not been granted in respect of the claim.

Section 14 also allows a debtor who has not received intimation of an assignation but becomes aware that an assignation document may have been granted, to ask a purported assignor to confirm whether that is the case, and to withhold performance until they receive that confirmation.

Amendment 8 makes it clear that, if the debtor is a co-debtor, and if only one co-debtor makes a request for information, the protection that is given by section 14 to withhold information until the evidence is provided is available only to the co-debtor who made the request and not to other co-debtors. The other co-debtors are likely to be unaware of the request for information, so it follows that their obligation should not also be suspended.