HC Deb 19 July 1967 vol 750 cc2229-39

Schedule 2 to the Companies (Floating Charges) (Scotland) Act, 1961 shall be amended by adding to section 106A(9) the words and in the event of the charge being used as security for such further indebtedness, it shall be competent to reregister the charge, and for this purpose the date when the additional security is conferred on the Company's property or undertaking shall he deemed to be the date of the creation of the charge'.—[Mr. Wylie.]

Brought up, and read the First time.

Mr. N. R. Wylie (Edinburgh, Pentlands)

I beg to move, That the Clause be read a Second time.

This Clause is to fill a gap in the legislation passed in 1961 which introduced floating charges as a security in Scotland. The Clause is a highly technical Amendment, but an important one. The Companies (Floating Charges) (Scotland) Act, 1961, amended the provisions of the 1948 Companies Act by making it possible in a variety of ways to constitute security in Scotland by means of floating charges. One of the requirements of the Act was that when the charge has been created it is by Statute required to be registered with the Registrar of Companies within a period of 21 days. In Section 106A(1) of the Second Schedule to that Act there is set out a series of ways in which a floating charge can be effected. One way is by means of a form of security well known to Scottish law as ex facie absolute disposition.

One of the features of the ex facie absolute disposition is that it can be used as security not only for existing but for future indebtedness, and the drafters of the 1961 Act intended that it would be so used. Subsection (9) of Section 106A makes this clear, because it says: For avoidance of doubt it is hereby declared that, in the case of a charge created by way of an ex facie absolute disposition or assignation qualified by a back letter, the compliance with subsection (1) of this section"— that is the requirement for intimation within 21 days— shall not of itself render the charge unavailable as security for indebtedness incurred after the date of the compliance. Clearly the intention of that subsection was that security effected in this way could be used to cover future indebtedness.

The matter came before the Scottish Court of Appeal last November in an application by a company which sought authority to raise a further loan on a security constituted under this Section. About £250,000 had been raised by means of a floating charge effected by an ex facie absolute disposition, and, in terms of the deed entered into with the insurance company, there was an arrangement that, if required, the company would be able to raise a further £250,000. This is an example of the way in which this matter affects commerce in Scotland. Clearly, it could be important.

When the matter came to be considered, it became clear that, because the ex facie absolute disposition had been registered in the Register of Sassines, and because there was no machinery in the legislation for re-registration, it was impossible to use this security as security for the further obligation which it was sought to incur, notwithstanding that it was Parliament's intention that it should be so covered.

The judgment of the Lord President of the Court of Session puts the point very shortly. After narrating that the original deed had been registered on the land register, the Lord President went on to say: The plain fact of the matter is that the statutory provisions are incomplete and provide no machinery for re-registering a charge such as an ex facie absolute disposition which can be used as security for future as well as existing advances or loans. He ended his judgment by saying: The present case discloses a clear deficiency in the statutory provisions which can only be remedied by an amendment of the Act. Then he said that, with reluctance, he had to refuse the petition.

Each of the other two judges in that application pointed out that there was a technical omission in the 1961 legislation which Parliament alone could remedy.

Lord Guthrie at the end of his judgment said: It would appear that the Act as amended is not well adapted to deal with the Scottish method of creating a security for future as well as existing debts by an ex facie absolute disposition, but the remedy for this state of the law is to be sought in Parliament and not in this court. Lord Cameron, the other judge in the application, said somewhat the same. He said: If there is a gap in the legislation, as I think there is, then it is for the legislature, if it thinks proper, but not for the court, to fill it. That is the short point. This is not a policy matter, or a political issue. It is a case of providing machinery in the existing legislation for the reregistering of a charge so that the purpose of the legislation can be achieved. The essential words in the new Clause are those which appear in the middle of the third line: …it shall be competent to re-register the charge… Because there is no machinery in the existing legislation for re-registering the charge, this difficulty has arisen. Accordingly, I hope that the Minister of State will accept the new Clause.

I readily accept that there are other features of Section 106A of the Second Schedule to the 1961 Act which are not very satisfactory. The whole of that Section needs looking at, but I have confined the new Clause to something which has already been the subject of a decision by the Court of Appeal in Scotland. This is the adequate opportunity to correct that. It would not take a great deal of time, it would take very little space, and I hope, therefore, that the right hon. Gentleman will accept the Clause.

8.15 p.m.

Mr. Darling

I have a great deal of sympathy with the hon. and learned Member for Edinburgh, Pentlands (Mr. Wylie). If I may say so, there has been a breakdown in communications, because the Board of Trade has known for some time that there were certain provisions in the Companies (Floating Charges) (Scotland) Act, 1961, that might require amendment. In some of the cases that have come my way about trying to help companies that were getting into difficulties in some of the development areas, officials have said that at some time we should have to put right the Floating Charges Act. So, in January this year, we asked the Scottish Law Commission to look into the appropriate provisions in the Companies (Floating Charges) (Scotland) Act, 1961, and to make such recommendations as it thought fit, in order, I suppose, to get rid of some of the difficulties and anomalies to which the hon. and learned Gentleman has referred and to make suggestions for further improvements.

Until the hon. and learned Gentleman's new Clause appeared on the Notice Paper neither I nor Board of Trade officials generally had any intimation that the matter was so urgent as he has now made out. We can hardly ask the Law Commission to survey the wider provisions here that may need amendment and then suddenly take out one provision and amend it ourselves. It was our intention all the time that the Commission's recommendations, if it brought forward any, should be enacted in the next Companies Bill which, of course, will be dealt with during the life of this Parliament. As we have asked the Scottish Law Commission to deal with this matter, the only thing we can do is to wait for its report and recommendations.

I am sorry about this, but, if there had been a sense of urgency about it which had been conveyed to us earlier, we might have been able to pass that sense of urgency on to the Scottish Law Commission.

Mr. Ian MacArthur (Perth and East Perthshire)

I must tell the right hon. Gentleman that I am very disappointed with his reply. He questions the need for urgency. The reason surely for moving this new Clause tonight is that we now have an opportunity to correct what is clearly a mistake in the law, a mistake to which the highest court of Scotland has called the attention of the nation.

The right hon. Gentleman maintains that there has been a failure of communication. That is all too clear, but the failure is not on the part of my hon. and learned Friend the Member for Edinburgh, Pentlands (Mr. Wylie), but on the part of the Government.

The right hon. Gentleman has constantly declared the Government's concern for the development areas and thus for Scotland. Indeed, he illustrated that just now by reminding the House that the Scottish Law Commission had been invited to study any weaknesses that there might be in the 1961 Act. I am glad to know that. If he has this concern, why is the situation not watched more closely? Why does the Lord Advocate not advise the right hon. Gentleman and the Board of Trade about pronouncements made in courts of this kind? After all, we cannot simply brush aside the judgment by the Lord President of the Court of Session and the two learned judges, Lord Cameron and Lord Guthrie, in the highest court of Scotland in November and pretend that we knew nothing about it, although it happened at a time when we were wondering if there was some weakness about the Act to which their lordships referred. With respect, that simply will not do.

I ask the right hon. Gentleman now and in the future to make certain that the Board of Trade and other Government Departments pay attention to the advice given by the courts of Scotland on weaknesses in the Scottish law, particularly when those weaknesses affect commercial developments which all of us wish to see. The failure of communication is entirely within the Government, contributed to, of course, by the Government's inability to find a place in the House for one of their Law Officers.

Perhaps I may recall that well known phrase, "Where is the Lord Advocate?" The right hon. Gentleman will remember the many occasions when that cry went up in days gone by. Where is the Lord Advocate, indeed, and where is the advice which he should be giving to the Government? How comes it that the Board of Trade had no knowledge, until my hon. and learned Friend put down his new Clause, that there was this weakness in the 1961 Act?

My hon. and learned Friend has explained that an ex facie absolute disposition can act as a two, three, or four-stage floating charge for a loan and repetition of loan. As I understand the matter, that disposition must be registered within 21 days, and it thus provides a floating charge against which a loan can be made. My hon. and learned Friend will, no doubt, interrupt me if I begin to tread troubled water in trying to swim through the technicalities of floating charges. Clearly, it was Parliament's clear intention under the 1961 Act that a second loan should be possible on the original floating charge. In English terms, I understand that this might be equivalent to obtaining a second mortgage on property already mortgaged. But, because of a defect in the 1961 Act, that facility does not exist. It is not possible under the Scottish law at present to register a second loan against the original floating charge, and, because such a second loan cannot be made, people who for good reasons wish to borrow money are caused much concern and disappointment.

Not only is there a weakness in the law which works against our commercial interest, but we are flying in the face of the clear intention of Parliament in 1961. If I remember aright, the 1961 Act was originally a Private Member's Bill introduced by one of my hon. Friends at that time, and, through error—these things do happen—a gap in his Bill was overlooked. We now have an opportunity to put it right. The need to do so is amply proved. There is a commercial weakness here which affects small businesses particularly in Scotland, and the small private family business, I understand—I shall be corrected if I am wrong—represents a greater proportion of the total business scene in Scotland than it does in England. The need to raise new capital at this stage of our commercial development in Scotland is pressing in many cases. There must be many occasions when there is great need for a second loan against an original floating charge.

In the case to which my hon. and learned Friend referred, the Lord President of the Court of Session and the two learned judges sitting with him, all leaders in the Scottish law and sitting in the most senior and authoritative court, pronounced their opinion with great reluctance, regretting that there was a defect and calling on Parliament to remedy it. The matter is urgent. Here is the opportunity to put it right, an opportunity which will not present itself again for a long time, perhaps for years. I urge the right hon. Gentleman to take it.

Mr. Darling

I should like to clear up my references to the lack of com- munication. I do not think that hon. Members quite understood what I had in mind. If there was great urgency in the matter, the new Clause ought not to have appeared on the Notice Paper a week ago. That is what I had in mind. As regards the Lord Advocate, it was, of course, on the advice of, and in consultation with, the Lord Advocate that we made certain submissions to the Scottish Law Commission.

Mr. Michael Shaw

We can attach no weight to arguments about starred Amendments and new Clauses. In the light of what has been happening during the past week or so, it is clear that the pace at which the Bill has gone through the House has at all stages been dictated entirely by the speed at which the Government could produce their own Amendments to it.

It is significant that the Minister of State, almost for the first time today, has not on this occasion said that he is no lawyer. He has not even said that he is not a Scottish lawyer. A very powerful case has been put to the House by my hon. and learned Friend the Member for Edinburgh, Pentlands (Mr. Wylie), who is a Scottish lawyer, and it is a pity that we could not have a Scottish Law Officer present on the Government benches. However, in the face of the expert advice we have had from my hon. and learned Friend and the overwhelming case he has made, I hope that not only my right hon. and hon. Friends but Scottish hon. Members opposite will go into the Lobby in support of the new Clause.

Mr. Wylie

I am sorry that the Minister of State has adopted this attitude. I cannot accept that, until one can do everything, one should do nothing. That seems to be the import of his reply, that there are other things wrong with Section 106, it has been sent to the Law Commissioners, until we hear from them we can do nothing, and we shall have to wait for another Companies Bill in the course of this Parliament. That is no answer to the case which we have put. There is an obvious defect in the law. The Court of Appeal in Scotland has pronounced on it and called for a remedy. Here is the opportunity to remedy it.

What is the relevance of submitting the matter to the Scottish Law Commission when it has already been pronounced upon by the Scottish courts? What on earth can the Scottish Law Commission do? This is one of the confusions regarding the functions of that body that one was tempted to foresee when the Law Commissions Act was going through. I should have thought that it was a duty of the Lord Advocate to advise the Government on a matter of this nature, on which unequivocal views were expressed by the Scottish courts as recently as last November.

I am sorry that the Government have adopted this attitude. I regard this point as important, as Scottish business people do. The only reason why the Clause was not put down in Committee is that I was not a member of the Committee, and did not think it fair to expect some of

my hon. Friends who are not qualified in the law of Scotland to put it forward, especially in the absence of a Scottish Law Officer. The only way matters of this kind can be brought to the notice of the House is to keep them to the Report stage and argue them myself. If the arguments had been put up in Committee and rejected, as no doubt they would have been, it would not have been possible for me to say anything now. I hope that the Government have second thoughts, but, if not, I must advise my right hon. and hon. Friends to divide.

Question put, That the Clause be read a Second time:—

The House divided: Ayes 121, Noes 190.

Division No. 480.] AYES [8.30 p.m.
Alison, Michael (Barkston Ash) Grant-Ferris, R. Page, John (Harrow, W.)
Atkins, Humphrey (M't'n & M'd'n) Griffiths, Eldon (Bury St. Edmunds) Pearson, Sir Frank (Clitheroe)
Baker, W. H. K. Grimond, Rt. Hn. J. Peel, John
Balniel, Lord Gurden, Harold Powell, Rt. Hn. J. Enoch
Bell, Ronald Harris, Frederic (Croydon, N.W.) Pym, Francis
Bennett, Dr. Reginald (Gos. & Fhm) Harrison, Col. Sir Harwood (Eye) Ramsden, Rt. Hn. James
Bessell, Peter Hawkins, Paul Ronton, Rt. Hn. Sir David
Brinton, Sir Tatton Hill, J. E. B. Ridley, Hn. Nicholas
Brown, Sir Edward (Bath) Holland, Philip Ridsdale, Julian
Bruce-Gardyne, J. Hooson, Emlyn Robson Brown, Sir William
Bryan, Paul Hunt, John Rodgers, Sir John (Sevenoaks)
Buchanan-Smith, Alick(Angus,N&M) Hutchison, Michael Clark Rossi, Hugh (Hornsey)
Buck, Antony (Coichester) Irvine, Bryant Godman (Rye) Royle, Anthony
Bullus, Sir Eric Johnston, Russell (Inverness) Russell, Sir Ronald
Burden, F. A. Kaberry, Sir Donald Shaw, Michael (Sc'b'gh & Whitby)
Campbell, Gordon King, Evelyn (Dorset, S.) Stainton, Keith
Cary, Sir Robert Kirk, Peter Steel, David (Roxburgh)
Cooke, Robert Knight, Mrs. Jill Stoddart-Scott, Col. Sir M. (Ripon)
Cooper-Key, Sir Neill Lancaster, Col. C. G. Taylor, Sir Charles (Eastbourne)
Cordle, John Langford-Holt, Sir John Taylor, Frank (Moss Side)
Corfield, F, V. Legge-Bourke, Sir Harry Temple, John M.
Costain, A. P. Lewis, Kenneth (Rutland) Thatcher, Mrs. Margaret
Craddock, Sir Beresford (Spelthorne) Lloyd, Ian (P'tsm'th, Langstone) Thorpe, Rt. Hn. Jeremy
Crosthwaite-Eyre, Sir Oliver Loveys, W. H. Turton, Rt. Hn. R. H.
Currie, G. B H. Lubbock, Eric van Straubenzee, W. R.
Dalkeith, Earl of MacArthur, Ian Vaughan-Morgan, Rt. Hn. Sir John
Dance, James Maclean, Sir Fitzroy Walker, Peter (Worcester)
Davidson, James (Aberdeenshire, W.) McMaster, Stanley Ward, Dame Irene
Dean, Paul (Somerset, N.) Maginnis, John E. Weatherill, Bernard
Deedes, Rt. Hn. W. F. (Ashford) Maxwell-Hyslop, R. J. Webster, David
Dodds-Parker, Douglas Maydon, Lt.-Cmdr. S. L. C. Whitelaw, Rt. Hn. William
Elliott,R.w.'N'c'tle-upon-Tyne.N.) Mills, Peter (Torrington) Wills, Sir Gerald (Bridgwater)
Emery, Peter Montgomery. Fergus Wilson, Geoffrey (Truro)
Errington, Sir Eric Munro-Lucas-Tooth, Sir Hugh Worsley, Marcus
Fortescue, Tim Nabarro, Sir Gerald Wright, Esmond
Foster, Sir John Neave, Alrey Wylle, N. R.
Gibson-Watt, David Nicholls, Sir Harmar Younger, Hn. George
Giles, Rear-Adm. Morgan Noble, Rt. Hn. Michael
Gilmour, Sir John (Fife, E) Nott, John TELLERS FOR THE AYES:
Glover, Sir Douglas Onslow, Cranley Mr. Jasper More and
Gower, Raymond Osborne, Sir Cyril (Louth) Mr. Timothy Kitson.
Grant, Anthony Page, Graham (Crosby)
NOES
Abse, Leo Bagier, Gordon A. T. Booth, Albert
Allaun, Frank (Salford, E.) Barnett, Joel Bowden, Rt. Hn. Herbert
Alldritt, Walter Baxter, William Boyden, James
Allen, Scholefield Beaney, Alan Braddock, Mrs. E. M.
Anderson, Donald Bence, Cyril Bradley, Tom
Archer, Peter Bennett, James (G'gow, Bridgeton) Brooks, Edwin
Atkins, Ronald (Preston, N.) Blackburn, F. Broughton, Dr. A. D. D,
Atkinson, Norman (Tottenham) Boardman, H. Brown, Hugh D. (G'gow, Provan)
Buchan, Norman Howarth, Harry (Wellingborough) Padley, Walter
Buchanan, Richard (G'gow, Sp'burn) Howie, W. Page, Derek (King's Lynn)
Butler, Herbert (Hackney, C.) Hoy, James Paget, R. T.
Cant, R. B. Huckfield, L. Pannell, Rt. Hn. Charles
Carmichael, Neil Hughes, Emrys (Ayrshire, S.) Park, Trevor
Coleman, Donald Hughes, Roy (Newport) Parkyn, Brian (Bedford)
Conlan, Bernard Hunter, Adam Pearson, Arthur (Pontypridd)
Corbet, Mrs. Freda Hynd, John Peart, Rt. Hn. Fred
Craddock, George (Bradford, S.) Irvine, A. J. (Edge Hill) Pentland, Norman
Crosland, Rt. Hn. Anthony Jackson, Peter M. (High Peak) Perry, Ernest G. (Battersea, S.)
Cullen, Mrs. Alice Jay, Rt. Hn. Douglas Perry, George H. (Nottingham, S.)
Darling, Rt. Hn. George Jones, Dan (Burnley) Price, Christopher (Perry Barr)
Davidson, Arthur (Accrington) Jones, J. Idwal (Wrexham) Price, Thomas (Westhoughton)
Davies, Dr. Ernest (Stretford) Jones, T. Alec (Rhondda, West) Price, William (Rugby)
Davies, Harold (Leek) Kelley, Richard Probert, Arthur
Davies, S. 0. (Merthyr) Kenyon, Clifford Rankin, John
Dell, Edmund Kerr, Mrs. Anne (R'ter & Chatham) Roberts, Albert (Normanton)
Dempsey, James Kerr, Dr. David (W'worth, Central) Roberts, Goronwy (Caernarvon)
Doig, Peter Lawson, George Robertson, John (Paisley)
Dunnett, Jack Lestor, Miss Joan Rose, Paul
Dunwoody, Mrs. Gwyneth (Exeter) Lever, L. M. (Ardwick) Ross, Rt. Hn. William
Dunwoody, Dr. John (F'th & C'b'e) Lewis, Arthur (W. Ham, N.) Rowlands, E. (Cardiff, N.)
Edwards, Rt. Hn. Ness (Caerphilly) Lewis, Ron (Carlisle) Sheldon, Robert
Edwards, Robert (Bilston) Lomas, Kenneth Short, Rt. Hn. Edward(N'c'tle-u-Tyne)
Edwards, William (Merioneth) Loughlin, Charles Short, Mrs. Renée(W'hampton,N.E.)
Ellis, John Lyon, Alexander W. (York) Silkin, Rt. Hn. John (Deptford)
English, Michael McBride, Neil Silverman, Julius (Aston)
Ennals, David McCann, John Slater, Joseph
Ensor, David MacColl, James Small, William
Evans, Albert (Islington, S.W) Mackintosh, John P. Snow, Julian
Evans, loan L. (Birm'h'm, Yardley) MacMillan, Malcolm (Western Isles) Spriggs, Leslie
Faulds, Andrew McMillan, Tom (Glasgow, C.) Steele, Thomas (Dunbartonshire, W.)
Fernyhough, E. McNamara, J. Kevin Swingler, Stephen
Finch, Harold MacPherson, Malcolm Thomas, George (Cardiff, W.)
Fletcher, Raymond (Ilkeston) Mahon, Peter (Preston, s.) Thornton, Ernest
Foley, Maurice Mallalieu, J.P.W.(Huddersfield,E.) Tinn, James
Ford, Ben Manuel, Archie Tomney, Frank
Forrester, John Mapp, Charles Urwin, T. W.
Fraser, John (Norwood) Marquand, David Wainwright, Edwin (Dearne Valley)
Galpern, Sir Myer Mendelson, J. J. Walden, Brian (All Saints)
Garrett, W. E. Millan, Bruce Walker, Harold (Doncaster)
Gourlay, Harry Miller, Dr. M. S. Wallace, George
Gray, Dr. Hugh (Yarmouth) Milne, Edward (Blyth) Wellbeloved, James
Gregory, Arnold Mitchell, R. C. (S'th'pton, Test) White, Mrs. Eirene
Grey, Charles (Durham) Molloy, William Whitlock, William
Griffiths, Will (Exchange) Morgan, Elystan (Cardiganshire) Williams, Alan (Swansea, W.)
Hamilton, James (Bothwell) Morris, Charles R. (Openshaw) Williams, Clifford (Abertillery)
Hamilton, William (Fife, W.) Murray, Albert Willis, George (Edinburgh, E.)
Hamling, William Newens, Stan Wilson, William (Coventry, S.)
Harper, Joseph Noel-Baker, Francis (Swindon) Winterbottom, R. E.
Harrison. Walter (Wakefield) Norwood, Christopher Woodburn, Rt. Hn. A.
Hart, Mrs. Judith Ogden, Eric Woof, Robert
Haseldine, Norman Orbach, Maurice
Heffer, Eric S. Orme, Stanley TELLERS FOR THE NOES:
Herbison, Rt. Hn. Margaret Oswald, Thomas Mr. Ernest Armstrong and
Hooley, Frank Owen, Dr. David (Plymouth, S'tn) Mr. Alan Fitch.
Horner, John Owen, Will (Morpeth)