As highlighted in our recent blog comparing LPA receivership vs calling-up, there are significant differences both in law and practice between Scotland and England & Wales ("E&W"). The Scottish Law Commission ("SLC") has looked at the concept of fixed charge receivership in a recent Discussion Paper on Heritable Securities and considered whether a form of fixed charge receivership should be introduced in Scotland.
As discussed by the SLC, fixed charge (or LPA) receivership has its origins in lenders wanting to avoid the potentially onerous liabilities of becoming a mortgagee in possession. The SLC's view in the paper is that entering into possession of a property in Scotland (by a lender) does not result in the imposition of the same onerous liabilities as is placed on an English mortgagee in possession. Therefore, it suggests that the case for receivership is "less clear in Scotland".
There are differences between the jurisdictions in terms of the liabilities that a lender in possession can be faced with. However, the position in Scotland is by no means risk free for lenders. For example. the Discussions Paper highlights that a creditor in possession can be liable for remediation of contaminated land under the Environmental Protection Act 1990.
In our experience, lenders in Scotland are just as keen as lenders in E&W on wanting to avoid entering into possession of secured property.
The case for law reform on this issue
It is generally accepted within the industry that the law in Scotland on enforcement of standard securities is clunky and requires reform. The law reform programme which led to the SLC's paper noted that "the rules about enforcement are complex and hard to understand". This undoubtedly leads to uncertainty and prejudice being suffered by both lenders and debtors.
The E&W law on receivership is a helpful comparison. At a high level, there are two key differences between the two jurisdictions: (1) the time it takes for a lender to take control of a property after a default; and (2) the powers the lender/receiver has to deal with and sell the property.
The time it takes is, to some extent, a balancing act between the interests of lenders and those of debtors. The approach of the Scottish Government has tended towards being debtor friendly. The industry will watch with a keen eye to see what the recommendations of the SLC will be following responses to the paper.
On the question of powers, many argue that serious consideration should be given to the introduction of a procedure akin to receivership where a third party has responsibility and increased powers to manage and best realise value from heritable property.
The Faculty of Advocates in responding to the Discussion Paper expressed the view that receivership would add little or nothing to the existing remedies available under Scots law. Our own experience of receivership in E&W demonstrates that there may be practical advantages to be gained from some assimilation. The question of whether receivership could be a useful alternative to some of the existing remedies available under Scots law is certainly one worth debating.
If you are a receiver or lender seeking to deal with property in Scotland or E&W or a borrower subject to enforcement action, or you have any concerns or questions about these matters and how they may impact you or your business, please do not hesitate to get in touch with your usual Brodies' contact.
