[Project now completed]
Professor George Gretton
John Dods, Project Manager
This project derived from a reference from Scottish Ministers, which we received in September 2000.
In the case of Sharp v Thomson 1997 SC (HL) 66, a floating charge crystallised after the debtor company had granted a disposition of a flat but before the disposition had been registered. Despite the absence of registration, the flat was held not to form part of the property and undertaking of the company. Accordingly, it was not attached by the floating charge.
This decision of the House of Lords was criticised both as to result and as to reasoning. In our Discussion Paper (DP 114), published in July 2001, we suggested that the approach adopted by the House of Lords should be abandoned and that special legislative protections for purchasers should be introduced in its place. Most consultees supported our proposals.
Since the discussion paper there have been a number of developments. First, for floating charges created since the commencement of the Enterprise Act 2002 administration is now discharging the functions that in the past were discharged by receivership. Secondly our main proposal was largely superseded by the decision in Burnett's Trustee v Grainger 2004 SC (HL) 19 where the House of Lords declined to apply Sharp v Thomson to ordinary personal insolvency. Finally, section 17 of the Bankruptcy and Diligence etc. (Scotland) Act 2007 will, when in force, implement most of proposal 4 of the discussion paper. Section 17, by giving a purchaser of land a safe period in which to complete title where the seller is sequestrated after delivery of the disposition and by allowing post-sequestration deeds to be given effect to for a limited period after sequestration, enhances a buyer's protection against non-corporate insolvency.
We have now completed our work in this project taking into account these developments. We have concluded that further protection requires to be given against the danger of a corporate seller's insolvency in the course of a sale. We therefore recommend:
- Measures to ensure that buyers can readily find out whether winding-up proceedings are in hand against a corporate seller. This involves amending the relevant statutory rules to require earlier publicity to be given.
- Measures to ensure that floating charges created in the future cannot attach without the attachment having been publicly registered. This is the "no attachment without registration" principle. This involves amending the rules contained in the Insolvency Act 1986 and the Bankruptcy and Diligence etc. (Scotland) Act 2007.
- The abolition of the rule contained in section 25 of the Titles to Land Consolidation (Scotland) Act 1868 that allows a liquidator of an insolvent corporate seller to out-manoeuvre a buyer by means of an immediate completion of title.
Our recommendations are set out in our Report on Sharp v Thomson (Scot Law Com No 208).
Page archive date: 12 December 2007