Invoice financing in Scotland – Lexology


Any funder offering invoice finance facilities in the UK whose borrowers have (or may in the future have) debtors with a Scottish connection should be aware of the different rules applicable to invoice finance in Scotland.

Scottish law is less user-friendly for billing financiers than English law, and the following is a short, high-level guide to some of the key issues to consider in bill finance transactions involving Scottish debts or debtors.

When is Scottish law relevant?

The question is not whether the seller of the debts (the “Client”) is Scottish or English, but whether (i) the debts are governed by Scottish law, or (due to a misplaced case before the Court of Session (“Ticketus”)) (ii) the debtor is in Scotland. Scottish law is arguably less user-friendly for billing financiers than English law.

How to assign Scottish debts?

Under English law, if there is an agreement to buy and sell a debt and the buyer pays the purchase price, equity means that the buyer has an equitable assignment of the debt. However, there is no fairness in Scottish law, so in Scotland there has to be an actual assignment (which we call an assignment, but there is nothing in the difference).

What about debts that don’t yet exist?

It is not established in Scottish law whether an assignment of a debt which does not yet exist is competent and therefore due to the risk measures must be taken to safeguard any initial assignment of debts, present and future, with a assignment of future receivables. debts once they have been created.

Should the debtor be notified? How? ‘Or’ What?

The principle of publicity: this is the principle that two parties should not be able to effect secret transfers of ownership of which the third parties concerned are not aware. On the other hand, equity can allow it in English law. Thus, the principle of publicity tells us that the buyer has no title to the debt in a dispute by third parties (which include the administrator or liquidator of the client) until notice is given to the debtor. of cession (called in Scotland as “intimation”.)

It is likely that no valid notice can be given until the debt exists. Thus, letters in advance to a debtor with whom the Client has an ongoing relationship are of little use. Notice is required each time, but a sticker on the invoice indicating that the debt has been ceded to the invoice financier is considered sufficient.

What if I can’t give notice?

Often, notice is not an option from a business perspective, especially in confidential agreements. Normally, in such circumstances, a customer in England declares in the invoice finance agreement that debts which have not accrued to the invoice financier are held in trust for the buyer by the customer as trustee of the trust. The same approach can be taken under Scottish law when it comes to Scottish debts, but Scottish law likes a bit more formality in setting up this trust, so it is important that the invoice finance agreement contains Scottish provisions required.

Take security

It is common for invoice financiers to take out insurance with the Client to consolidate their position and make unnecessary any questioning of the mechanics of trust.

As it is not possible to levy a fixed charge on debts in Scotland, the floating charge is usually the only viable form of collateral. This is unless the bill financier wants to take collateral on the client’s land and buildings or the client has assets in England that lend themselves to being billed as a fixed fee.

There is hope on the horizon as the Mobile Transactions (Scotland) Bill has been included in the legislative program for 2021/22 announced by the Scottish Government and, if approved, will fundamentally reform the law in Scotland in this area. For a more detailed review of what’s on offer, please click here.


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