Ewan Hazelton

In the recent case of McKinlay v Avellierie Ltd & Anr., Sheriff Principal Ross delivered the opinion of the court, in which it was concluded that – while the law in Scotland is currently unclear on this point – the assignation in question did have that effect.

The case concerned a loan advanced by Croftwalk Limited to Avellierie Limited. The loan agreement included a reference to a personal guarantee by Kenneth Scott, a director of Avellierie and a signatory to the agreement. Avellierie failed to make repayment, and Croftwalk assigned its rights to Mr McKinlay. The parties agreed that Avellierie’s debt had been validly assigned; the question before the court was whether the assignation had included the right to enforce the personal guarantee. At first instance, the Sheriff Court determined that it had done; Mr Scott then appealed to the Sheriff Appeal Court.

In reaching his decision, Sheriff Principal Ross relied on the construction of the assignation itself; in particular, that the subjects being assigned were Croftwalk’s “whole right, title and interest in and to the claim of debt arising under the Deed of Loan…”. Mr Scott had argued that, because the assignation only referred to the loan agreement, and did not mention the letter of guarantee, Croftwalk’s rights in the guarantee had not been validly assigned. The Sheriff Principal concluded that this was incorrect; what had transferred was Croftwalk’s “right, title and interest in… the claim of debt.” While the “right” and the “title” arose from the loan agreement, Croftwalk’s “interest” in the debt was wider; the personal guarantee formed part of that interest. Further, had the guarantee not been assigned, it would have lost all value as there would be no relative debt for Croftwalk to pursue; effectively, the interest in the debt would have been extinguished. The Sheriff Principal observed that this would be “incoherent as a matter of law and offend[…] against commercial common sense.”

It is less clear, however, whether the guarantee would otherwise have been assigned by operation of law. It was argued for Mr McKinlay that Croftwalk assigned its rights to the debt owned by Avellierie and, with it, “everything which was necessary to make the assignation effectual” – including the guarantee – relying on the 1894 case of Miller v Muirhead. This argument was rejected; Muirhead related specifically to a tenant’s right to remove moveable property, which the court held had been assigned to the landlord. It did not endorse the wide proposition that the same principle can be applied to a right which would otherwise remain with the assignor and, in any event, the law of assignation has developed significantly since 1894.

The question of assignation of security rights (such as guarantees) is addressed as part of the Moveable Transactions (Scotland) Act 2023, but this is not yet in force. As matters stand, this case presents the most recent authority on the subject, and the guidance for appointment-takers is clear: the question of whether a guarantee (or other security) has been assigned will turn on the wording of the assignation itself. Just because a debt has been assigned, it does not follow that an accessory guarantee will transfer with it. If they are assigning debts, insolvency officeholders should take care to ensure that accessory rights are dealt with as they actually intend.

Ewan Hazelton is a senior solicitor at BBM Solicitors