Goods Mortgages Bill (HL Bill 148)

A

BILL

TO

Make provision for a new form of non-possessory security that may be created
over goods owned by individuals; to repeal the Bills of Sale Acts 1878 and
1882; and for connected purposes.

Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and
consent of the Lords Spiritual and Temporal, and Commons, in this present
Parliament assembled, and by the authority of the same, as follows:—

Part 1 Introductory

1 Overview

(1) This Act contains provision about non-possessory security over goods and
5repeals the Bills of Sale Acts 1878 and 1882.

(2) In Part 2—

(a) sections 2 to 7 (with Schedule 1) contain provision enabling an
individual who owns goods to create a goods mortgage over them as
security for the discharge of an obligation;

(b) 10section 8 relates to other non-possessory security over goods.

(3) In Part 3—

(a) section 9 contains provision about the registration of goods mortgages;

(b) section 10 deals with further advances by the mortgagee;

(c) sections 11 to 14 deal with the position of third parties.

(4) 15Part 4 contains provision about the rights of mortgagors and mortgagees.

(5) Part 5 contains repeals and amendments, provisions about regulations and
interpretation, and other final provisions.

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Part 2 Creation of goods mortgages

Goods mortgages

2 Goods mortgages

(1) 5An individual who owns qualifying goods (see section 4) may in accordance
with subsection (2) create a charge over the goods as security for the discharge
of an obligation.

(2) The following requirements must be met—

(a) the goods exist, and are owned by the individual concerned, at the time
10when the charge is created;

(b) the charge is created by a written instrument complying with section 5;

(c) the obligation is not an excluded obligation (see section 6).

(3) A person whose only interest in goods is an equitable interest is not to be
regarded for the purposes of this Act as “owning” the goods.

(4) 15In this Act “goods mortgage” means a charge created in accordance with this
section or section 3.

3 Goods mortgages: co-owners

(1) Where qualifying goods are owned jointly by two or more individuals, those
individuals may in accordance with subsection (3) together create a charge
20over the goods as security for the discharge of an obligation.

(2) Where qualifying goods are owned in common by two or more persons, any of
those persons who is an individual may in accordance with subsection (3)
create a charge over his or her undivided share in the goods as security for the
discharge of an obligation.

(3) 25The following requirements must be met—

(a) the goods exist, and are owned by the person or persons concerned, at
the time when the charge is created;

(b) the charge is created by a written instrument complying with section 5;

(c) the obligation is not an excluded obligation (see section 6).

(4) 30References to ownership jointly or in common with others by an individual
include references to ownership jointly or in common with others by an
individual as a member of a partnership (other than a limited liability
partnership).

4 Qualifying goods

(1) 35This section applies for the interpretation of this Act.

(2) “Goods” means tangible moveable property.

(3) “Qualifying goods” means goods other than—

(a) excluded items, or

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(b) goods that are outside England and Wales at the time when the charge
is created.

(4) In subsection (3) “excluded items” means—

(a) aircraft registered in the United Kingdom;

(b) 5anything that is by virtue of provision made under subsection (2)(f) of
section 86 of the Civil Aviation Act 1982 included in a mortgage
registered by virtue of that section;

(c) a ship as defined by section 313(1) of the Merchant Shipping Act 1995;

(d) currency notes or coins that (in either case) are legal tender in the
10United Kingdom or elsewhere.

5 Requirements to be met in relation to instrument

(1) The instrument creating a goods mortgage must—

(a) contain prescribed provisions, and

(b) be signed or otherwise authenticated by the prescribed persons and in
15the prescribed manner.

(2) The Treasury must by regulations require the inclusion in the instrument of
statements in such form as the Treasury consider appropriate for the purpose
of warning the mortgagor—

(a) that the mortgagor risks losing the goods if the obligation secured by
20the goods mortgage is not discharged, and

(b) that the mortgagor may commit an offence under the Fraud Act 2006 if,
while the goods remain subject to the goods mortgage, the mortgagor
makes a disposition of the goods without previously disclosing to the
purchaser the existence of the goods mortgage.

(3) 25Subsection (2) does not apply in the case of an exempt goods mortgage (see
section 26).

(4) Nothing in the Consumer Credit Act 1974 enables a court to enforce, or allow
the enforcement of, a security that purports to be a goods mortgage but is
created by an instrument not complying with this section.

6 30Excluded obligations

(1) References in this Part to an “excluded obligation” are to be read in accordance
with this section.

(2) An obligation is an excluded obligation if it—

(a) is an obligation of the intended mortgagor as employee under a
35contract of employment, or

(b) requires the intended mortgagor to do or perform personally any work
or services.

(3) A guarantee is an excluded obligation unless—

(a) the high net worth conditions (see section 7(2)) are met, and

(b) 40the instrument creating the goods mortgage includes the appropriate
declaration (see subsection (5)).

(4) The obligation of the debtor under an agreement for running-account credit is
an excluded obligation unless—

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(a) the high net worth conditions (see section 7(2)) or the business credit
conditions (see section 7(3)) are met, and

(b) the instrument creating the goods mortgage includes the appropriate
declaration (see subsection (5)).

(5) 5In this section “the appropriate declaration” means a declaration by the
mortgagor which—

(a) acknowledges that the mortgagor will not have available the protection
and remedies that would be available to the mortgagor under sections
19(1) and 23(2) in the case of a goods mortgage other than an exempt
10goods mortgage (see section 26), and

(b) complies with prescribed requirements.

(6) In this Act “guarantee” includes an indemnity given by a person in respect of
the obligations of another.

(7) Schedule 1 makes provision for the purposes of this section about the meaning
15of “running-account credit” and related matters.

7 “The high net worth conditions” and “the business credit conditions”

(1) This section applies for the interpretation of this Act.

(2) “The high net worth conditions”, in relation to a goods mortgage, are—

(a) that a statement complying with prescribed requirements has been
20made in relation to the income or assets of the mortgagor,

(b) that the connection between the statement and the goods mortgage
complies with prescribed requirements, and

(c) that a copy of the statement was provided to the mortgagee before the
goods mortgage was created.

(3) 25“The business credit conditions”, in relation to a goods mortgage, are—

(a) that the obligation to which the goods mortgage relates arises from the
provision of credit exceeding the prescribed amount, and

(b) that the obligation was incurred wholly or predominantly for the
purposes of a business carried on, or intended to be carried on, by the
30mortgagor.

Other non-possessory security on goods

8 Other non-possessory security on goods

(1) This section applies to any agreement or arrangement which—

(a) is entered into by an individual,

(b) 35is neither a goods mortgage (as defined by section 2(4)) nor a security
excluded by subsection (4), and

(c) would (apart from this section) have the effect of—

(i) creating a mortgage or charge over qualifying goods owned by
the individual, or subsequently to be acquired by the
40individual, as security for the discharge of an obligation, or

(ii) creating a mortgage or charge over an undivided share in
qualifying goods owned by the individual in common with
other persons, or subsequently to be acquired by the individual

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in common with other persons, as security for the discharge of
an obligation.

(2)
If the goods remain in the possession of, or under the custody of, the individual
who provides the goods as security, the agreement or arrangement is void to
5the extent that it would (apart from this section) have the effect mentioned in
subsection (1)(c).

(3) If, before the obligation being secured is discharged, the person to whom the
obligation is owed passes custody of the goods to the individual who provided
the goods as security, the agreement or arrangement becomes void to the
10extent that it would (apart from this section) have the effect mentioned in
subsection (1)(c).

(4) The securities excluded by this subsection are—

(a) a pledge, lien or other security under which the individual creating the
pledge, lien or other security is not entitled to possession of the goods
15until the obligation is discharged;

(b) an agricultural charge under Part 2 of the Agricultural Credits Act 1928;

(c) a mortgage capable of being registered by virtue of section 86 of the
Civil Aviation Act 1982;

(d) an international interest as defined by regulation 5 of the International
20Interests in Aircraft Equipment (Cape Town Convention) Regulations
2015 (S.I. 2015/912).

(5) Nothing in this section—

(a) affects the validity of the obligation whose discharge the agreement or
arrangement purports to secure,

(b) 25affects any lien or charge arising under an enactment or otherwise by
operation of law, or

(c) affects the validity of any hire-purchase agreement or conditional sale
agreement.

Part 3 30Registration and rights of third parties

Registration

9 Registration of goods mortgages

(1) A register of goods mortgages is to be kept by the Secretary of State in
accordance with regulations made by the Treasury or the Secretary of State
35under this section (referred to in this section as “registration regulations”).

(2) The provision that may be made by registration regulations includes (but is not
limited to) provision as to—

(a) the making by mortgagees of applications for the registration of goods
mortgages;

(b) 40steps to be taken on receipt of an application for registration;

(c) the persons to whom, and manner in which, notice of the registration
of a goods mortgage is required to be given;

(d) the information to be included on the register;

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(e) the circumstances in which, and manner in which, registration is to be
discharged;

(f) the amendment or rectification of the register;

(g) the making by any persons of searches of the register;

(h) 5fees to be payable in respect of the registration of goods mortgages or
searches of the register.

(3) Registration regulations may (but need not)—

(a) provide for the register to be kept in the High Court;

(b) confer functions on officers of the High Court.

(4) 10Where two or more goods mortgages are created over the same goods, those
mortgages as between themselves have priority according to the times at
which they were registered.

(5) The registration under this section of a goods mortgage expires (if not
previously discharged) at the end of the 10 years beginning with the day on
15which the goods mortgage was registered (or, as the case may be, the
registration was last renewed), but registration regulations may make
provision enabling registration to be renewed on application.

(6) Registration regulations may restrict or exclude the liability in tort, in respect
of things done or omitted in relation to the registration of goods mortgages, of
20the Secretary of State or any other person on whom functions are conferred by
registration regulations.

(7) Registration regulations may provide for the supply (including the supply by
way of sale) of relevant registration information—

(a) to such persons as may be determined in accordance with the
25regulations by a person specified in or determined in accordance with
the regulations, and

(b) for such price (if any) and on such other terms, and subject to such
restrictions, as may be determined in accordance with the regulations
by a person specified in or determined in accordance with the
30regulations.

(8) In subsection (7) “relevant registration information” means information which
is derived from particulars contained in the register but which does not
identify any individual or contain anything enabling any individual to be
identified.

(9) 35In this Act “registered”, in relation to a goods mortgage, means registered in
the register kept under this section.

Further advances

10 Tacking and further advances

(1) The mortgagee under a registered goods mortgage may make a further
40advance on the security of the goods mortgage ranking in priority to any
subsequent goods mortgage—

(a) if an arrangement has been made to that effect with the subsequent
mortgagee,

(b) if, at the time when the further advance is made, the subsequent goods
45mortgage is not registered, or

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(c) if the prior goods mortgage imposes an obligation on the prior
mortgagee to make further advances.

(2) Subsection (1) applies whether or not the prior goods mortgage was made
expressly for securing further advances.

(3) 5If the prior goods mortgage was made expressly for securing a current account
or other further advances, the prior mortgagee may also make a further
advance ranking in priority to a subsequent goods mortgage if—

(a) the subsequent mortgage was not registered at the time when the prior
goods mortgage was registered or when the last search of the register
10by or on behalf of the prior mortgagee was made, whichever happened
last, and

(b) at the time when the further advance is made, the subsequent
mortgagee has not given notice to the prior mortgagee of the
registration of the subsequent goods mortgage.

(4) 15Tacking in relation to a goods mortgage is possible only as provided by this
section.

(5) “The register” means the register kept under section 9.

Position of third parties

11 Duty of owner to disclose existence of goods mortgage

(1) 20This section applies where a person owns goods which are subject to a goods
mortgage (“the current mortgage”).

(2)
If the owner of the goods disposes of the goods to a purchaser without
discharging the obligation secured by the current mortgage, the owner is
under a duty to disclose to the purchaser the existence of the current mortgage
25before the disposition.

(3) If the owner of the goods creates a further goods mortgage or other security
over the goods without discharging the obligation secured by the current
mortgage, the owner is under a duty to disclose to the person to whom the
further goods mortgage or other security is provided the existence of the
30current mortgage, before creating the further goods mortgage or other
security.

(4) Where an undivided share in goods is subject to a goods mortgage, references
in this section to the goods are to be read as references to the undivided share.

(5) For the meanings of “disposition” and “purchaser”, see section 32.

12 35Effect of change in ownership of goods

(1) This section applies if—

(a) goods are subject to a goods mortgage, and

(b) before the obligation secured by the goods mortgage has been
discharged, ownership of the goods—

(i) 40is transferred to another person, or

(ii) passes by operation of law to another person, otherwise than on
the owner’s bankruptcy in England and Wales (as to which, see
section 14).

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(2) If the goods mortgage is not registered at the time of the change of ownership,
the goods cease to be subject to the goods mortgage.

(3) If ownership is transferred by a disposition (see section 32) to a purchaser
who—

(a) 5is a private purchaser as defined by section 13,

(b) is a purchaser of the goods in good faith, and

(c) at the time of the disposition made to the purchaser, has no actual
notice that the goods are subject to a goods mortgage,

the goods cease to be subject to the goods mortgage.

(4) 10In any other case, the goods remain subject to the goods mortgage in the hands
of the new owner.

(5) Subsections (2) and (3) do not exonerate the mortgagor and if different the
person making the disposition or other transfer of ownership from any liability
(whether criminal or civil) to which either of them would be subject apart from
15this section.

(6) Where an undivided share in goods is subject to a goods mortgage, references
in this section to goods are to be read as references to the undivided share.

13 Meaning of “private purchaser” in section 12

(1) This section makes provision about the interpretation of section 12(3)(a).

(2) 20“Private purchaser”, in relation to goods of any kind, means a purchaser who,
at the time of the disposition made to the purchaser, does not carry on a
business which consists, wholly or partly—

(a) of purchasing goods of that kind for the purpose of offering or exposing
them for sale, or

(b) 25of providing finance by purchasing goods of that kind for the purpose
of bailing them under hire-purchase agreements or agreeing to sell
them under conditional sale agreements.

(3) For the meanings of “disposition” and “purchaser”, see section 32.

14 Bankruptcy of owner of goods subject to goods mortgage

(1) 30This section applies if an individual who owns goods subject to a goods
mortgage is made bankrupt under Part 9 of the Insolvency Act 1986.

(2) On the vesting of the bankrupt’s estate in the trustee in bankruptcy, the goods
cease to be subject to the goods mortgage unless at the relevant time the goods
mortgage is registered.

(3) 35The “relevant time” is the time when the bankruptcy application is made or the
bankruptcy petition is presented.

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Part 4 Rights of mortgagors and mortgagees

General provisions about taking of possession by mortgagees

15 Right of mortgagee to take possession of goods

(1) 5The mortgagee under a goods mortgage is entitled to take possession of the
goods only if one or more of the following conditions is met.

(2) Those conditions are—

(a) that any sum whose payment is secured by the goods mortgage has
become due and remains unpaid;

(b) 10that the mortgagor has failed to comply with a term of the goods
mortgage relating to the maintenance or insurance of the goods;

(c) that the mortgagor has moved the goods in breach of a term of the
goods mortgage;

(d) that the mortgagor has offered the goods for sale without the consent
15of the mortgagee;

(e) that, in the case of a goods mortgage that secures an obligation other
than an obligation to pay money, the obligation secured has not been
discharged at the time when it ought to have been discharged;

(f) that the goods have become liable to be seized under a warrant or writ
20of control to satisfy a court judgment;

(g) that, since the goods mortgage was created, the mortgagor—

(i) has been made bankrupt (under Part 9 of the Insolvency Act
1986),

(ii) has been adjudged bankrupt by a court in Northern Ireland,

(iii) 25has had his or her estate sequestrated by a court in Scotland, or

(iv) has been subject to a similar order or judgment made by a court
in a territory outside the United Kingdom.

(3) Subsection (1) applies only while the goods remain subject to the goods
mortgage and is subject to—

(a) 30any provision of the goods mortgage further restricting the
mortgagee’s right to take possession, and

(b) in a case where a prior goods mortgage over the goods is registered, the
rights of the prior mortgagee in relation to possession and sale.

(4) If the goods remain owned by the mortgagor, subsection (1) is also subject to—

(a) 35section 19 (possession notice required while goods owned by
mortgagor), and

(b) subsections (3) to (6) of section 20 (which further restrict the
mortgagee’s right to take possession).

16 Entry onto premises

(1) 40Except under an order of the court, the mortgagee under a goods mortgage is
not entitled to enter any premises to take possession of the goods without the
consent of the person entitled to authorise entry on the premises (“the
appropriate person”).