The Moveable Transactions (Scotland) Act 2023 (the “Act”) received Royal Assent on 13 June 2023.
The Act will make fundamental (and very positive) changes to the commercial landscape in Scotland when it comes into force (no date has been confirmed yet, but Burness Paull hopes it will be as early as summer 2024).
Lenders active in the Scottish market and borrowers with Scottish assets need to be aware of these changes. The Act will be particularly significant for those involved in commercial lending (including fund finance and project finance), invoice discounting and securitisation.
Why does the law need to change?
Scots law in relation to the transfer of rights and the creation of security over rights and moveable property is outdated and is not fit for modern commercial practice.
In order to transfer (assign) or create security over rights, notice of the transfer (assignation) must be given to the debtor or debtors (in person, or by post). This requirement can lead to additional administrative burdens in commercial transactions, and it is often not practical or commercially acceptable, making it difficult for businesses to sell or create security over contractual rights (e.g. book debts). There is also significant doubt over the effectiveness of assignations both of future rights, and those which do not transfer meaningful control of the rights being assigned.
In relation to physical moveable property, the only way to create fixed security is by a pledge, which requires delivery of the asset to the secured creditor. The requirement for delivery means that pledges are commercially impractical, and often the only security created over physical moveable property is a floating charge. Since only companies and LLPs can grant a floating charge, other types of business entities, sole traders, and trusts are unable to create security over physical moveable assets.
Changes to Assignations
The Act modernises the law in relation to assignations. Intimation requirements have been updated, making electronic intimation and intimation by reference to a website or portal possible once the Act comes into force.
The Act also introduces a new Register of Assignations, providing an alternative to intimation. Where claims are transferred outright or in security, it will be possible to register the assignation document in the Register of Assignations rather than intimating to the debtor or debtors.
The ability to assign (outright, or in security) future rights is a very welcome change and will have a positive impact commercially, particularly in connection with invoice discounting arrangements.
Statutory Pledge
The Act creates a new fixed security right called a statutory pledge which can be created over certain types of physical property and rights without the need to deliver (or assign) the property or rights to the secured creditor.
In order to create a statutory pledge, the parties must enter into a pledge document and register it in the new Register of Statutory Pledges. Unlike the floating charge, the statutory pledge is not just available to companies and LLPs, and sole traders, partnerships, trustees and other entities will therefore be able to create security over their moveable assets.
Certain types of moveable property (such as aircraft and ships) are excluded from the statutory pledge provisions in the Act (as these are already covered by specific types of security). At present, IP is the only type of incorporeal moveable property that can be secured by the statutory pledge. The ability to create fixed security over IP without having to transfer title is a significant change, and it is expected to see a large increase in security taken over Scottish IP.
Shares and other financial instruments were specifically excluded due to concerns about the competency of the Scottish Parliament to legislate in this area, but Burness Paull understands these may be added into the Act before it comes into force. The recent introduction of the PSC regime and the National Security and Investment Act 2021 (NSIA) has meant that the existing Scots law form of share security (which involves the transfer of title to the secured creditor or its nominee) has become commercially problematic for lenders in some sectors. The ability to take a statutory pledge over shares would be a very welcome development in that it will streamline deal processes.
What will change when the Act comes into force?
It ought to become easier for borrowers to raise finance against, and grant security over, their moveable assets, such as contractual rights, claims, IP, stock, vehicles and equipment. The typical security package taken by a lender will change and we can expect to see statutory pledges being granted along with floating charges and standard securities.
If you are interested in learning more about how these changes will affect your business, Burness Paull is here to help. Contact Andrew Christie or John Kennedy for guidance and support.
