The Moveable Transactions (Scotland) Act 2023 (MTSA) came into force on 1 April 2025 and changed how security is taken over moveable assets in Scotland – bringing new opportunities for lenders and borrowers alike.
If you are a lender or borrower operating in the Scottish market, please read on below, where we set out more detail as to the new opportunities and positive impact of these changes on different financing transactions.
If you want to learn more about how these changes will impact on funds finance, please contact Andrew Christie (andrew.christie@burnesspaull.com) and Jennifer Lio (jennifer.lio@burnesspaull.com)
Background
Assignation is the method by which rights and other incorporeal assets are transferred under Scots law (the equivalent to assignment under English law). It has long been acknowledged by practitioners in Scotland that there are theoretical and practical issues with transferring and creating fixed security over incorporeal moveables under Scots law. The key restrictions under the current law are:
- the requirement to intimate (by letter) on each debtor/counterparty;
- the requirement that control over the assigned right has to be divested from the charger; and
- the inability to assign future rights.
Each of these has been addressed in the MTSA, and as of 1 April 2025:
- intimation is no longer required to transfer the asset or, in the case of an assignation in security, create security, as long as the assignation is registered in the newly established Register of Assignations;
- where parties chose to intimate (for example, to put third parties on notice, or following an event of default), this can be done electronically;
- transfer or divestment of control over rights being assigned is no longer required; and future rights can now be assigned.
This will fundamentally change how security may be taken over receivables, contractual rights and bank accounts, and brings Scotland closer to the English security position. Indeed, the removal of the need to divest control means that Scottish fixed security does not run the same risk of an English fixed charge of being “downgraded” to a floating charge.
Receivables and invoice finance
Given the challenges under the current law, receivables and invoice finance is less common in Scotland than it is in England, and as a result Scottish businesses have often be left with unrealised value in their unpaid invoices. The existing law makes effective security over a portfolio of small claims impractical and cumbersome, requiring regular rounds of intimations pursuant to trust arrangements.
By allowing future rights to be captured and removing the obstacles of intimation and divestment of control, the MTSA takes away the existing difficulties in this area and opens up a new source of potential funding for Scottish businesses. This offers new opportunities for businesses of all sizes to stabilise their cashflow and boost their working capital. For lenders in the receivables and invoice finance market, it opens up a new Scottish market.
Securitisation in Scotland
Similar to receivables and invoice financing, securitisation in Scotland currently requires complex trust arrangements, which allow an originator / seller to ringfence the traded receivables for the benefit of the issuer, whilst still retaining legal title. Although it is a neat solution to the restrictions of Scots law as stands (arising not only from the limitations posed by the law of assignations, but also the fact that Scots law does not recognise a split between legal and beneficial title), the process is prescriptive and administratively burdensome, especially where further advances or futures contracts are purported to be sold. In such cases, the originator / seller is required to enter into supplemental ‘top up’ trusts on a periodic basis in order to bring the newly originated receivables within the scope of the Scottish trust property. These new trusts, in turn, are then secured by way of supplemental assignations in security by the issuer in favour of the relevant security agent(s).
The changes made by the MTSA will streamline the process of securitising Scottish receivables in a number of ways:
- It will be competent for the issuer / originator to grant a “day one” assignation over the relevant Scottish securitisation assets. This will largely mirror the English equitable assignment approach and will replace the existing trust structure.
- The assignation will also capture future receivables, and therefore there will be no need to enter into supplemental declarations of trust. This is a very welcome change, which will remove the period of exposure between the date of origination of the receivable and the date that the supplemental trust is granted, which can be anything between a few weeks and months.
- The issuer can grant an assignation in security in respect of its interest in the relevant Scottish securitisation assets. Again, there will be no need for supplemental assignations to be taken for future-acquired assets.
- Intimation by way of reference to a website or portal will be possible and will be a significant commercial benefit. Registration in the new Register of Assignations can be used as an alternative to the requirement to intimate.
Unfortunately, the benefit of the reforms will not be universally felt. Any transactions involving heritable interests, such as residential mortgage-backed security transactions, will not qualify under the new regime and the traditional approach will continue to apply in those scenarios. However, for those transactions that do qualify, the MTSA represents a welcome closer alignment of approach north and south of the border.
For more information including how the act affected Real Estate Investment and Development Finance visit Burness Paull's Moveable Transactions Resource Hub: https://www.burnesspaull.com/legal-insights-news-events/topics/moveable-transactions-scotland-act-2023/
