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The Moveable Transactions (Scotland) Act 2023: A New Era for Scottish Business Finance
The current legal framework for securing moveable property in Scotland can be complex and inefficient. However, this will soon change with the implementation of the Moveable Transactions (Scotland) Act 2023, which is set to provide new opportunities for Scottish business finance. The Act was passed by Scottish Parliament on 4 May 2023, and is expected to come into force in spring 2025.
What is a Moveable Transaction?
A moveable transaction refers to any agreement involving the transfer of movable property or assets, such as goods, equipment, shares, invoices, or intellectual property. These assets are often used in secured lending transactions, with lenders taking a security interest in them to protect their loans in case of the insolvency of their borrower or in the event they need to enforce their rights under the loan document(s) as a result of the borrower’s default. However, under the current system in Scotland, securing such assets can be complex. For example, securing incorporeal property (such as the right to receive payment of a debt) requires intimating a notice to a third party, which is often impractical in a commercial setting. Similarly, securing corporal property (such as equipment or machinery) usually requires the lender to the possession or title, which disrupts the borrowers’ day-to-day operations. Even the securing of shares, which has long been a standard security interest relied on by secured creditors, has become fraught with potential risk for lenders.
Why the Moveable Transactions Act?
The Act addresses these challenges by introducing two key changes: the statutory pledge and two new registers – the Register of Assignations and the Register of statutory pledges.
- Statutory Pledge
The statutory pledge is a new form of fixed security that can be granted over certain Scottish moveable assets, such as vehicles, machinery and even whisky. The pledge can be created by registration in the Register of statutory pledges, without the borrower needing to give up possession of the pledged asset. Unlike floating charges, which were previously the only option for securing moveable property, the statutory pledge can be granted by companies, partnerships, or individuals. This fixed security ranks ahead of floating charges, opening up new financing options for smaller businesses and individuals. Unfortunately, statutory pledges cannot yet be granted over shares in Scottish limited companies. However, further reforms are expected in the near future.
- Register of Assignations
In Scotland, assignations (including assignations in security) are used to transfer rights under contracts, such as the right to payment of rents. Traditionally, assignations required serving a notice on each counterparty involved in the contract. This was often impractical, especially when managing large portfolios or frequently changing tenants. The Act introduces the Register of Assignations, allowing assignations to be registered and automatically take effect without the need to notify each counterparty. This also extends to assignations in security over further rights, making it easier for businesses to use receivables and invoices as collateral for loans.
What Does This Mean for the Future?
Once the Act comes fully into force, Scottish businesses will be able to better leverage their moveable assets to secure financing. The ability to create fixed security will make lending more attractive and with clearer rules and easier registration, businesses will have more opportunities to access the capital needed to grow their business. It is expected that this new regime will become active in the first half of 2025 – hopefully, that will coincide with a more optimistic economic outlook and an increase in commercial activity, including secured lending transactions.
