The Moveable Transactions (Scotland) Act 2023 and its much-needed reforms represent a step-change in the approach to secured finance transactions in Scotland. Key updates and improvements in Scots securities law should see a streamlining of opportunities for funders and borrowers operating in Scotland, mirroring the position currently enjoyed in the rest of the United Kingdom. Both groups should start to prepare for these game-changing reforms now and get ahead of their final implementation, which is likely to be just around the corner.
A fresh approach to secured finance in Scotland
The recently enacted Moveable Transactions (Scotland) Act 2023 is set to revolutionise the options available to funders and borrowers doing business in Scotland. The legislation is likely to come into force later in 2023 or into 2024 and so now is the time for those funders to start thinking about updating processes and procedures, and potentially developing new products to offer customers located in Scotland. Prospective borrowers should also be alert to the additional routes now available to them to raise finance on their moveable Scottish assets.
Many funders will be aware of the current difficulties and the increased risk profile of funding transactions involving moveable assets in Scotland, such as:
- cumbersome requirements to perfect fixed security over intangible Scottish assets currently taken by way of assignations in security, account pledges and share pledges;
- the requirement for delivery in respect of transfers of property to be actual, which is felt particularly keenly in sale and leaseback and invoice finance transactions as it forces a heavy reliance on trust mechanics; and
- the lack of effective fixed security over moveable assets, meaning that funders require to hold reserves in relation to the "prescribed part" when they are relying on floating charge security only and which reduces the amount of funding that Scottish businesses can access.
The new legislation offers solutions to many of these issues and brings the law in Scotland more into line with England and Wales. In some instances, it even positions Scotland ahead of England and Wales. It will therefore allow funders to conduct their UK-wide business in a much more streamlined way, with corresponding benefits expected to flow to customers as a result.
The key elements of the new legislation are:
- a new form of fixed charge over moveable Scottish assets (to be known as a statutory pledge) that is perfected by way of registration in a public register;
- updates to the charging of incorporeal moveables (such as rental income from tenants, rights under Scots law contracts, cash deposits in Scots law governed bank accounts, shares in Scottish companies, intellectual property and rights to receivables from customers) so that:
- classes of assets, including future assets, can now be secured (e.g. the right to rental income from current and future tenants of a shopping centre, without supplemental assignations of rents being required);
- control requirements are now clarified to remove ambiguity, particularly in respect of security over deposits in Scots law governed bank accounts;
- perfection by registration in a public register will be permitted as an alternative to intimation, with registration likely to become the preferred method for funders;
- intimation by electronic means will now be competent, avoiding the need for tens (or potentially hundreds) of physical notices to be printed and posted; and
- security over Scottish shares will no longer require the transfer of title to the shares into the name of the funder or a nominee company to perfect the security (perfection will instead be through public registration).
If these reforms are likely to impact your business, we would encourage you to start preparing for the changes now. In many instances, current policies and procedures will be able to be significantly streamlined, which will reduce the barriers (perceived or otherwise) and the cost of doing business in Scotland as a funder. The improved flexibility for borrowers seeking to use their moveable Scottish assets as collateral in secured financing will also be welcome in the current economic environment.
We would be delighted to support your business in getting ready for the changes and can assist with updates to policies, preparation of new precedent documents and processes (to fit your existing business model or to support an expansion into Scotland) and any other advice that your business might need as the "go-live" date approaches.
Please feel free to get in touch with any of the key contacts listed here, or your usual contact within Addleshaw Goddard, and we can discuss how we can assist so that your business can take full advantage of the opportunities arising from these legislative reforms.
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