Euan Cluness

The legal profession and Scottish businesses have been campaigning for change so that the playing field between the jurisdictions of the United Kingdom becomes more level and the broad hope is that the Moveable Transactions (Scotland) Act 2023 will remove a number of the headwinds that Scottish funders and businesses have been dealing with.

The Act creates two new public registers together with a new form of security, namely the “statutory pledge”. The first of the new public registers is concerned with the assignation of claims (i.e. debts) and the second is concerned with the registration of statutory pledges.

The register of assignations of claims will be important to receivables financiers as it will provide them with different options in terms of gaining rights over book debts and other receivables. Currently, Scots law requires any transfers to be notified to the other contractual party (i.e. the debtor) for the transfer to be effective. The Act provides that transfers of receivables can be made effective by registration of the assignation at the register of assignations of claims, avoiding the need for numerous intimations to be made to debtors (or tenants or sub-hirers depending on the receivables) and that, where intimation is required, it can be done electronically.

Assignations of claims will also be capable of covering future assets, provided that they can be identified. This is step forward but will still require the retention of a method of notifying the transfer of particular receivables to funders pursuant to the assignation (in line with the processes that most funders will be undertaking currently).

The statutory pledge provides fixed security over moveables in Scotland (other than shares) and which can be perfected by registration at the new register of statutory pledges (as opposed to taking physical possession of the asset which was the historic position). The fixed nature of the security will put recoveries ahead of preferred creditors where floating charge recoveries would rank behind. Another advantage is that statutory pledges can be granted by partnerships and sole traders who cannot grant floating charges. It will be best suited to funding vehicles and equipment and is likely to be of most use in the asset finance market as it will provide a way of avoiding the existing issues around sale and leaseback/HP back in Scotland.

It is important to note that the current methods of creating security in Scotland will continue to run in parallel with the Act and that it is expected that additional legislation will be enacted to extend the scope of statutory pledges to cover shares in Scottish companies. This will be a welcome change to the current position, where the ownership of the shares requires to be transferred to the funder (or its nominee) in order to perfect the security.

Overall, the Act is a positive step and is likely to be welcomed by both funders and businesses alike and should provide asset financiers with greater confidence to provide finance in Scotland across a broader range of businesses which have previously not been able to access this type of funding.

Euan Cluness is a partner at TLT. This article first appeared in The Scotsman.