What does the Bill do?

The Bill simplifies and clarifies the existing Scots law relating to assignation of rights and introduces a new form of Scots law fixed security that can be granted over tangible (and certain intangible) moveable property known as the “Statutory Pledge”. The Bill also introduces two new online registers – the Register of Assignations and Register of Statutory Pledges – in which assignations and Statutory Pledges can be perfected.

How has the Bill evolved?

The material scope of the Bill has remained largely the same since it was introduced in May 2022. Some key changes were however made as it passed through the Scottish parliament. In particular:

• Individuals will not be permitted to grant the new Statutory Pledge unless they are acting in the course of business and the secured assets are used wholly or mainly for their business and have a monetary value exceeding £3,000. This amendment was introduced to address concerns raised about the impact of the Bill on consumers, while leaving the statutory pledge available to sole traders.
• Where the pledgor is a sole trader, enforcement of the new Statutory Pledge will require a court order.
• Protections for parties who acquire property that is subject to a Statutory Pledge in good faith have been clarified, in particular the conditions relating to what will constitute a party being in good faith.
• A review period of five years has been introduced, under which the Scottish ministers must review and report on the impact and operation of the Bill.

Next steps, outstanding questions, and implementation

Now it has been passed, the Bill will move forward to receive Royal Assent, following which regulations will be required to implement different parts of the Bill. Although timing will be subject to the speed at which the implementing regulations progress and the new Registers are developed and completed, it is hoped that the Bill will come into force during 2024.

There are a number of outstanding issues to be dealt with before the Bill comes into force:

• Confirmation that the new Statutory Pledge will apply to shares in Scottish companies and other Scottish financial instruments. This will require regulations to be made by the UK government.
• Completion of the two new Registers, including their content, registration / search processes, and the cost of registration and searching. This will require ongoing engagement with Registers of Scotland.
• Clarification of the interaction of some aspects of the new Statutory Pledge and perfected assignations with insolvency processes.

In the meantime, financial services firms will want to consider how the new legislation impacts their markets, systems, documentation and ultimately their customers.  Businesses themselves may wish to consider their expanding funding options. Those who advise lenders and borrowers in those markets will also need to get to grips with the changes being made.

For a more detailed summary of the Bill and its impact on different business sectors, please see the Shepherd and Wedderburn Moveable Transactions landing page.