Shortly before the Scottish Parliament elections last year, I suggested in a previous blog post for UK Finance that it was even more important for the economic recovery from the pandemic that the Bill should be introduced - as its substantial modernisation of the Scottish law of “moveable transactions” would make it significantly easier to provide finance to businesses whose assets are subject to Scots law. It was therefore welcome to see the Bill included in last September’s Scottish legislative programme and better still to see it introduced in the Scottish Parliament.

The new registers
As I previously noted, the reforms will allow trade debts and other “claims” to be transferred by assignation through the registration electronically of a document assigning those claims in a new Register of Assignations. The reforms will also enable a new “statutory pledge” to be taken over equipment and similar tangible moveables, intellectual property and (once further enabling legislation is implemented) shares and other financial instruments through registration electronically of a relevant security document in a new Register of Statutory Pledges. 

If the document initially registered covers future as well as existing assets, then no further registration will be required and the current requirements to give notice to the likes of trade debtors, take possession of equipment, register or notify intellectual property transfers or register share transfers in a company’s register of members will not be required. These current ways of completing assignations and taking fixed security will, however, remain available in parallel to facilitate the transition to the new regimes and they will indeed remain useful in some situations. Floating charges will likewise remain available as at present.

Likely early adopters
We anticipate the reforms will be of most immediate interest to invoice discounters and other receivables funders. This is because the current law often requires trusts to be taken periodically over batches of Scottish trade debts assigned as it is not practicable to notify trade debtors. 

We also anticipate that a statutory pledge may be immediately attractive in some situations in which asset financiers use the sale and hire purchase back model for equipment, given some uncertainties as regards title to the equipment funded.

In both these situations, funders sometimes take “back-up” floating charges to further protect their position. However, because sole traders and partnerships cannot grant floating charges, this is not always possible – and, following the reintroduction of Crown preference over floating charges for certain taxes in 2020, floating charges have been further weakened, particularly in Scotland.

Build it and they will come
There are many other situations in which the new moveable transactions regime will provide benefits, such as in the financing of technology businesses, where the licensing back of transferred intellectual property will not be required, or in student accommodation or similar lease financings where notification or providing supplemental documents can be problematic. Similarly, lenders’ concerns about going on the register of members of Scottish companies would be eliminated under the new regime, while financial markets arrangements designed for English equitable charges will be able to operate more clearly in relation to Scottish financial instruments, once the statutory instruments anticipated to expand the regime to shares and other financial instruments are introduced.

You can find further information on the proposed reforms here, which we will be following closely as they go through the Scottish Parliament. We look forward to continuing to work with UK Finance to support and raise awareness of the changes, to take advantage of the opportunities they present, and to help members to provide more finance to more Scottish businesses. 

Dr Hamish Patrick is a Finance and Restructuring Partner at Shepherd and Wedderburn LLP and was a member of the Scottish Law Commission Moveable Transactions Advisory Group.