New Scottish parliament should pass Moveable Transactions Bill

The Scottish parliament election takes place on 6 May, and all parties are emphasising the importance of economic recovery after Covid-19. Whatever else they may disagree about on the campaign trail, they should all agree that the Moveable Transactions Bill proposed by the Scottish Law Commission should be an early priority of the new parliament.  It will provide important modernised technical machinery through which finance can be made more readily available over Scottish moveable assets to assist with recovery. The current legal machinery is woefully inadequate and outdated and puts Scotland and Scottish assets at a disadvantage.

At the moment, book debts and other receivables can only be transferred or subjected to fixed security with notice to debtors. Mechanisms involving periodic trusts are necessary for the likes of invoice discounting or securitisation. Similarly, fixed security over student rentals and other swiftly changing lease portfolios is often impracticable because of the similar complex mechanisms required to create that security. Fixed security over intellectual property requires outright transfer to the security holder with licences back to the security granter.  Fixed security over shares operates in a similar way, with the security holder going on the register of members and arguably also becoming subject to the Persons with Significant Control regime and the upcoming National Security and Investment Bill regime. In turn, only possessory pledges are available for tangible moveables, such as vehicles, equipment and inventory, where leasing and similar title-based financing techniques are not always easy to put in place.

The Scottish Law Commission has proposed a modern regime under which, as an alternative to existing techniques, transfer of and fixed securities over present and future book debts, rents and other receivables and claims can be taken by upfront registration in an online register. Debtors will remain protected from double payment prior to receiving notice, but it is clarified that notice may be electronic. Similarly-fixed security interests over present and future intellectual property, shares and other financial instruments and over tangible moveables will be possible by upfront online registration as an alternative to existing regimes. Further details of the reforms can be found here.

Invoice and supply chain finance and asset based lending will be immediate beneficiaries of the new regime, and some of the fully electronic funding systems available in the market will become much more straightforward to implement in Scotland. Given the important role these financing techniques can play in economic recovery, the reforms cannot come soon enough here.

The implications of the reforms are however much wider. Expanded availability of fixed security over intellectual property can only benefit tech businesses of all sizes. Certain types of real estate financings will be easier to complete under the new regime and commercial and wholesale financings backed by securities and debt portfolios or secured over shares will also be more straightforward. And while leasing and similar asset financing techniques are likely to continue, in some situations using the new form of security may be preferable, for example for stock financing or when sale and hire purchase back of equipment may be being considered.

Before Covid-19 put a halt to Scottish government work on the Moveable Transactions Bill, informal consultations were proceeding and the Economy Committee of the Scottish Parliament also took evidence in parallel on the reforms from me and from others. Given the benefits to be gained from the reforms in the context of recovery from Covid-19, there should clearly be incentive for all to push forward with them swiftly following the election. Further support from the financial sector for this would be timely.

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