New moveable property reforms are due to come into force in Scotland in April, brought about in response to widespread concerns that the current legal framework was outdated and inhibited economic growth. The Moveable Transactions (Scotland) Act 2023 will make raising finance easier as entrepreneurs with intellectual property rights will be able to let lenders take a charge over their intellectual property rights without the need to transfer and enter into a licence-back arrangement. Similarly with statutory pledges, there will be no need to physically transfer assets to the lender. The changes may benefit lenders and financiers by giving more certainty as to their rights of enforcement in the event of default as there now are statutory remedies.
The Moveable Transactions (Scotland) Act 2023 was enacted on 13 June 2023 and will come into force on 1 April 2025. This Act will make changes to the transfer of commercial rights such as lending, securitisation and discounting and change how security over moveable property such as debts, obligations, intellectual property, financial instruments and equipment is created. Future rights can also be assigned. Work had been ongoing at the Scottish Law Commission for over 14 years with the publication of the Discussion Paper on Moveable Transactions in June 2011 and a report was published in three volumes on 19 December 2017 where book debts, loan books, intellectual property, stock and equipment all fell within the scope of the report. The Scottish Law Commission examined the model scheme that originated in the USA (Article 9 of the Uniform Commercial Code) which has been adopted with variations in other countries including Australia, Canada and New Zealand and also the work of The Financial Law Committee of the City of London Law Society and The Secured Transactions Law Reform Project.
Two separate registers have been created, simplifying the way rights are assigned by allowing registration into the new “Register of Assignations” which will be maintained by Registers of Scotland and this will go live in spring 2025. There will be a fee of £80 to register an assignation, and no fee for correction. The fee for an extract will be £35. Once an assignation is registered, there will be no need to intimate this to a debtor. Registers of Scotland will also maintain a “Register of Statutory Pledges” which will be a fixed security over moveable assets. This will eliminate the need to physically transfer property or assets. The fee for registration will also be £80. The contrast between a statutory pledge and a common law pledge would be that control of shares or assets would no longer have to transfer temporarily and the pledgor would retain ownership and control. Companies would then be able to utilise their shares to secure funding without causing disruption and additional costs.
In relation to the assignation of unsecured debts, there has historically been no requirement in Scots Law for assigned obligations in relation to incorporeal moveables to be in writing or in any specific form. The only requirement has been to intimate the fact that the assignation has taken place, and this intimation has not had to take any particular form, and the service of a court writ has been deemed to the best form of intimation as per Carter v McIntosh (1862) 24D 925. The position was further clarified in Liberatas-Kommerz Gmbh v Johnson 1977 SC 191 where it was held that it was not necessary to refer to the details of the assignation if the intention was clear and this was confirmed in Promontoria (Ram) v John Moore 2017 CSOH 88 and also in Cabot Financial (UK) Limited v Sylvia MacLennan, [2021] SC ABE 6 which was upheld by the Inner House, in particular making reference to the ‘cardinal principle’ of judicial intimation in Scots Law.
Electronic intimation is now possible and intimation can also be made on a portal. Consumers are protected by the right to withhold performance until information as to the assignation is provided, section 15 of the 2023 Act, and there is also protection to a consumer who acted in good faith where the assignation was not intimated and the assignee has a duty to respond to requests for information. The assignation can be executed by wet ink signature or electronically authenticated, the claim must also be identified or the identifying class must be identified in the case of a bulk debt assignation.
The assignor can also warrant that it has the title to assign the claim and that the debtor has an obligation in relation to the claim assigned, and the assignor has not and will not prejudice the assignation. Any suspensive conditions to the assignation must be satisfied before the claim can be assigned, section 2 of the 2023 Act. Once the assignation is registered, it will become effective without the need for intimation to the debtor. However, it would still remain a practical requirement to inform a debtor that the debt has been assigned so that payment can now be made to the assignee. Intimation can be sent be email, personal service, post or courier and does not need to be signed.
The 2023 Act will make it simpler for borrowers to grant security over their moveable assets. Statutory pledges will be expected to be granted alongside floating charges and standard securities.
