Moveable Transactions (Scotland) Bill passed by parliament
The Moveable Transactions (Scotland) Bill (‘the Bill’) was passed by the Scottish Parliament on 4 May 2023 and received Royal Assent on 13 June 2023.
Purpose and overview
The Bill will modernise the law of Scotland in relation to moveable transactions, in implementation of the Scottish Law Commission Report on Moveable Transactions published in December 2017.
The Bill reforms two elements of the law on moveable property:
- The assignation of claims
- The law of pledges
Assignation of claims
The Bill will allow businesses to raise finance by assigning (selling) claims that they will have a right to, so that they get money from the person to whom the claim is assigned faster than would be the case if they waited until the claim was paid by the debtor.
For example, if a business does a lot of work in May that clients will pay for in June, that business still needs enough money in May to pay its expenses. The changes introduced in the Bill would allow the business to get money in May by assigning its claim for the money its customers owe in June, for example, to a third party such as a bank or specialist invoice factor.
If the business needs £1,000 to pay its expenses in May, a third party could lend the business that money in May. In return, the business would give the third party its right to be paid by its customers (who owe £1,000) in June. In June, the customers pay the third party instead of the business.
This will help businesses with cash-flow problems get money when they need it on the strength of money owed to them.
Law of pledges
The Bill aims to offer more flexibility to raise finance.
For example, a business may need to borrow money and want to grant a pledge over its machinery to secure that loan.
Under the previous law, this could only be done by delivering that machinery to the person granting the loan. That does not work for many businesses that require the use of that machinery to keep operating.
The Bill allows a new form of pledge (the statutory pledge) to be granted without delivering the machinery. Instead, the statutory pledge is recorded in a new register. This means the business could keep operating the machinery as it needs to, but the person granting the loan still has security over the machinery in case the business does not repay that loan.
Importantly, the Bill will also now facilitate the granting of security over non-physical assets which cannot be delivered. For example, statutory pledges will be able to be granted over intellectual property rights.
The Bill will result in the creation of two new registers, operated by the Registers of Scotland:
- The Register of Assignations
- The Register of Statutory Pledges
The registers can be used to grant assignations of claims (as an alternative to intimating the assignation to the debtor) or statutory pledges over moveable property.
The reforms under the Bill will affect different types of businesses, sectors and financing and sale transactions in different ways and all members should be alive to the changes made. We will provide more analysis closer to its implementation.
The changes brought about by the Bill are expected to be of particular interest to insolvency professionals due to the impact on:
- The number of creditors holding securities and the nature of those securities (and the resultant impact on the realisation of assets, distributions, authority to take fees etc).
- The requirement to check the newly created registers to identify assets.
We have been in touch with the Scottish government team responsible for the Moveable Transactions legislation. They have indicated that they are still working on the implementation plan and timings. Therefore, notwithstanding the passing of the Bill, there remains a lot of work to do before the provisions will come into force, including:
- A consultation on the definition of insolvency and possible regulations flowing from that.
- Regulations about the Rules in respect of the operation of the new registers.
- Completion of the registers themselves.
- Regulations relating to fees for use of the registers.
- A section 104 Order under the Scotland Act 1998, to apply the provisions in the Bill to financial collateral and financial instruments.
In view of this, it has been indicated that it will be at least a year from now before everything is ready and the provisions are commenced. Implementation is therefore realistically expected to be in the later part of 2024, though it is conceivable that a general election could further impact those timings.
We will remain in contact with the Scottish government and will be interested to read and respond to the consultation on the definition of insolvency for the purposes of the legislation in due course.