Three months on: a look back at the implications for documentation and enforcement options on cross-border transactions, following the introduction of the Moveable Transactions (Scotland) Act.

On 1st of April 2025, Scotland witnessed a significant moment in its legal landscape — the commencement of the Moveable Transactions (Scotland) Act 2023 (the “Act”). This legislation has made substantial changes to how security interests are created and enforced in Scotland.

The legal market has embraced the changes, and as a result, security packages involving Scottish entities, assets or interests, will now be different to what would have been seen previously.

As we work through this new legislative era, the implications for the banking, funds and restructuring and insolvency sectors are emerging. The whole lifecycle of funding transactions has been affected: from negotiation of security packages, right through to enforcement of security.  In this blog we will share the practical issues to be aware of.

The background: pre-1 April 2025 position – why change was needed

There are differences between Scotland and England as to what assets security can be taken over, and in what form.

Prior to the Act, there was limited ability to take fixed security over moveable assets such as contractual rights and shares other than by way of assignation in security and share pledges, both of which required very specific steps to be taken to perfect those interests. It was also questionable whether it was possible to validly create security over future unidentified assets.  

In addition, under Scots law, there’s no right of equity to fall back on. Therefore, where security perfection had not taken place (which would often be the case for share pledges), there was no fixed security interest created. The result of this was that, in Scotland, the ability to enforce and recover as a fixed security holder was more constrained, with greater reliance being placed on floating charge security (where available). In the worst case, creditors would have an unsecured position.

The Act modernises Scots law and brings the position in Scotland closer to the position in England (to a degree).

Key provisions of the Act

The new Act has three key components:
Firstly, it updates the law on assignation of claims and makes it clear that:

• a party can assign part of a claim, and future claims (subject to rules that apply on insolvency);
• a party can assign a claim, but still ask the debtor to perform to them until a later trigger point –for example, a breach of the loan agreement or some other enforcement event.  
• a party can assign by reference to a class of claims or by reference to a document or data that is not part of the assignation document.

Secondly, for assignation of claims, it introduces an alternative to intimation, so a party can register the assignation in the new Register of Assignations. The rules on intimation have also been modernised to allow, for example, electronic intimation; and

Finally, the Act introduces a new security right in the form of a statutory pledge which can be granted over corporeal moveable property and certain types of incorporeal moveable property – including IP and shares/ financial instruments.  

The statutory pledge can be granted by a wide range of entities – companies, LLPs, ordinary partnerships, limited partnerships, trustees over trust property (although there are restrictions where the trustee is an individual) – and by individuals in certain circumstances. Statutory pledges (other than those that relate to shares and financial instruments) can only be granted by individuals acting in the course of their business or individuals acting for an unincorporated association where they are a member.  

The statutory pledge can cover future property and will be created when the pledge is registered in the new Register of Statutory Pledges in accordance with the provisions of the Act. Where the property identified under a statutory pledge includes property that hasn’t yet been acquired by the security provider, a statutory pledge will not be created over property acquired after the security provider becomes insolvent.  

Importantly, the Act does not alter the law in relation to land and real rights in relation to land, and it does not alter how security is created over aircraft or ships as this is covered by separate UK-wide regimes.

Practical issues already encountered (and likely to be encountered on enforcement) on cross-border transactions:

1. Documentation and torpedo risk

Traditionally in Scotland, different security interests have been documented in separate security documents.  This will continue to be the case with standard securities, mainly due to registration requirements.

However, the new Act introduces the possibility of using English-style security agreements in Scotland and it is now common to see multiple security interests, such as floating charges, assignations in security and the new statutory pledges being included in one security document.      
Scottish security documents will not, however, look exactly like debentures; principally, we do not expect to see a long list of fixed security being created over many different types of assets.

A statutory pledge can be created over a wide range of corporeal (tangible) assets. Those involved in drafting the Act were mindful that a statutory pledge had to operate like a fixed security (rather than a floating charge) and wanted to ensure that a statutory pledge could not be created over a wide class of assets that the security provider had complete freedom to deal with.

The method of achieving this is a slightly blunt instrument, and is already proving difficult in a transactional context. Section 52 of the Act provides that where there is a statutory pledge over certain assets and the creditor acquiesces – either expressly or impliedly – in the transfer of all or part of those assets, at the point the transfer takes place, the entire statutory pledge is extinguished, not just the security over the assets that are transferred.  This is commonly referred to as “torpedo risk”. Unlike English law where if there is lack of control a fixed charge can be recharacterised as a floating charge, if the pledge is extinguished, there is no security right at all.

 This means that floating charges remain very important in Scotland and any assets subject to a statutory pledge should ideally also be secured by a floating charge: then, if the statutory pledge is torpedoed, the asset will at least be caught by the floating charge.

The creditor may consent to the transfer, but in order to avoid the pledge being torpedoed, the consent has to meet certain statutory requirements.  These are broadly that the creditor must have absolute discretion as to whether to give the consent and must give consent with reference to the specific disposal, no later than 14 days before the transfer takes place.  

To mitigate torpedo risk, in practice we are seeing specific, separate, statutory pledges being taken over key assets, rather than a single statutory pledge being taken over a wide class of assets.

Torpedo risk also means that there is likely to be very limited utility in taking a statutory pledge over assets that are being disposed of regularly, such as stock-in-trade. If these assets are dealt with freely, then the pledge will quickly fall away. 

2. Shares pledge creation requirements

Shares and financial instruments have been brought into the scope of the statutory pledge provisions of the Act by the Moveable Transactions (Scotland) Act 2023 (Financial Collateral Arrangements and Financial Instruments) (Consequential Provisions and modifications) Order 2025 (the “Order”). Prior to the Act and the Order, the creation of fixed security over shares in a Scottish company required title to the shares to be transferred to the security holder. Under the new Act, the security interest can be created by registration of the statutory pledge in the new Register of Statutory Pledges.

The ability to create security over shares in Scottish companies without the need to transfer title to the shares is very welcome and resolves many longstanding issues with taking share security in Scotland, particularly in relation to the National Security and Investment Act (NSIA) and people with significant control (PSC) regimes. As a result of the torpedo risk mentioned above, a statutory pledge will be taken over specific shares. Generally, therefore, there will be separate pledges over shares of separate subsidiaries, or even in some cases, separate classes of shares of each subsidiary.

The Act and the Order set out the enforcement process for statutory pledges over shares. Shares can be sold to a third party by the secured creditor (or to the secured creditor itself) or they can be appropriated.  This right of appropriation is separate from any rights that a secured creditor may have under the financial collateral regulations. Crucially, any security holder will be exercising those rights directly and not through the appointment of a receiver.

3. Ranking Considerations

The new Act extends the definition of fixed security in the Companies Act 1985 and the Insolvency Act 1986 to include a statutory pledge.  As a fixed security, a statutory pledge will rank on insolvency ahead of preferred debts, the prescribed part, and the administrator's expenses.  

There is nothing in the Act to prevent a debtor granting multiple statutory pledges (or other types of security) over the same assets, and the Act sets out the rules governing the priority of payment between two or more security interests over the same asset. The general rule is that priority depends on the date of creation but where the asset is subject to a security arising by operation of law (such as a lien or hypothec), the security arising by operation of law will have priority.

Priority between different security interests can be changed by written agreement between the secured creditors. However, a ranking agreement relating to statutory pledges will not be registrable either at Companies House or in the Register of Statutory Pledges and will only have effect between the parties to the agreement and their successors.  

4. Enforcement Options

Although the Act brings the position in Scotland closer to the position in England and Wales, there is still no ability to appoint a fixed charge or LPA receiver in Scotland whether for property or other moveable assets.

Assignations will still be enforced directly, and enforcement of statutory pledges will be as set out at in the Act.  A pledge will be enforceable in such circumstances as are agreed between the provider and the secured creditor, or where there has been a failure to perform the secured obligations. A pledge enforcement notice in the specified form is required prior to enforcement, and thereafter the secured creditor will have various options as set out in the Act, including taking possession of the property, selling the property and appropriation.

It is safe to say that, whilst on paper, there will be more rights capable of being exercised by a security holder, the road to enforcement may still be bumpy and involve risks being accepted by the security holder given there is no ability to appoint a receiver to shield the security holder. On that basis, it may be that security holders will still be reluctant to enforce in relation to those assets in Scotland and prefer to adopt a strategy involving an insolvency appointment (where one is available).

Otherwise, we expect as time goes on and more of this new security is taken, that we will see increasing interrogation and analysis of the asset and security position both pre-insolvency and post-insolvency. Until there is clarity arising either from changes to the legislation (which in any event would not be imminent) or, more likely, from court judgements, we will be operating in untested waters to an extent, and we may need to rely on what are considered in the market to be accepted principles.  

Conclusions

While all of the changes brought in by the Act are welcome and useful, there are, predictably, uncertainties arising as to their practical implementation and implications. Documentation is still not in a clearly settled form – although some broadly agreed principles are being reflected – and in the case of enforcement and insolvencies in particular, we may now need more time to assess the extent of any security and distribution rights.

Discussing the Act with us at an early stage in your transaction is crucial, to allow as much time as possible to consider documentation and drafting issues, and, in relation to restructuring and possible enforcement, so that we can work with you to decide on a clear way forward through this somewhat untested landscape. 

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