Corporate Borrowing

Corporate borrowing: What you need to know about the Moveable Transactions Act

The Moveable Transactions Act (the “Act”) was passed by the Scottish Parliament in May 2023 and will make fundamental, and very positive changes to the commercial landscape in Scotland when it comes into force.

We expect that the Act will come into force in Summer 2024, although no date has been confirmed yet. The Act modernises the law relating to the creation of security over contractual rights and creates a new security right (the statutory pledge) that can be used to secure moveable assets.

What is changing?

When the Act comes into force, it will change how companies create security over their Scottish assets. It will be easier to use valuable contractual rights, such as the right to receive rental income, as security for borrowings. It will also be possible for companies to create a new type of security called a statutory pledge over their moveable assets in Scotland, such as plant and machinery, vehicles and stock in trade. Currently the only way to create security over these types of assets is to transfer possession of them to a lender or grant a floating charge.

For companies that own intellectual property (“IP”), it will also be possible to grant a statutory pledge over that IP. This will allow fixed security to be created over IP in Scotland without having to transfer title to the IP to a lender which is a significant change that will lead to more IP being used to secure borrowings.

The Act (as currently drafted) does not allow a statutory pledge to be granted over shares in Scottish companies but it is hoped that the Act will be amended to permit this. If a statutory pledge could be granted, it would no longer be necessary to transfer title to the shares to a lender to create fixed security. This would be a welcome development as the requirement to take title to the shares makes security over shares in Scottish companies unattractive to some lenders.

How will this impact on corporate borrowing?

Corporate borrowers should find it easier to raise finance against, and grant security over, their moveable assets, such as contractual rights, claims, IP, stock, vehicles and equipment. The typical security package taken by a lender will change and we expect to see statutory pledges being granted by corporate borrowers.