The idea behind the Moveable Transactions (Scotland) Act 2023 – which received royal assent on 13 June 2023 and will hopefully be fully in force in spring/summer 2024 – is to have simple processes that will make it easier for businesses to raise finance.
Some of the long overdue reforms will be of particular relevance to those interested in real estate and moveable property connected to that.
Historical difficulties
Historically in Scotland, it has not been straightforward to fund income streams – particularly future income streams – or to take security over assets, owned by a customer, that it wants to continue to use in its business.
For example:
- A sale of, or security over, a claim can only be completed by intimation (notice) to the debtor. As a result, it has not been possible to sell, or create security over, a claim that does not exist when the assignation is granted because, by definition, no notice can be given. This has impacted, among others, landlords granting an assignation of rents, which would only be effective in relation to specified leases, existing when the assignation was granted, where notice was given to the relevant tenants;
- A security over a corporeal moveable asset (an asset with a physical form) can only be created if the security holder has possession of the asset;
- A Scottish floating charge can only be granted by companies or LLPs so, where moveable property is owned by one or more individuals or a partnership, but used in the course of a business, there is no simple means of securing physical assets used in the operation; and
- A security over intellectual property can only be effected by transferring it outright and licensing it back, which can be a costly process.
When the 2023 Act is fully in force, what will change?
Income streams It will be possible to:
- Register an assignation of trade receivables or other income streams in the new Register of Assignations, and that will be the equivalent of intimation (notice) to debtors (although giving notice to debtors remains an option);
- Assign future receivables (on the basis that title does not transfer to the assignee until the relevant receivable comes into existence and with some qualifications in the event of insolvency); and
- Assign a class of receivables (so, for example, all invoices specified in monthly statements from the assignor to the assignee; all invoices due by a particular customer or customers; all invoices relating to a particular service; all rents relating to the leases within a particular building or shopping centre; and all royalties payable in respect of a particular IP).
- The Act makes it clear that an assignation is not ineffective if the assignee gives an instruction to the debtor to continue to pay the assignor – clarifying another area of doubt.
Security over moveable property It will be possible to:
- Grant security (a statutory pledge) over corporeal moveables (moveables that have a physical form) without the security holder having to have possession of them;
- Grant security over IP without transferring it and licensing it back; and
- Grant more than one security over the same asset and determine how the securities rank between and among themselves.
A statutory pledge will be created by registering the document constituting it in the new Register of Statutory Pledges.
Individuals cannot grant statutory pledges except in limited circumstances including, for example, where acting in the course of their business.
Property charged must be a “permitted asset”.
In the case of corporeal property, that includes each item charged having a value in excess of, initially, £3,000 when the charge is granted. The option of a possessory pledge remains competent.
How might the new legislation impact those involved with real estate?
- A landlord will be able to assign the rents payable under current and future leases of a building or of a shopping centre or due to it by a particular tenant;
- When rents are assigned, notices can be given by either the assignor or the assignee; they do not have to be signed; and the process of giving them is much simpler than at present;
- It will be competent to provide in notices that rents assigned are to continue to be paid to the landlord, until notice to the contrary is given;
- It will be possible for an owner to grant security over high-value assets used for business purposes and still retain possession of them; and
- Purchasers of businesses that include real estate and moveable property will have to become familiar with the investigations that they will have to make to be sure that the moveable property is not the subject of a statutory pledge, and, if it is, the consents that they will need to see in order to get good title to it, clear of the security.
To sum up
Property owners should be giving some thought as to their current arrangements in Scotland and investigating whether they can improve their access to funding and/or perhaps get better rates because of these changes.
In due course, they and their lawyers will also have to become familiar with the steps that are required to be taken to ensure not only that the real estate which they acquire is free of security, but also that moveable property included in acquisitions is free of any statutory pledge, as well as released from any relevant floating charge.
Morag Campbell is a consultant at Dentons
