Game-changing legislation for ABL funding and asset finance in Scotland 

Fixed charges over moveable assets will soon be possible and further changes will bring the law in Scotland closer to the position in the rest of the UK, says Peter Smartt, legal director of finance at Addleshaw Goddard LLP. 

Scotland Credit: RoundGlobalMaps by Shutterstock

The Moveable Transactions (Scotland) Act 2023 has recently received Royal Assent and is set to revolutionise the options available for ABL funders and asset financiers doing business in Scotland. The legislation is likely to come into force in 2024 and so now is the time for funders and financiers to think about updating processes and procedures and potentially developing new products to offer customers located in Scotland.

Many funders and financiers will be aware of the difficulties and the increased risk profile of funding transactions involving moveable assets in Scotland, such as: 

  • the lack of effective fixed security over moveables – meaning that funders and financiers have to hold reserves in relation to the “prescribed part” when they are relying on floating charge security and which reduces the amount of funding that Scottish can access 
  • awkward requirements in terms of perfecting fixed security over intangible assets and 
  • the requirement for delivery in respect of transfers of property to be actual – which has an impact on certain types of transaction (particularly sales and leasebacks and invoice finance) and which forces a heavy reliance on trust mechanics.

Peter Smartt Credit: Addleshaw Goddard LLP

The new legislation will bring the law in Scotland more into line with England and Wales and offer a solution to many of these issues (and in some instances, the position will be an improvement on the position in England and Wales). It will allow funders and financiers to conduct their business in Scotland in a much more similar way to the way in which they conduct their business in England and Wales.   

The new legislation contains the following key elements: 

  • a new form of fixed charge over moveable assets that is perfected by way of registration in a public register 
  • updates to the charging of incorporeal moveables (e.g. rights to receivables from customers, rental income from tenants, cash deposits in Scots law governed bank accounts, shares in Scottish companies and intellectual property): (a) to (d) 
  • a) future claims will now be capable of being secured 
  • b) perfection by registration in a public register will be permitted 
  • c) perfection by intimation will still be valid but intimations can be served by electronic means and 
  • d) security over Scottish shares will not require the transfer of the shares into the name of the funder, financier or a nominee company in order to perfect the security (as they will be able to be perfected by registration in a public register)

Company directors who feel the new legislation is likely to impact how they do business are encouraged to start preparing for the changes now. In many instances, current policies and procedures will be able to be significantly streamlined, which will reduce the barriers (perceived or otherwise) and the cost of doing business in Scotland.