With Global ABS 2024 just around the corner, now is a good time to revisit 5 of the distinctive elements of Scots law that need to be borne in mind by originators, issuers, arrangers, funders, and others when it comes to securitising receivables that are subject to Scots law.

1. Equitable assignments are not recognised under Scots law: the transfer of receivables from a seller to purchaser under English law is, in our experience, most often set up as an equitable assignment. An important distinction between English and Scots law in this context is that it is not possible to transfer receivables that are subject to Scots law under an equitable assignment. An effective alternative, at the time of writing, remains for the seller to grant a separate Scottish trust in favour of the purchaser over any receivables subject to Scots law.

2. You need to be specific: assets held in such a Scottish trust need to be sufficiently identified or objectively identifiable in order for the trust to be effective. It is arguably possible to identify receivables the subject of a trust by reference to an account number specific to a particular loan and debtor when that account number can be used in conjunction with the records of the parties to identify precisely what had been the subject of the sale. If there is doubt (for example, where two loans to a particular debtor are referred to under a single identifier and only one of those loans is intended to be sold into the securitisation), there is a risk that the trust would not be effective. It is a delicate balancing act. Including more information is better from a strict Scots law perspective, but there are also GDPR aspects to consider.

3. Dynamic portfolios need special attention from a Scottish perspective: under current Scots law there is doubt as to the effectiveness of the creation of a trust over any asset which is not in existence at the time of the grant of the trust. This creates a clear issue where the transaction is intended to sweep up receivables on an ongoing basis while the securitisation is in place. Unless the transaction documents are appropriately tailored from a Scottish perspective, future Scottish receivables may not be brought into the securitisation as intended.

4. Taking security: extending an English law floating charge over assets that are subject to Scots law is relatively straightforward and we would expect that the purchaser / issuer grant an appropriately 'kilted' floating charge comprised within a wider English law governed security agreement. However, it is not possible to grant an effective fixed charge over Scottish assets without using the appropriate form of Scots law security, which in most cases on a securitisation transaction will be an 'assignation in security', although Scots law advice should be taken on each transaction as to the most appropriate form of Scots law security. When assignations in security are granted, care also needs to be taken to ensure that rights in any supplemental Scottish trusts are effectively captured.

5. Everything is about to change: the Moveable Transactions (Scotland) Act 2023 was passed last year and will potentially come into force in the second half of 2024. It is not a catchy name for an Act, but the reforms to Scots law which it sets out will have a wide-ranging and deep impact on many different types of transactions involving Scottish assets, including securitisation transactions relating to certain Scottish receivables. A new 'Register of Assignations' is being introduced, which will enable Scots law assignations (including assignations in security) to be perfected by registration as an alternative to the delivery of notices to counterparties. Crucially, the new law also makes it clear that it will be possible to assign rights which, at the time of granting, are not yet owned by the assignor. The new legislation offers significant transactional advantages and we can expect market practice to evolve after the new rules are introduced

For more information, please contact Peter Brading or your usual securitisation contact at Brodies.

Brodies LLP has the largest specialist banking service across corporate and commercial Scotland, working across the UK and Ranked in Tier 1 by both Legal 500 and Chambers, with one of the largest concentrations of leading individuals. We will be attending the Global ABS in Barcelona again this year, and we look forward to seeing you there.

Contributors

Peter Brading

Senior Associate

Marion MacInnes

Head of Banking and Finance & Partner

Craig Henry

Associate