As we mark the first anniversary of the implementation of the Moveable Transactions (Scotland) Act 2023 (MTA), we reflect on the intentions behind what was widely regarded as a once‑in‑a‑generation reform of Scots law on moveable transactions and consider whether the MTA has achieved those aims – or whether further development is still required.
What did the MTA intend to do?
The MTA set out to modernise Scots law on moveable transactions by making it easier to:
(1) transfer/assign claims such as debts and receivables as part of a financing transaction; and
(2) grant fixed security over moveable property without requiring the creditor to take possession of the secured asset.
It achieves this primarily through the introduction of registration-based methods, including a new statutory pledge and new public registers for assignations and statutory pledges.
These proposed changes were welcomed warmly by Scottish lawyers, many of whom had spent a lot of time explaining to clients the comparative complexity and limitations of taking security over moveables in Scotland as compared to jurisdictions such as England and Wales. While the MTA doesn’t fully align the approach between the jurisdictions, it has undoubtably modernised the approach taken north of the border and brought it closer to current commercial practice. This should help facilitate finance transactions in Scotland and reduce costs for market participants.
Has it done what it intended?
We have seen lenders gradually make use of the various security options introduced by the MTA in some areas. In practice, the changes are significant, and it is clear that the reforms offer substantial benefits and new opportunities for both lenders and borrowers.
Previously, a lender seeking to obtain fixed security under Scots law was often required to take possession of the secured asset. In the case of assets such as whisky casks, this was not only inconvenient but, depending on the nature of the pledgor’s business, sometimes impractical or impossible. Under the MTA, a lender (as pledgee) can instead take a statutory pledge from the asset owner (the pledgor), which is perfected by registration in the Register of Statutory Pledges. This creates a valid fixed security without any transfer of possession, addressing a long standing commercial difficulty.
Another key advantage of the new regime is the ability to take security over future rights and assets, including those not yet in existence, which arguably was not possible previously. This has been received positively by both lenders and borrowers due to the reduction in additional paperwork and costs, and has streamlined process significantly – particularly in real estate finance transactions where security is taken over rental income under leases and in fund finance, ABL and invoice finance transactions. In that context, lenders can take comfort that future claims will be captured automatically under one security, thereby reducing risk exposure and increasing efficiency.
What is still to happen?
As a relatively new legislative regime, the MTA is still finding its feet in practice. Law firms continue to work with each other towards consistent market approaches on matters such as detailed drafting points in security documents and, indeed, security packages. The extensive pre implementation work undertaken by the cross firm working group, of which Brodies was an involved member, has undoubtedly assisted in ensuring a smooth transition, but further alignment of market practice across the sector will take time and is to be expected, especially as post-MTA deals are refinanced or, hopefully in few cases, subject to financial difficulty.
Like any new piece of legislation, there are some areas of interpretational uncertainty. For example, around what constitutes non-financial rights relating to land, which are expressly excluded from the MTA framework and which law firms are treating with natural caution. Over time, we expect a greater engagement with MTA-security for certain types of assets, such as rural business assets, including plant, machinery and vehicles, and intellectual property.
However, in a wide variety of types of financings, there has been active engagement with the new legislation; MTA share security has been widely embraced, as has the ability to take statutory pledges over wind turbines and battery energy storage systems in the renewables space. Fund finance transactions are making ready use of MTA assignations capturing future rights and the modernised intimation provisions which allow for notice by email.
Overall, it is clear that the MTA has already had a positive impact on the Scottish secured finance landscape. We expect that impact to grow as the reforms become more embedded in market practice and as confidence in the new regime continues to develop in the years ahead.
If you would like to discuss anything raised in this blog in more detail, including how your business can take advantage of the MTA, please get in touch with a member of the banking and finance team or your usual Brodies contact.
