The Moveable Transactions (Scotland) Bill currently progressing through the Scottish parliament (MTB) will modernise Scots law on security over moveable assets and open up access to secured finance to businesses in Scotland. It is the most major piece of legislative reform for Scottish businesses seeking to raise finance in over 50 years.
In our series of blogs on the MTB we will distill the proposed new law and highlight the key points to be aware of. We kick off our series of with five key things to know about the new statutory pledge created under the MTB.
1. The statutory share pledge: once the MTB becomes law there will be two types of pledge available under Scots law – the possessory pledge (which are currently available under Scots law and require delivery of the relevant asset to the secured creditor) and the new statutory pledge (which does not require delivery of the asset). The statutory pledge can only be created by registration in the new register of pledges (Register); possessory pledges are not registered in the Register.
2. Shares in Scottish companies: a significant change from the Scottish Law Commission's draft Bill is that the MTB does not allow a statutory pledge to be created over shares in a Scottish company. The Scottish Government has taken the view that it does not have the legislative competence to legislate on the issue.Instead the intention is that this will be dealt with by separate secondary legislation granted by the UK Government, which will have the effect of making shares in a Scottish company capable of being the subject of a statutory pledge, as intended by the Scottish Law Commission.
3. Property included: a statutory pledge can be created over corporeal property – such as whisky, paintings, motor vehicles and furniture – and incorporeal property, currently (as the provisions relating to financial collateral, including shares, have been removed from the MTB) only intellectual property. Aircraft and ships are excluded as they are subject to separate security regimes.
4. Future property: the ability to grant a statutory pledge over future property is one of the most useful reforms of the MTB. A statutory pledge can be drafted to include identifiable future property and that statutory pledge can be registered even if the granter of the pledge does not own the property. Notwithstanding earlier registration, the statutory pledge over the future property will only be created when the granter becomes the owner of the property.
5. The Register: the Register will be maintained by the Registers of Scotland. Once registered, statutory pledges can be amended either to add property to the encumbered property or to increase the extent of the secured obligation. A statutory pledge will need to be registered both at Companies House and in the Register, so both of these must be searched to check a Scottish company's outstanding charges. There are no time limits for registration of a statutory pledge in the Register, but the 21 day time limit for registration at Companies House will remain.
The new statutory pledge will improve the lending environment for businesses which otherwise could either offer no security over its moveable assets, for example where the only security available would be a possessory pledge of assets used in a business' day to day operations, or only offer a lender a floating charge as security. The new security will be attractive to businesses and lenders alike. As a fixed security the statutory pledge gives lenders a stronger security, for example on insolvency of the borrower, and for this reason is likely to come with a lower borrowing cost in terms of interest rate and higher borrowing limit.
There is no clear indication at present of when, after the MTB is passed, the new statutory pledge provisions will come into effect. We will keep you posted.
If you would like to discuss any MTB issues further please contact Alan Knowlesor Lindsay Lee.
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