New financing opportunities are benefitting businesses who hold valuable intellectual property (IP) assets and their lenders. Before the Moveable Transactions (Scotland) Act 2023 (the MTA) came into force in April this year, it was often commercially challenging for the businesses that own their IP through a Scottish vehicle to use that IP as collateral to raise finance and unlock their growth potential. This has all changed thanks to the MTA which created a new form of fixed security – the statutory pledge.
Taking security over IP (pre-MTA)
IP rights like patents, trademarks, and registered designs apply across the UK. Registered IP is managed by the UK Intellectual Property Office. Under English law, securing interests in IP often involves creating a fixed charge, legal mortgage, or other equitable security arrangement.
However, where the IP owning vehicle is seated in Scotland and the IP is used mainly in Scotland, there is a view that the IP may be subject to the laws of Scotland and, as a consequence, separate Scots law security may be required – this can be nuanced and we would recommend seeking advice on this point if relevant.
Pre-MTA, where it was desirable to take a Scots law security, there were limited options. These included the grant of a floating charge (if the business was a company or a limited liability partnership) and/or cumbersome transfer and licence-back arrangements. Depending on whether you were a borrower or a lender, each option had its own drawbacks.
Benefits of the statutory pledge over IP
The statutory pledge is a new form of fixed security, which is perfected by registration in a new online Register of Statutory Pledges, crucially without the IP having to be transferred to the lender. This benefits all parties:
- for borrowers, the ability to grant a statutory pledge streamlines the ability to use its IP as collateral without a need to transfer ownership; and
- for lenders, the ability to take fixed security is commercially attractive compared with a floating charge as it offers a stronger position on insolvency, without the administrative and other obligations that come with taking legal title to the IP being used as collateral.
Development of IP-backed lending products
These legal changes have removed barriers to finance and established a foundation from which innovative, IP-rich Scottish businesses (traditionally in sectors such as technology, academia and life sciences) can grow and scale up. We are already seeing lenders who provide IP-backed funding in other parts of the UK looking to extend their services to Scotland.
The introduction of the new statutory pledge is also likely to attract interest from organisations looking to fund or acquire Scottish businesses with valuable intellectual property, particularly as part of cross-jurisdictional transactions. The new ability to use a statutory pledge to secure IP assets in Scotland - alongside the existing methods of creating security over IP in England - could make such funding or acquisitions more attractive.
What businesses can do to best access funding
Integral to IP-backed credit products, and key to leveraging and unlocking sources of funding, is the valuation of the IP itself.
As the relative value of registered IP (such as patents, trademarks and registered designs) is likely to be greater than that of its unregistered cousins (e.g. copyright, rights in unregistered trademarks, and unregistered designs), businesses seeking to achieve their growth ambitions should review their IP portfolios and where possible take action to register their IP in order to widen their access to funding.
Comment
The introduction of the statutory pledge significantly enhances the landscape for IP-backed financing in Scotland. By simplifying the process of using and leveraging IP as a security and aligning more closely with practices across the UK, Scottish businesses now have greater opportunities to unlock funding and drive innovation. Both borrowers and lenders stand to benefit from this modernised approach, supporting the growth and competitiveness of Scotland's most dynamic sectors.
