The new Scottish moveable transactions regimes – Some enforcement and insolvency issues

Summary

New moveable transactions regimes expand practical security enforcement options beyond administration of companies & facilitate disposal of operating businesses of sole traders and partnerships
Enforcement of fixed security over groups of business assets and by sale of shares in subsidiaries becomes more straightforward & broad appropriation powers become available
There are now more Scottish fixed charge assets in insolvency – but similar fixed/floating mix to England
Some extra information is available from Registers of Statutory Pledges and Assignations – but it isn’t complete
Effectiveness of new pledges and assignations & of discharges & set-off of assigned rights varies depending on disposals made and perfection routes followed

Introduction

Scottish moveable transactions law changed radically on 1 April 2025. The Moveable Transactions (Scotland) Act 2023 come into force then, along with the Moveable Transactions (Scotland) Act 2023 (Financial Collateral Arrangements and Financial Instruments) (Consequential Provisions and Modifications) Order 2025 (together, the “MTA”).

It then became possible to create a new form of fixed “statutory pledge” over (a) corporeal (tangible) moveables, like equipment and inventory, (b) intellectual property and (c) shares and other financial instruments. This statutory pledge can be granted over future assets as well as assets held when granting the statutory pledge and can be created by uploading a brief pledge document to a new online Register of Statutory Pledges maintained by Registers of Scotland (“RoS”). This new statutory pledge is an alternative to taking possession of corporeal moveables under a traditional pledge or fully transferring intellectual property or financial instruments for security purposes.

It also then became possible to assign future as well as existing receivables, bank accounts, rents from land (as well as from other assets), insurance, development and other contract rights and all other very broadly defined “claims”. This, again, can be done by uploading a brief assignation document to a new online Register of Assignations maintain by RoS – as an alternative to giving notice to relevant counterparties of an assignation relating to specific claims assigned.

Further details of the then proposed new regimes have been outlined by the author in a previous article in this journal (volume 15, issue 4) and these new regimes have been implemented in the MTA largely as outlined there. It is intended here to set out a few of the issues arising or likely to arise in light of the new regimes when enforcement of security in Scotland is being considered or when Scottish assets secured or assigned under the new regimes may be subject to an insolvency process. As the new regimes have not been in force for very long, there have not as yet been many enforcement or insolvency situations involving them.

Enforcement options

Old regime

Prior to the new regimes becoming available, fixed security over Scottish assets other than land was relatively uncommon as it was cumbersome and often impracticable to put in place. The most practicable enforcement option for a secured creditor was often, therefore, to appoint an administrator under an all assets floating charge granted by a debtor.

Where it had been practicable to put in place security assignations of relevant rights, such as rentals or other receivables, relevant material contracts and relevant blocked bank accounts, the secured creditor might simply have sold and assigned them on as assignee, alongside the exercise of sale powers under a fixed “standard security” taken over relevant land. However, given the previous difficulties arising from possession or transfer requirements in taking fixed security over equipment, intellectual property and shares in subsidiaries, some assets necessary for a given narrower enforcement strategy may not previously have been readily available. Similarly, difficulties in taking security over future assets, may have meant that some receivables, contracts and accounts were not in fact subject to fixed security and not therefore realisable directly and separately by the security holder, leading to administration remaining the most practicable enforcement option even where a relatively “full” fixed security package had been taken.

In addition, given the issues inherent in taking security over shares in a Scottish company by full transfer to the security holder as required under the old regime (such as possible requirements for clearance of the security transaction itself under the National Security and Investment Act 2021 (the “NSIA”)), simple enforcement of security at holding company level by direct disposal of shares in given operating subsidiaries has often not been an option for Scottish subsidiaries, as relevant security will not have been taken.

Realising through holding company and groups of assets

If fixed security has now been taken over relevant assets by statutory pledge or assignation under the new MTA regimes, further enforcement options to administration may now become more practicable. In particular, enforcement at holding company level of statutory pledges over individual Scottish subsidiary companies is becoming an increasingly available option. This can be important if, for example, the subsidiary in question holds regulatory approvals that cannot readily be transferred alongside a disposal of its business and assets. The NSIA may still require to be dealt with in the context of a given transaction, but relevant issues will require to be dealt with (as in England and Wales) at the time of enforcement rather than when security is taken.

Statutory pledges over intellectual property and over significant equipment and the more straightforward availability of security assignations over all relevant receivables, accounts and contracts may now also make a fixed security enforcement over certain groups of assets a feasible alternative to administration. It should, however, be noted that enforcement of a standard security over Scottish land under the Conveyancing and Feudal Reform (Scotland) Act 1970 remains cumbersome, through, for example, requirements for public advertisement for sale. Until the Scottish Law Commission’s current project on standard securities resolves enforcement issues, the 1970 Act requirements may continue to push some enforcement towards administration anyway, where Scottish land is a significant asset.

Sole traders & partnerships

For sole traders and partnerships (other than limited liability partnerships), as they cannot grant floating charges, the broader availability of fixed security by statutory pledge and security assignation may be more significant in some ways than for enforcement against companies, as security enforcement over a business as a whole may become a more feasible option (bearing in mind the £3,000 value floor for corporeals pledged by a sole trader under s.46(2)(c) of the MTA, which may still leave some important groups of a sole trader’s business assets unavailable for the purposes of enforcement).

General enforcement powers

Receivership in the sense of the English Law of Property Act 1925 was not introduced in the MTA for enforcement of statutory pledges or security assignations. Instead the MTA provides a code for the enforcement of statutory pledges by the secured creditor, including broad powers in sections 67-72 to take possession, sell, let, license, protect, maintain and manage. While court orders or enforcement by court officer may sometimes be required in relation to taking possession of pledged corporeal assets (particularly if occupied) and in relation to pledges granted by sole traders, the main formality on enforcement of a statutory pledge is to serve a simple prescribed form of pledge enforcement notice under s.65 of the MTA on exercising enforcement powers. As with the previous law, a security assignation constitutes a transfer of the relevant receivables, accounts, contracts or other claims to the security holder as assignee, who on enforcement can simply exercise its rights as assignee to sell and transfer them on or otherwise deal with them, subject to restrictions in relevant finance documents.

Appropriation

Sections 73-76 of the MTA set out new provisions for appropriation of assets on enforcement of a statutory pledge. Under s.74(3), a pre-agreed appropriation must set out a method of readily determining a reasonable market price at which appropriation is to take place. Where appropriation is not pre-agreed, s.75(2) requires the relevant amount to bear a reasonable relationship to the market value of the assets appropriated on the date of appropriation. Notices of appropriation require to be given to the security grantor and debtor and other secured or execution creditors of which the appropriating creditor ought reasonably be expected to be aware. Secured and execution creditors are entitled to object to appropriation (save as regards appropriation of shares and other financial instruments) and the debtor and creditor can object to appropriation not agreed by them in advance. The rights of a security assignee of receivables, accounts, contracts or other claims continue, in effect, to include a right of appropriation at common law, subject to common law requirements to appropriate at value not dissimilar to those for statutory pledges.

Appropriation may now therefore become a possible enforcement mechanism for certain businesses, depending on the nature of their assets, although as there is currently no straightforward way for the holder of a standard security over Scottish land to enforce by appropriating that land, appropriation may be more difficult where land interests are critical to the business in question. Appropriation rights under the MTA exist in parallel to the more limited appropriation rights available under the Financial Collateral Arrangements (No.2) Regulations 2003 (the “FCARs”) in relation to relevant financial collateral under a security financial collateral arrangement.

Asset finance

It should also be noted that hire purchase and other forms of asset finance remain competent under Scots law following the MTA reforms. A lender holding statutory pledges and security assignations under the MTA may also be a hirer or lessor under asset finance arrangements or there may be a separate hirer or lessor of relevant assets. As previously, this may make enforcement options more straightforward or more difficult depending on the hirer or lessor. The same may be said of invoice discounting and other receivables finance, save that the new assignation regime makes outright assignation of receivables more straightforward as it does security assignation. It is possible that greater engagement may therefore be required by general lenders on enforcement ongoing with independent receivables funders.

Some insolvency issues

Just as fixed security by statutory pledge and assignation under the MTA has increased fixed security available to lenders and broadened their enforcement options, it has reduced the floating charge assets previously available in Scotland to insolvency practitioners (“IPs”) appointed as administrators and taking other insolvency appointments. The new regimes have also provided IPs with the RSP and RoA as additional sources of information regarding the businesses to which they are appointed – as well as imposing upon them the need to resolve the inevitable boundary issues arising from the new statutory pledge and assignation regimes.

Fixed & floating charge assets

So far as floating charge assets are concerned, it would appear that instead of there being likely to be fewer fixed charge assets in Scotland than England because of problems with the old Scottish fixed security regimes, it is likely that the position in Scotland will become relatively similar to that in England, where some fixed charges and assignments are considered to be effective and other purported fixed charges and assignments may be recharacterised as floating charges under Re Avanti CommunicationsLimited (in administration) [2023] EWHC 940. Accordingly, larger items of equipment, intellectual property and shares are now relatively likely to be subject to valid statutory pledges in Scotland and valid fixed charges in England, but probably not inventory or lower value equipment with relatively swift turnover. Similarly, rents and other receivables, deposit accounts, insurances and specified contracts are now likely to be assigned effectively in both Scotland and England.

The rules are, however, slightly different and control, as such, is not a relevant test under the MTA for effectiveness of a statutory pledge. Instead, s.52(1) of the MTA provides that the acquiescence of a secured creditor in the transfer of any item of property subject to a statutory pledge discharges the whole pledge if the mechanism in s.51(2) for giving discretionary consent within 14 days in advance of transfer is not followed. This has become known as the “torpedo” and is why a purported statutory pledge over inventory or lower value equipment is likely to be ineffective. It is also why security documents now tend to contain separate statutory pledges over separate categories or sub-categories of pledged assets. For example, a pledge may be taken over the shares in important subsidiary A and a separate pledge taken over other subsidiaries so that if another subsidiary is sold without the relevant consent the torpedo doesn’t sink the pledge over subsidiary A. Statutory pledges over broad categories of present and future assets, such as equipment, may accordingly be vulnerable to an inadvertent torpedo and as s.51(2) does not permit advance consent in finance documents to “Permitted Disposals”, IPs may also wish to consider possible collateral damage from a Permitted Disposal torpedo to a relevant pledge.

The torpedo does not apply to assignations and instead s.17(1)(c) of the MTA provides that “any rule whereby an assignation is rendered ineffective by an instruction to the debtor by the assignee of a claim that the debtor perform to the assignor” is abolished. This provision was directed largely towards ensuring that payments of assigned receivables or other claims did not have to be made to the assignee or an account of the assignor blocked in favour of the assignee (or using some other control mechanism) prior to enforcement of a security assignation, as was the case in Scotland prior to the MTA. While s.17(1)(c) means that rents and other receivables, deposit accounts, insurances and specified contracts that would be assigned effectively in England should also be assigned effectively in Scotland, it is possible that the Scottish position now goes beyond that in England and that assignments of some claims in England that might be recharacterised as floating charges in England on control grounds may be effective in Scotland as fixed security assignations. It is likely that the boundaries here will be tested in the courts by IPs.

Land related rights

Another boundary that will likely be tested in the courts is whether a given claim purported to be assigned is a “non-monetary right relating to land” as excluded from the definition of “claim” in s.41(1) of the MTA as “a right to the performance of an obligation (including an obligation not to do something)”. Clearly rental payments under leases of land are intended to be assignable under the MTA but the overall lease itself is not intended to be assignable under the MTA. Questions are going to arise around the extent rights to non-monetary performance under various types of management contract or development contract “relate to land” and the extent to which given monetary rights may be severable from non-monetary rights that may not be assigned under the MTA. In practice, it is likely that the continuing pre-MTA assignation rules (with clear contract identification and notice) will normally continue to be followed for borderline contracts.

Post-insolvency assets

Statutory pledges and assignations do not take effect in relation to assets acquired or created post-insolvency under sections 4 and 50 of the MTA, partly to facilitate trading by IPs during an insolvency process. The author outlined some of the issues here in a previous edition of this journal (Volume 21, Issue 2). Unfortunately, only minor amendments were made to sections 4 and 50 following the consultation to which that article related, and the sections still take effect automatically on voluntary arrangements, restructuring plans, trust deeds for and compositions with creditors and analogous foreign procedures taking effect as well as on winding up, administration and personal bankruptcy.

Registers & off-register transactions

As mentioned above, a statutory pledge can be constituted by uploading a pledge document to the RSP and an assignation can be perfected by uploading an assignation document to the RoA. It is possible to search these registers online with reference to a pledgor or assignor and to obtain copies of the documents uploaded (some of which may also have been uploaded at Companies House). However, as sections 1(5) and 45(5) permit relevant assets or classes of assets to by identified by reference to a data source that has not been uploaded, the RSP and RoA only provide a starting point for further due diligence by indicating that a given pledge or assignation has taken place. IPs should normally be able to exercise their general powers when making relevant further enquiries.

In addition, the RSP and RoA will not be complete as it remains competent to take a pledge over corporeal moveables by taking possession of them and to take security over intellectual property and shares and other financial instruments by transferring them. It similarly remains competent to perfect an assignation of rents, receivables, accounts, insurances and other claims by notice to the relevant counterparty. A statutory pledge over shares or other financial instruments that is part of a security financial collateral arrangement under the FCARs may also be perfected by obtaining possession or control in terms of the FCARs of the financial instrument and an assignation of claims that is part of a financial collateral arrangement (perhaps of a bank account) may similarly be perfected by possession or control.

Furthermore, the release of a statutory pledge does not require to be registered in the RSP and a re-assignation of claims assigned using the RoA can be perfected by notice to counterparties rather than registration in the RoA. If the re-assignation is registered in the RoA there is not (as yet) any linkage in the RoA of registered assignations and related re-assignations.

Accordingly, while the RSP and RoA will be of assistance to IPs in assessing the asset and security position of those relative to whom they have been appointed, they are very much part only of the due diligence story – which will also include checking as previously for asset finance arrangements as well as MTA pledges and assignations not fully disclosed by the RSP and RoA.

Checking for assignation notices anyway

While it is now becoming common for assignations of rents, receivables, accounts, insurances and other claims to be perfected by registration in the RoA, it is not uncommon for notice also to be given to relevant counterparties. This is sometimes done because payment in good faith by the debtor to an assignor will discharge a claim assigned under s.10 of the MTA even if the assignation is registered in the RoA. Notice received by the debtor prior to making a payment is very likely to rebut good faith in this context and this may be relevant to an IP considering whether or not a given claim otherwise assigned or available to the IP has been discharged.

Similarly, s.14(3) clarifies that registration of an assignation of a claim in the RoA is not to be treated as notice for the purposes (where relevant) of cutting off set-off by the debtor. Absence of notice may therefore affect the calculation of claims by the debtor and the assignee in an insolvency.

Another situation in which the presence or absence of notice may be significant is where an assignation has not been registered in the RoA and instead perfected by notice. While such an assignation can still assign future claims (for example under contracts that do not exist at the time of assignation) the assignation will take effect in relation to a future claim to which the assignation relates when notice is given rather than when the claim comes into existence, as would be the case for an assignation registered in the RoA. Even if the counterparty is known and notified in relation to possible future claims of this nature, the details required in a notice under s.8(3) of the MTA appear to preclude notice being given until after the details of the claim are available. An insolvent estate might therefore benefit if no notice has been given in these situations.

While relatively limited formal requirements are otherwise set out for notices of assignations under the MTA, it may also be worth checking when an assignation has been perfected by notice that these requirements have been complied with. In particular, while either assignor or assignee can give notice, s.8(3)(a)(i) requires a notice to contain the addresses of both assignor and assignee. It is easy in practice to omit the address of the party not giving the notice. In some circumstances such a defect in a notice may again benefit the insolvent estate.

Conclusions

The new moveable transactions regimes have been welcomed enthusiastically by funders of Scottish businesses and assets and their lawyers – and loan portfolios with better security packages are growing. As it becomes necessary for funders to consider the enforcement options available to them in relation to these loans, they will find more and more flexible enforcement options may be available to them. While one consequence of these improved security packages for funders is fewer floating charge or unsecured assets available to IPs to trade or for preferential or unsecured creditors, it appears that the overall position for IPs will probably be similar in Scotland to that in England. As with any new legislation there are some uncertainties to be worked out and the various boundaries and balances between secured and unsecured creditors are likely to be worked out over the next few years by IPs as distressed businesses with new securities come through the system.

This article first appeared in Volume 23, Issue 4 of International Corporate Rescue and is reprinted with the permission of Chase Cambria Publishing – www.chasecambria.com

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