Moveable transactions: reform at last

The Moveable Transactions (Scotland) Act 2023 received Royal Assent on 13 June 2023. This marks a milestone in the decade-long push for moveable transactions reform in Scotland, a reform that the Law Society of Scotland has keenly supported. This will change the way that business can be transacted in Scotland.

Traditionally, the rules in respect of the transfer of incorporeal moveable property (i.e. assignation), and the rules in respect of creating a real right in security over corporeal moveable property (i.e. pledge), have been challenging for Scottish business. For assignation to have legal effect, each underlying debtor has to be provided with formal notice (intimation). This makes assignation in bulk, and/or on a repeated basis, very difficult and costly. For pledge to have legal effect, the pledged property has to be delivered to the secured creditor. This means that if a business was using something to generate profit – such as a machine – it cannot be pledged, making it problematic to raise finance on it.

New processes

The Act reforms both of these cumbersome processes by the introduction of new statutory registers, to be maintained by Registers of Scotland. To assign an incorporeal moveable, you will be able to register the assignation rather than rely on intimation. You will be able to assign future incorporeals, too, which will automatically be assigned upon them falling within the assignor’s patrimony. To pledge a corporeal moveable, or intellectual property, you will be able to register the pledge rather than deliver the pledged property. This will mean that your profitable machine will be able to be pledged as a way to raise finance. The traditional methods of achieving these legal goals will remain in place, though, meaning that these new methods will be facilitative rather than mandatory.

For those areas of business that rely on assignations and real rights in security, the Act will dramatically ease the process of transferring or creating legal rights. It will also open up new possibilities for business, by facilitating the transfer and creation of new rights. So not only will the Act ease current ways of doing business, it will also create the potential for a new raft of business possibilities. The Act will push Scots law to the vanguard of transactional possibilities, making our legal system internationally competitive when previously it had lagged behind.

Following concerns that consumers could be taken advantage of, the regime is now very protective of individuals. Individuals will not be able to grant statutory pledges, unless in the course of their business, as part of the actions of a charity of which they are trustee, or as part of the actions of an unincorporated association of which they are a member. Even then, the assets pledged will need to be used wholly or mainly for the relevant category, and must exceed £3,000 in value. A court order will be required to enforce a pledge against a sole trader.

Final stage

The reform process began with a Scottish Law Commission discussion paper in June 2011, which led to a report in 2017, culminating in the introduction of the bill in May 2022. The Law Society of Scotland’s Banking, Company & Insolvency Law Policy Subcommittee has been keenly involved in responding to consultations, and is delighted that the Act has passed. The work is not yet completed, though, for two reasons. First, the Act has Royal Assent, but is not yet in force, and we need to keep our celebrations muted until it is. Secondly, the devil is always in the detail. General principles can easily be outweighed by practical hurdles to achieve them. The operation of the two new registers will be key, and we are working closely with Registers of Scotland to make them as user-friendly as possible.

So we are not at the end of the process yet, but a key milestone has been reached. The changes introduced by this Act will be vital for Scotland’s economic competitiveness for years to come. One final push is needed to make the reforms as beneficial as they can be.