Long Read: Moveable Transactions

Beverley Wood, Banking  & Finance Partner at Morton Fraser MacRoberts, writes: While the Spring budget rightly drew attention for its impact on businesses, those looking for signs of optimism in the asset-based lending market should turn their focus to the Moveable Transactions Act (“MTA”), which came into effect on 1 April.

This pivotal reform promises to unlock access to finance, modernise processes and create opportunities across a sector that supports over £34 billion worth of business annually.

 The law in Scotland has been in need of modernisation and greater flexibility for some time. The MTA introduces security structures similar to English-style debentures, combining pledges over equipment and assignments over receivables with floating charges on other assets still remaining an option. This unified framework is particularly beneficial for funders operating across the UK, bridging gaps between Scottish and English systems.

 From a legal perspective Scotland has traditionally lagged behind, which has disrupted its significant financial community. The investment management industry alone oversees more than £700 billion in assets, with Edinburgh recognised as the UK’s second largest financial hub after London. This gap has posed challenges but is now closing as the two regions will be more aligned under the new legal proposals.

While the Act isn’t a ‘one size fits all’ solution, its potential impact is undeniable. It addresses long-standing barriers in Scots law and aligns with global trends toward innovative legal reforms that improve financial accessibility. Crucially, the MTA offers a blueprint for how targeted legal changes can foster growth and opportunity across sectors.

 One of the most significant challenges in Scots law has been the difficulty in taking security over moveable assets, a barrier that has left businesses with fewer options to access finance. The MTA seeks to remedy this by introducing the statutory pledge, a new way to secure assets without transferring ownership, and the Register of Assignations, which simplifies the process of assigning receivables.

 For small and medium-sized enterprises (“SMEs”), this change is transformative. Sole traders and partnerships, who cannot currently grant floating charges, can now use the statutory pledge to access funding. The Act will open the door to these small businesses, being able to secure credit in a very simple way, which potentially puts Scotland ahead of its English counterparts- quite the turnaround!

 For industries such as asset finance, the MTA provides opportunities to address specific risks and expand financing options. However, one of its strengths is its compatibility with established legal models. Asset finance is built on a well-established premise: funders retain title to goods leased to hirers. This ownership allows funders to easily recover their assets in the event of default, offering a level of security that surpasses what a statutory pledge can provide. Moreover, leasing arrangements give funders flexibility in whether they assume residual value (“RV”) risks and they have honed their expertise in managing these risks to minimise exposure.

 The statutory pledge, while innovative, may not disrupt this model significantly. For example, in scenarios involving fleets of vehicles, the pledge introduces complexities such as requiring lender consent to release assets from the charge. These provisions could make it less practical for funders managing high-volume assets.

 However, the MTA offers potential solutions to long-standing issues in asset finance. One such example is sale and hire purchase (“HP”) back arrangements, which have historically carried risks under the Sale of Goods Act 1979. These risks, stemming from a risk that the transaction could be considered a disguised security and lead to uncertainties around title transfer, have led some funders to err on the side of caution and avoid these transactions. While the MTA does not eliminate title risks, it offers alternatives:

 1. Funders can replace sale and HP back arrangements with loan and statutory pledge structures.

 2. Alternatively, they can retain these sale and hp back arrangements while securing goods with a pledge, mitigating risks where due to the arrangement being classed as a disguised security, title remains with the hirer.

 The MTA also simplifies back-to-back leasing arrangements, which are common in asset finance. By allowing receivables governed by Scots law to be secured via a registered assignation, the Act streamlines these arrangements allowing an assignment of the sub- hire rental stream and hence reducing barriers to cross-border financing.

It’s a crucial step forward for Scots law, and while the Act may not transform every aspect of finance overnight, it lays the groundwork for a more accessible and efficient system and a toolkit of new legal options for funders to utilise. As businesses adapt to these changes, the MTA’s broader impact will become clearer, hopefully setting a precedent for how modern legal reforms can unlock growth and drive resilience in a globalised economy.

— Our thanks to Morton Fraser MacRoberts

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