Sometimes, the obscure technical machinery of the law can affect business in important ways and, sometimes, fixing defects in this sort of machinery can have benefits well beyond pleasing the legal mechanics like me. Moveable transactions law is precisely this sort of technical machinery and its overhaul proposed by the Scottish Law Commission in late 2017 would provide precisely these sorts of benefits. Faced with the economic effects of COVID-19, its introduction is all the more urgent to boost growth in the Scottish economy.
Currently, it can be extremely cumbersome for Scottish-based businesses to use their stock, plant and equipment, intellectual property, debts owed by their customers or tenants, their bank account balances, or any shares held by them as collateral to fund their businesses. This is because the rules for granting fixed security over these types of assets involve taking possession of specific assets, giving notices to specified third parties or making registrations against specified assets. The rules can also restrict the ability of the business to use secured assets or to transfer them for financing purposes (for example by invoice discounting). As these types of assets often change swiftly as part of a business's working capital cycle, the need to take such detailed actions raises significant practical problems.
In addition, the value allocation of business assets has moved increasingly from tangible to intangible assets, and in particular away from land, so moveable assets have become progressively more important. This has increased the need to address the outdated Scottish rules for moveable transactions.
The Scottish Law Commission has proposed reforms to sweep away these cumbersome requirements, while maintaining relevant protections and also permitting existing systems to continue if they happen to work better in particular situations. The proposed reforms provide for online registration of a relevant security or transfer document in a new searchable register. They permit existing and future assets to be covered, facilitate electronic operations and eliminate the need for further documents, multiple notices or registrations, and transfer of possession.
I do not intend to outline here the various advantages of the reforms in many situations as I have done so elsewhere. I merely wish to point out that the reforms would make financing transactions that are currently quite cumbersome much more straightforward and allow businesses to obtain finance on the strength of their moveable assets when they may otherwise struggle to access funding.
Sole traders and partnerships may be businesses in this sort of marginal situation as they cannot grant floating charges to secure credit provided to them (and even for companies, where floating charges are an option, they do not offer a panacea). Where securing debt against moveable assets is not feasible, these businesses may only be able to access credit on a more expensive unsecured basis or not at all.
From the broader perspective, it should also be noted that it is much easier to effect moveable transactions under many other legal systems, including English law. It is therefore not uncommon for English law rather than Scots law to be used by Scottish businesses when entering into contracts with customers, setting up bank accounts, setting up companies and taking other actions that create moveable assets. This can sometimes tip the balance when choosing whether to set up or grow a business in Scotland or in England.
All of this was recognised as important prior to the outbreak of COVID-19, with the Scottish Government engaged in focussed consultation on implementation, the Scottish Parliament Economy Committee taking oral evidence from me and others in late 2019, and with many optimistic that the Scottish Law Commission's Bill would pass in this Parliament. And while COVID-19 obviously diverted attention, the economic effects of COVID-19 undoubtedly make moveable transactions reform even more urgent as the benefits of the reforms in assisting with recovery are clear. The post-COVID-19 report to the Scottish Government of the Advisory Group on Economic Recovery placed strong emphasis on technology and innovation. Freeing up moveable assets to secure financing for innovative businesses in the technology sector, and also in the food and drink, energy and other growth sectors is key to this. Moveable transactions reforms can assist in developing the private sector financial innovation that is required alongside the public sector support proposed in the AGER report and it is to be hoped that the Scottish Law Commission's reforms are taken forward swiftly following the Scottish elections in May.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.