An expanding menu: Scottish food and drink sector financing and the Moveable Transactions (Scotland) Act 2023

Introduction

Food and drink in Scotland is big business – the sector is reported to be a c. £15 billion industry. In this Law-Now, we outline how reforms to taking security under Scots law and the assignation of claims may be utilised by Scottish food and drink producers.

The Moveable Transactions (Scotland) Act 2023

The relevant reforms are those contained in the Moveable Transactions (Scotland) Act 2023 (the “Act”), which came fully into force on 1 April 2025. In broad terms, the Act makes major changes to Scots law in two discrete areas.

Firstly, a new fixed security right over moveable property known as the statutory pledge is now available. Unlike the existing common law pledge (where the property pledged must be physically or constructively delivered to create the right), statutory pledges are created by registration in the new Register of Statutory Pledges. A statutory pledge can also be taken over intellectual property (“IP”) and it is open for the Scottish ministers to prescribe further classes of incorporeal property which a statutory pledge can encumber. The Moveable Transactions (Scotland) Act 2023 (Financial Collateral Arrangements and Financial Instruments) (Consequential Provisions and Modifications) Order 2025 (the “Order”) was made prior to the Act coming into force and allows, among other things, financial instruments (including company shares) to be made subject to a statutory pledge – this is discussed further in our briefing available here.

The second innovation relates to how incorporeal property (such as contractual rights) is transferred under Scots law. Under the prior law an assignation can only be effected when the underlying debtor is notified of the transfer. This notification is known as intimation – the form and content of which (while subject to market practice) were not completely certain under the existing law.

Following the Act coming into full force, while assignation by intimation has remained competent (with the Act making some helpful clarifications and updates to the legal requirements for intimation), it is now possible to create an assignation via registration of the assignation document in another new register: the Register of Assignations. Assignation of multiple claims through a single registration is possible, and this extends to claims not yet in existence (such claims being assigned when they come to be held by the assignor).

Implications

Granting security

Under the prior law, in order to create a pledge over corporeal moveables, possession of the pledged property had to be taken by the secured creditor. This presented obvious practical barriers. For example, a food producer cannot give over (to a creditor) full possession of equipment required for daily operations.

Equally, a potential funder, while willing to grant finance, has no desire to take possession of a combine harvester for the duration of the security. Floating charges are therefore ubiquitous in practice in the Scottish financing world, but these come with certain limitations. For borrowers, a floating charge will typically be taken as an all-asset security and consequently may capture more assets than commercially needed for the funding sought. For lenders, drawbacks include the ranking position of floating charges vis-à-vis other security rights and other creditors as well as the ability of a borrower to freely deal with their charged assets prior to the charge crystallising. Further, floating charges cannot be granted by individual sole traders or partnerships (other than LLPs).

Under the new regime, the statutory pledge makes granting security over corporeal moveables much more convenient by removing the requirement to take possession and replacing it with registration in the new Register of Statutory Pledges. In a food and drink context, businesses can grant security over suitable high value assets without prejudicing their production or manufacturing processes. Lenders benefit from a fixed security right (expected to be focussed on high-value operational equipment or long-hold stock) and a more advantageous ranking position in insolvency. Subject to some qualifications, individuals acting in the course of their business, and non-LLP partnerships, will also be able to grant statutory pledges.

Application of the statutory pledge to IP is also a significant improvement in the law: previous Scots law options for security over IP were a floating charge (with its associated disadvantages) or complex workarounds involving assignations in security with licence-back arrangements. This development may also be particularly useful for a food and drink business (where IP may form a significant asset of the business).

Following the making of the Order, a particularly significant point to note is the extension of statutory pledge over shares in Scottish companies. Prior to this extension, Scots law share pledges traditionally required an actual transfer of the shares in security to the security taker.

Such traditional form Scots law share pledges have unfortunate consequences (e.g. the application of the PSC regime and, though less relevant for food and drink business, the potential triggering of notification and/or consent restrictions pursuant to the National Security and Investment Act 2021) and lead to undue complexity, as voting and dividend rights must be accounted for. That Scots law can now offer a fixed security over limited company shares (in the form of the statutory pledge) which is not dependent on a title transfer to the secured creditor is therefore a significant development.

In addition, the Act clarifies the law regarding existing possible forms of security, for example by confirming that constructive delivery is competent to create a possessory pledge. In this way, established practices of taking security, such as where whisky barrels stored in a bonded warehouse are constructively delivered via the instruction of an independent third-party warehouse keeper (which is a current feature of practice in Scotland) are now on a surer legal footing. The option of taking a traditional share pledge, while subject to the drawbacks outlined above, also continues to be available.

In general, the new registration-based regime for the statutory pledge, and clarifications on existing laws relating to possessory pledges, simply creates additional options for business to offer security to their potential funders. The menu of options has been expanded, not reduced.

Receivables financing

In addition to the changes to the law regarding pledges, the reforms relating to assignations also have the potential to greatly simplify the Scottish debt factoring and invoice discounting finance market. Under the prior law, trusts were invariably used to avoid the need to intimate to multiple underlying debtors (which could number in the hundreds or thousands) whose debts are being used as part of the financing structure. However, periodic notifications to the beneficiary of the trust are still required, which can be cumbersome. The ability to assign future and multiple claims via registration potentially eliminates the need for the use of trusts as a workaround and simplify transactions.

It is widely hoped that food and drink producers, as well as those in the wider supply chain, will be able to take advantage of this aspect of the reforms in order to make their financing arrangements more efficient and straightforward, and potentially have access to a wider range of funders (and financing options) as a result.

We have written separately at how Scottish food and drink businesses may want to incorporate emerging technologies into their operations – see the linked article here. In the same way, businesses should make themselves aware of the latest legal developments which may affect the ways in which they can raise finance.

Now that the Act is fully in force, businesses (and their funders) may want to review their existing financing arrangements and determine if these should potentially be updated in order to procure potentially better terms, or a more suitable facility and security structure. For new transactions parties will be able to take full advantage of the new regime.

Conclusion

The Moveable Transactions (Scotland) Act 2023 provides Scottish businesses with a greater range of options when looking to raise finance against their assets. Food and drink business are no exception and indeed may be particularly well placed to take advantage of the new possibilities offered by the reforms. Funders are also able to benefit from more targeted methods of taking security in Scotland. The banking team at CMS Scotland are ready to advise.