Ahead of the much-anticipated implementation of the Moveable Transactions (Scotland) Act 2023 (the “Act”) on 1 April 2025, the UK Parliament has passed an additional Order which was necessary to include company shares, other financial instruments and financial collateral arrangements within the scope of the new security regime. As originally passed, the Act excluded provisions extending the scope of new forms of security over such assets, as they were considered outside of the Scottish devolved powers.
The Moveable Transactions (Scotland) Act 2023 (Financial Collateral Arrangements and Financial Instruments) (Consequential Provisions and Modifications) Order 2025 now facilitates (a) the grant of statutory pledges over financial instruments, including shares in Scottish companies, bonds and other financial instruments; and (b) statutory assignations of claims extending to other financial collateral, potentially including claims in relation to bank accounts and other cash deposits held in Scotland.
Statutory pledges being extended to cover shares in Scottish companies is expected to be particularly celebrated by law firms, lenders and borrowers alike as it finally allows for an alternative form of fixed security over Scottish company shares, in contrast to the current regime whereby transfer to the secured creditor (or its nominee) is a mandatory requirement of valid security; this briefing discusses how this will work in practice.
Recap: how will the Act reform the current regime?
The Act introduced the possibility of new forms of security and related public registers for security over moveable property:
1. The Register of Assignations (“RoA”) – it will be possible to effect assignations of claims that can, instead of requiring intimation to the relevant contract counterparties, instead be transferred by registration on the new (public and searchable) RoA. As well as removing the requirement for intimating an assignation (required currently in order for an assignation to be validly constituted), the Act enables assignations in security to be granted over future claims and rights of the relevant chargor (with the assignation being effective at the point the future claim becomes held by the assignor (together with the satisfaction of any other conditions relating to the assignation, plus registration or intimation)), so long as such claims or rights are adequately described in accordance with the requirements of the Act.
2. The Register of Statutory Pledges (“RSP”) – this will be used to grant and record new statutory pledges over corporeal moveable property (“corporeal” property exists in physical form, such as equipment and machinery, generally known as “chattel” under English law), intellectual property, and (now also) financial instruments. The new statutory pledges will not require physical or symbolic delivery of the asset, provided they are recorded on the new RSP and so the original security provider/owner can maintain full possession and use of the asset.
It will still be possible going forward for lenders to require intimation of assignations of incorporeal moveable property, or to take physical pledges of corporeal moveable property, instead of using the new registers to record and create a security interest. It will be up to individual lenders to consider what form of security (essentially, old or new) will be appropriate for them, the assets and the particular borrower in the context of the relevant financing transaction.
Our previous briefings provide a useful explanation of the scope of the reform and the practical consequences: moving-on-with-moveable-security-in-scotland and Client Briefing.
Traditional regime for taking security over shares
Prior to 1 April 2025, security over such shares in a Scottish company is technically possible only by way of either (a) floating charge; or (b) a form of security (commonly called a “shares pledge”) which requires actual transfer of the shares into the name of the lender, or an applicable trustee or nominee, with the company’s register of members written-up to reflect this.
However, this option has become increasingly unpopular with lenders who want to avoid potential obligations of being effective shareholders for the purposes of certain statutory regimes, including the Persons with Significant Control (PSC) regime, as well as disclosure and consent requirements to such transfers (both in and out of security) under the National Security and Investment Act 2021.
New MTSA regime for taking security over shares
The new regime, in force from 1 April 2025, will mean the Scots law share security can now be much closer in substance to the commonly used equivalent of an English law fixed charge (or equitable mortgage) over shares.
It will now be possible for lenders to take:
- a statutory pledge over (a) shares currently held by a security provider (including by an individual shareholder), and (b) shares to be acquired and held by the security provider in the future; and
- an assignation in security of all rights related to such existing and future shares, e.g. rights to dividends, interest and other distributions paid or payable in respect of the shares (e.g. by way of bonus). Voting rights will remain with the security provider, at least until enforcement.
The statutory pledge does not require actual transfer of the shares, nor for any update on the company’s register of members. In practice, as for an "incomplete" traditional share pledge (and an English share charge), a lender may require that the original share certificates and potentially also blank stock transfer form(s) are provided as deliverables on completion, albeit enforcement steps involved with a statutory pledge of shares may not require completion of stock transfer forms.
The assignation of the related rights may also extend to include an assignation of any debt owed by the collateral company to the security provider, by way of shareholder loans. In an enforcement scenario, this may be useful to the lender as it will be able to also sell the shareholder debt claim and/or to write off the debt (subject to tax advice). Otherwise, on enforcement, the value achievable by the lender on any enforcement sale of the shares may be subject to discounting for such liabilities.
One aspect of the Act’s regime will require lenders’ ongoing attention. A lender will need to ensure that it retains control over the pledged shares and does not inadvertently extinguish the security by acquiescing to a transfer of the pledged shares, or any part of them (except in circumstances where an express consent in writing is granted no more than 14 days before such transfer). Whether to grant or withhold consent to a transfer of the pledged shares must remain at the absolute discretion of the lender, and the lender will not be able to agree in advance how such discretion to grant or withhold a consent will be exercised, as this is expressly excluded by the Act.
Accordingly, the drafting of a statutory pledge and any related facility agreement should be carefully considered to ensure the creation of individual pledges over specified classes of shares, as where a pledge is extinguished due to a lender’s acquiescence, it will release all of the assets subject to that pledge, even if only part of them were unintentionally released in breach of the provisions of the Act. For these reasons lenders are also likely to consider “backup” floating charge provisions as part of their share security structure.
Registration
Each statutory pledge will be required to be registered on the new Register of Statutory Pledges, and each assignation will be required to be registered in the Register of Assignations.
As a guide, the fees for the pledge agreement will be £30, but with an additional £5 for each additional pledge where there is more than class of shares pledged. The fees for registration of the assignation will be £30.
As the statutory pledge is only created on registration, the lender will want to ensure the registrations are affected immediately.
Where the security is granted by a UK registered company or LLP, it will also require (separate) registration as normal at Companies House, including payment of the additional registration fee there.
Conclusion
Practitioners have been waiting in hope for this statutory instrument for a long time.
In line with English corporate groups, lenders will now be able to take fixed security over shares in Scottish target companies on acquisition finance transactions, Scottish property-owing companies on real estate finance deals and project companies on infrastructure and projects.
This new regime and simplified process for granting security over shares will be one of the most significant aspects of the Moveable Transactions reforms.
