CMS Expert Guide for taking security in Scotland

Yes. Please see answers to question ‎4 below. 

No. Security/guarantees/indemnities are all distinct instruments. It is, however, common practice to see guarantees and indemnities contained in the same agreement and sometimes guarantees and indemnities are included in security documents.

No. 

Yes. An upstream guarantee is where a subsidiary company guarantees or indemnifies the obligations of its parent company.

Please see answers to question ‎4 below.

Yes. A downstream guarantee is where a parent company guarantees or indemnifies the obligations of its subsidiary company.

Please see answers to question ‎4 below.

Yes. A cross-stream guarantee is where a company guarantees or indemnifies the obligations of its sister company/ies.

Please see answers to question ‎4 below.

Corporate benefit: the directors of a company are under a statutory duty to act in a way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.

It is generally accepted that there will be corporate benefit to a parent company granting a downstream guarantee however the corporate benefit can be harder to establish in the case of an upstream or cross-stream guarantee.

A beneficiary will typically require the guarantor to recite the corporate benefit to be derived from the transaction in board minutes and to seek shareholder approval.

Capacity: the company’s constitutional documents will need to be reviewed to determine whether a company has the power to provide security/guarantees/indemnities, and to determine if there are any limitations on the directors’ exercising their powers.

Financial assistance: subject to certain exceptions, it is unlawful for a public limited company to give financial assistance for the purpose of the acquisition of its own shares. Financial assistance can also apply in certain other limited circumstances.

Unfair terms, consumer rights and consumer credit: certain guarantees may be subject to consumer rights, consumer credit and unfair terms legislation and consideration will be required on a case-by-case basis particularly where individuals are involved in the transaction.

Undue influence and duress: the beneficiary will typically require a personal guarantor to obtain, and provide evidence of, independent legal advice to assist in minimising the risks of challenge for undue influence and/or duress.

Caps on liability: a corporate guarantee can be limited or unlimited.

Variation of guaranteed obligations: amendments to the underlying agreement may discharge the guarantor’s liability under the guarantee. Certain protective measures can be taken to minimise this risk but given the common law position on this topic is not definitive, lenders are advised to take a more cautious approach.

Scots law terminology

It is not uncommon to see a guarantor alternatively described as a ‘cautioner’ or a ‘surety’. 

Guarantees are not required to be made in writing in Scotland, although it is generally good practice for any guarantee to be made in writing and executed by the guarantor.

No registration or notarisation requirements apply to guarantees or indemnities in Scotland.

Guarantees and indemnities governed by Scots law will typically be written in the English language and will not require translation unless this is required on a cross-border transaction for registration in other jurisdictions.

If there are any foreign aspects involved in the transaction, local law advice will be required in the relevant jurisdictions.

Please also see answers to question ‎4 above which will also impact upon the validity and/or enforceability of guarantees and indemnities.

A guarantee and/or indemnity can be granted in relation to existing and future obligations however a variation to the underlying agreement to, for example, increase the guaranteed obligations, may discharge the guarantor’s liability.

It is possible to secure future obligations under a security document with careful drafting which will differ depending on the nature of the transaction.

Please see answers to question ‎12 below.

Validity:

Guarantees: yes, the guarantor’s liability is contingent on the validity of the underlying principal obligation. If the principal obligation is set aside or the principal obligor is discharged this will have the same effect on the guarantee/guarantor.

Indemnities: yes, in contrast to a guarantee, an indemnity creates a primary obligation which is independent of the principal obligation. An indemnity will (absent any other issues) remain valid notwithstanding the underlying agreement being set aside, or the principal obligor being discharged.

Security: security can be granted to secure a borrower’s own liabilities (first party security) or the liabilities of another (third party security). Once the principal liabilities have been repaid or discharged in full, the security can be formally released. 

Yes, guarantees/security can be continuing for as long as guaranteed/secured obligations remain outstanding.

A guarantee is automatically released upon the release of the principal obligation, or the valid and effective and non-voidable repayment of the underlying guaranteed obligation in full. An indemnity can survive the release of the underlying obligation as it is a primary obligation. It is not customary to enter into a formal deed of release in relation to guarantees or indemnities.

The right to redeem (the equivalent of the English concept of the equity of redemption) is a right afforded to security providers to recover the assets over which it granted security upon the full repayment of the secured obligations. Security/finance documents also typically contain a contractual right to release the security upon the expiry of the security period. 

Yes.

Yes, a security trust can be created. The security/guarantees/indemnities are held on trust by a security agent/security trustee for the benefit of the secured parties from time to time i.e. on syndicated loan transactions.

The security trust structure allows for the secured parties to change and for existing creditors to exit the structure and new creditors to buy into it, subject to the parameters of the security trust. It may be necessary for the new creditor to accede to the arrangements. Other ancillary documentation is routinely required including confirmations from the obligors in relation to the existing security/guarantees/indemnities and/or supplemental security/guarantees/indemnities. 

Changes to guaranteed/secured obligations – the extent to which existing guarantees/security can accommodate new or amended debt obligations is an area of some uncertainty. There is often no straightforward answer to whether new security/guarantees should be entered into, and a systematic analysis is required. Current market practice is in favour of re-taking security/guarantees where there is any uncertainty that the security/guarantee extends to the amended guaranteed/secured obligations.

Confirmations of existing guarantees/security will almost always be necessary even where the wording in the existing guarantee/security makes it clear that the guarantee/security extends to all obligations of the obligor.

Where the guaranteed/secured obligations are “all monies”, it is not generally necessary to confirm/re-take security/guarantees but each particular case should be reviewed on its merits before concluding on a course of action.

Changes to the obligors – accession of a new obligor will invariably include entry into security and guarantees in equivalent terms to the existing security/guarantees. Typically confirmations of existing guarantees/security will also be necessary.

Registration requirements apply to any new security – see ‎20.2. 

Parties are free to choose the governing law of the security / guarantee / indemnity but typically security over assets situate in Scotland will be governed by Scots law. In particular, fixed security over land and buildings situated in Scotland can only be created by way of a standard security (a Scots law equivalent of an English legal mortgage).

On cross-border transactions, local law advice will be required in determining the appropriate governing law of documents being by entered into by foreign obligors and/or in relation to foreign assets. 

Submission to foreign courts – local law advice will be required to determine whether the parties can submit to the jurisdiction of a foreign court in the event of a dispute.

If an attempt was made to enforce any judgment ultimately obtained in a foreign court in Scotland, this may be unsuccessful if the matter was determined to have related to rights in rem or tenancies of immoveable property in Scotland.

Arbitration – a Scottish company can agree to arbitration under a Scots law governed document where: (1) the seat of arbitration is in Scotland or another UK jurisdiction and enforcement of an award will be sought in Scotland or (2) where the seat of arbitration is in a foreign country which is a signatory to the New York Convention and the enforcement of an award made in that country will be sought in Scotland.

No.

If a company has entered into a formal insolvency process, certain types of antecedent transactions are vulnerable to review and challenge. Reviewable transactions include:

• Gratuitous Alienations – within two years (or, where the alienation has the effect of favouring a connected person, five years) ending with the onset of the company’s insolvency.
• Unfair Preferences – within six months irrespective of whether the person that has been preferred is connected or unconnected with the company. 
• Extortionate credit transactions – up to three years before the day on which the company entered into administration or went into liquidation.
• Invalid floating charges – within one year (or, where the floating charge is created in favour of a connected person, two years) ending with the onset of the company's insolvency. 

Yes, With the introduction of the statutory pledge under the Moveable Transactions (Scotland) Act 2023 (the “MTSA”) on 1^st April 2025, it is now possible to take security over multiple assets in Scotland. The statutory pledge, similarly to an English law debenture, allows security to be taken over a variety of assets. In addition and to be contrasted with the position in England and Wales, it is possible in one security document to fixed and floating security over the same asset.

Yes, it is possible for a company to create a floating charge over all, or substantially all, of its assets or over a class of assets.

Clear descriptions of the secured assets should be included in the security documents for the purposes of identifying the secured assets, and in support of any fixed security.

The type of security interest to be taken will depend on the asset (in particular a standard security must be taken over land and buildings situated in Scotland), the nature of the transaction and a number of other factors which our Banking team can advise on in more detail.

Yes, subject to the same considerations as discussed in the answers to question ‎4 above. 

No. Unless required by any applicable local laws.

Yes. Security granted by a Scottish company must be registered at Companies House within 21 days after the date of its creation. Failure to register renders the security void against a liquidator, administrator and any creditor of the company. The holder of the unregistered charge will rank as an unsecured creditor and the money secured by the charge immediately becomes payable which could trigger cross defaults under funding arrangements.

Security granted over real estate must be registered at the Land Register of Scotland prior to expiry of the applicable priority period (35 days).

Security granted over certain intellectual property rights must be registered at the relevant IP registries (which may include the UKIPO, the EUIPO and the WIPO).

Security over ships and aircraft require registration at the relevant specialist asset registers.

Assignations of claims must be registered at the Register of Assignations, or intimated to the relevant contract counterparties. The security itself is created on the date of registration at the Register of Assignations or the date of intimation, albeit the 21 day period for registration at Companies House runs from the date of the assignation in security (i.e. the date of the agreement itself).

Statutory pledges must be registered at the Register of Statutory Pledges. The security itself is created on the date of registration at the Register of Statutory Pledges, albeit the 21 day period for registration at Companies House runs from the date of the statutory pledge (i.e. the date of the agreement itself).

In cross-border transactions, any non- English language in a security document will need to be accompanied by a certified translation into English in order to be able to submit the application for registration of the security at Companies House.

There may be occasions where parties want to create an assignation of claim by way of intimation to the relevant contract counterparties, rather than registering the assignation in the Register of Assignations. If so, certain statutory requirements must be complied with, and if only intimated and not registered, the assignation won’t create security over future assets.

Yes, as the registration puts third parties on notice of the negative pledges and restrictions on disposals and granting security. 

Subject to a number of exceptions including ensuring registration and creation (where applicable), as a general rule in Scotland and in the absence of a separate ranking agreement: (1) standard securities rank by preference according to the date of registration in the Land Register of Scotland or General Register of Sasines as applicable; (2) the holder of a standard security will have priority over the holder of a floating charge over the same asset; (3) the holder of a statutory pledge or assignation in security will have priority over the holder of a floating charge over the same asset(s); and (4) a floating charge over the same asset(s) of a company will rank according to the date of creation.

The parties may agree to enter into a subordination, priority, intercreditor agreement or ranking agreement to modify the order of priority of security and payments on the company’s insolvency.

Security easily established and encumbrances easily checked 

Yes. E-signing (which includes virtual Mercury signings and electronic signings) is a generally acceptable method of execution for guarantees/security subject to certain exceptions and compliance with certain protocols, most notably The Land Register of Scotland does not accept documents which have been e-signed. The company’s constitutional documents will also need to be reviewed to ensure there are no restrictions on this method of execution.

If it is not possible to execute by way of e-signing, wet-ink signatures will be required.

Scots law differentiates between requirements for formal validity and for documents to have self-evidencing (‘probative’) status. Certain documents must be, as a matter of law, probatively executed. Where this is not required as a matter of law, it is nonetheless  prudent, where possible, to employ a form of execution which confers self-proving status, so that there is a legal presumption that the document has been duly executed by the parties.

Yes. The charges register of a company can be accessed at Companies House which is publicly available and accessible online. Other asset specific registries such as The Land Register of Scotland, the Register of Assignations and the Register of Statutory Pledges are also accessible online and fees are payable.

The regime for the Register of Assignations and the Register of Statutory Pledges was established on 1 April 2025, so these registers only relate to security registered after this date.

The company that created the charge or any person interested in that charge (which would include the security holder) can register it at Companies House. It is market practice for the security holder’s lawyers to register the security at Companies House.

Registrations at The Land Register of Scotland will either be made by the company’s lawyers with solicitors’ undertakings having been put in place or by the lender’s lawyers.

The emerging market practice for the newly established Register of Assignations and the Register of Statutory Pledges is that the security holder’s lawyers attend to these registrations. It is the person(s) with the benefit of that charge (e.g. the assignee or the secured creditor) that would apply for registration of the document in the Register of Assignations or the Register of Statutory Pledges, as applicable.

For the perfection of a German land charge (i) a notarially certified consent in respect of the registration of the land charge by the owner of the property and (ii) the registration of the land charge in the relevant local land register are required.

Quick to check the charges register at Companies House (information is available instantaneously) or to order company searches (searches can be available in a few hours).

Quick to obtain information from The Land Register of Scotland (information is available instantaneously but copy documents have to be ordered which can take a few days/weeks).

Quick to check the Register of Assignations and Register of Statutory Pledges at Registers of Scotland.

Low disbursement costs apply to access information at Companies House, The Land Register of Scotland, the Register of Assignations and the Register of Statutory Pledges.

Availability (and associated costs) at other asset specific registries will vary.

Quick to file Forms MR04 or MR05 at Companies House to record full or partial satisfaction of a released or discharged charge (instantaneous online, or a few days by post).

Quick to file discharge of standard security documentation at The Land Register of Scotland to record full or partial satisfaction of a released or discharged charge (processing can take a number of weeks/months). No disbursement costs apply to file these forms at Companies House.  There is a cost of £80 per title number to register a discharge of Standard security at the Land Register of Scotland.

A statutory pledge is discharged by a written statement of the security holder. No specific form of document is required. The discharge should be registered on the Register of Statutory Pledges by applying to the Keeper for a correction.

An assignation of claim subject to the statutory assignation regime is assigned back by way of retrocession which has to be registered at the Registers of Assignation, or notice of that retrocession given to the relevant contract counterparties.

Other asset specific registries will vary. 

N/A

N/A. 

Please note that the information contained in this section is a summary and indicative only. It is not legal advice and is not to be relied upon for any investment or other decisions. This summary is based on a number of assumptions including that: (i) all security is valid, enforceable and fully perfected at the point of enforcement; and (ii) there are no cross-border aspects to consider. It reflects the position as at 6 June 2025.

In this section, references to “lender” taking enforcement action should be taken to include reference to any security agent/security trustee taking such action on behalf of a group of lenders, pursuant to the provisions of the relevant finance document(s).

In a typical commercial lending transaction, finance documents usually contain enforcement provisions which set out the circumstances when, and certain methods by which, security can be enforced.

The typical position prescribed by finance documents (assuming the facility is not “on demand”) is that the security becomes immediately enforceable on the occurrence of an event of default (“EOD”). EODs are typically set out in the facility agreement (but may be set out in the security document(s)). EODs often include non-payment of interest or principal, breach of financial (or other) covenants, misrepresentation, cross-default, insolvency or insolvency proceedings (certain of which may be subject to conditions/grace periods). There may be a requirement for an EOD to be “continuing” (this typically has a specified meaning, such as the EOD not having been remedied or waived) before the security can be enforced. Other documents may also include provisions which could impact the enforcement of security, so should also be reviewed.

Various enforcement rights are also conferred by statute and common law - rights vary depending on the type of security interest. Enforcement provisions in finance documents often disapply/modify the application of certain provisions imposed by law (particularly those which may restrict/place conditions on the exercise of certain enforcement rights - see questions ‎30 and ‎32 below), but will be subject to any mandatory overriding laws.

With the exception of any mandatory criteria within the security documentation and/or the facility documentation, there are not any statutory requirements to be fulfilled before proceeding to enforcement. The exception to this rule, is any standard security used, to any extent, for residential purposes. In this instance, the Home and Debtor Protection (Scotland) Act 2010 sets out certain steps which must be taken prior to enforcement.

In practice, certain steps are typically taken by a lender prior to enforcement in any event, they include: [1]

1. Lender issuing reservation of rights letter (promptly) while considering options – this is not required by law but assists in preserving the rights of the Lender in relation to the EOD and reducing the risk that the Lender may be deemed to have waived the EOD.
2. Lender issuing a formal demand declaring all outstanding amounts immediately due and payable (this should comply with the terms of the finance documents). A legal analysis should be conducted on case-by-case basis as to timing to be given for payment. Typically, the Lender is required to issue a demand pursuant to the finance documents but often the Lender will do so even where not expressly required.
3. Lender may take protective steps to preserve value and prevent leakage e.g. seeking to block, and restrict payments from, certain bank accounts.

Security documents typically disapply/modify provisions imposed by law which may restrict/place conditions on the exercise of certain enforcement powers (such as statutory grace periods) - see question ‎32 below.

Yes. See question ‎32 below.

Standard security power of sale – In Scotland, there is no concept of a fixed charge receiver. The lender with the benefit of a standard security (the main type of mortgage deed used in Scotland) can issue a ‘calling-up’ notice in the prescribed statutory form on the debtor in respect of a fixed charge over land. If payment has not been made by the debtor within two months after a calling-up notice having been served then, on the expiry of that two-month period, the lender will be entitled to sell or let the secured property (or any part thereof).

Moveable Transaction (Scotland) Act 2023 – Prior to enforcing a statutory pledge, the secured creditor must serve a Pledge Enforcement Notice on the person(s) and in the format prescribed under the MTSA. Only where the provider of the pledge is an individual, or the property is the sole or main residence of an individual, will a court order be required for enforcing a statutory pledge,

Appointment of an administrator - administration is a formal, collective insolvency process where the administrator displaces the directors and manages the affairs, business and assets of the company for the benefit of creditors as a whole. Directors remain in office unless removed by the administrator but are prohibited from exercising powers of management without the administrator’s consent. Preferred appointment method: subject to certain conditions, an administrator can be appointed “out of court” by “the holder of a qualifying floating charge” (statutory defined term) which is enforceable. An administrator often looks to sell the business and assets of the chargor as a going concern. A statutory moratorium is triggered by the appointment of an administrator which prevents creditors from taking certain actions during the administration period without the permission of the court or the consent of the administrator.

Other enforcement methods/credit mitigation strategies may be available, subject to several factors including the terms of the finance documents and the type of asset secured, for example, where the lender has a statutory pledge over shares in the chargor and an assignation in security in respect of the related rights, it may be possible to exercise voting rights to change the directors, with a view to taking control away from existing management and, for example, pursuing a consensual sale of the secured assets (this would be subject to certain safeguards e.g. compliance with director duties and consideration of shadow directorship risk for lender).

It is important to note that if a moratorium has been granted, this will prevent creditors from taking any action against the company to reclaim any debts owed for the duration of the moratorium (which is typically six months). It does not amend or negate the creditor’s rights to pursue the aforementioned out-of-court enforcement procedures but it does suspend the creditors from exercising those rights for the six months that the moratorium is in place.

A power of attorney clause is typically included in security documents in favour of lender and its delegates, coupled with a further assurance clause requiring the chargor to take such action as the lender may require including to facilitate the exercise of enforcement rights/realise secured assets. The power of attorney clause may prove useful in certain circumstances, but it is often possible to enforce without using it given the breadth of the enforcement powers outlined at question ‎32 above. 

The applicability of, and interaction between, the procedures outlined at question ‎32 above and other procedures (e.g. restructuring or insolvency processes) is complex and should be carefully considered on a case-by-case basis.

There are a number of other factors which may impact the ability of a lender to enforce, the enforcement method chosen and/or the enforcement timetable, the applicability of which should also be considered on a case-by-case basis (including the antecedent transaction rules outlined at question ‎16 above as well as other overlapping laws such as market abuse legislation and national security laws).

Fairly easy, creditor-friendly. Timing varies between enforcement methods - generally average but can be quick (e.g. pre-pack administration sale where a sale of all or part of chargor’s business/assets is negotiated prior to appointment of administrator, with sale executed on or very shortly after the administrator is appointed). This largely depends on whether duties outlined at question ‎32 above have been satisfied.

Not in respect of key methods of enforcement outlined at question ‎32 above. There may be changes to the types of laws outlined at question ‎34 above which may directly/indirectly impact enforcement depending on fact pattern.

The MTSA came into force on 1 April 2025 and has provided a new regime and simplified process for granting security over most types of physical and incorporeal moveable assets. Greater ease of taking fixed security over these forms of property should create greater flexibility, access to potentially improved terms and a wider choice of financing structure options.

The enforcement mechanisms under the MTSA are yet to be tested in practice. However, in addition to the prescribed format for general enforcement of pledges, the MTSA has introduced the concept of appropriation in the context of statutory pledges. Provided certain criteria within the legislation are met, the secured creditor can appropriate the property under the statutory pledge when the debtor defaults.