Graham Bell
by Graham Bell
Businesses use assets to raise finance. Secured lending reduces risk and consequently the cost of the borrowing.
At the moment, Scotland allows fixed securities over land and, for limited companies, floating charges over other assets (including equipment and vehicles).
For debts, or other assets generating an income stream, an assignation can be fixed security. The assignation requires it to be intimated on the debtor to be effective which can be awkward without co-operation. However, short of taking physical possession of them, there is no other method of taking fixed security over moveable assets.
The Moveable Transactions (Scotland) Bill aims to resolve the position. Once passed as an act there will be two new public registers (possibly by 2024) where the details can be accessed by all. First, there will be a Register of Assignations. Registration will be an alternative to intimation to the debtor to complete an assignation. Second, there will be a Register of Statutory Pledges detailing the lender’s interest in a secured moveable asset. On default, the asset can be sold by the lender to repay the borrowings.
A key benefit of the new security is that lenders will advance larger amounts where they have a fixed charge rather than a floating charge. On a borrower's insolvency, a fixed charge holder is paid out of the proceeds of sale of the secured asset before all other creditors.
However, before a floating charge holder is paid, the following have priority:
So, the new fixed charge will be advantageous for businesses.
There are also specific consumer protection provisions to protect domestic assets from the clutches of those types of lenders who take advantage of financially stretched consumers. At the moment there is debate about whether those provisions are strong enough.
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Graham Bell’s corporate and commercial practice means he has strong working knowledge of family business systems and a sound grasp of insolvency practice. Contact Graham.