Moveable Transactions (Scotland) Act 2023: Some very welcome reform for fund finance transactions

The Moveable Transactions (Scotland) Act 2023 (the “MT(S)A”) comes into force on 1 April 2025 and changes how fixed security over moveable property is taken in Scotland – bringing exciting new opportunities for fund finance lenders and borrowers alike.  

Scottish limited partnerships remain a popular vehicle of choice for private fund structures. In this blog we will look at how the Scots law of assignations will change, with a focus on typical fund finance transactions involving Scottish limited partnerships/security.  

Sublines - the typical Scots law security package

As a matter of Scots law, rights, claims and other incorporeal moveable assets are transferred (outright or in security) by way of an assignation. In the context of a typical subline involving Scottish limited partnerships, security will likely include assignations in security over the rights to call for and receive undrawn commitments from investors often together with account security.

Issues with the current Scots law of assignations

Broadly speaking, there are three key issues for fund finance lenders and borrowers with the current Scots law of assignations:

1.    Control

Under the current Scots law of assignations, effective control of an assigned right must transfer to the assignee to create a valid assignation. This often presents commercial and practical challenges. Scots law governed assignations in security over rights to call and/or receive undrawn commitments, or over rights to receive distributions will often include provisions seeking to evidence effective control over those assigned rights being transferred to the assignee. 

2.    Intimation

Under the current law, to create valid security over contractual rights and effect an assignation/transfer of those rights, notice of the assignation must be given to the debtors. The rules of how that notice, or intimation, is sent are antiquated and not fit for modern commercial transactions. The current law can be administratively burdensome and costly, especially in structures with a large and international investor base.

3.    Future rights

At present, it is not clear whether future rights can be assigned. As a result, supplemental assignations in security (and a fresh round of intimations) are often required in fund finance situations each time an additional partner admitted (either by way of a closing or because of a transfer of partner interests).

MT(S)A and some very welcome reform

With effect from 1 April 2025:

1.    The Scots law of assignation of rights/claims will be modernised

Control

The MT(S)A provides that an assignation will be effective without control over the assigned rights passing from the assignor to the assignee and that an assignor can continue to deal with the rights/claims that are subject to the assignation. The operational control mechanisms mentioned above will no longer be required which is very helpful from a commercial and practical perspective.

Assignation in part

It has also clarified that it is possible to assign a right/claim in part. This is a particularly interesting development in the context of some fund financings where, going forward, it will be possible to create a fixed security over part of distribution rights (i.e. attributable to carry or coinvest). 

Conditional assignations

The clarification around conditional assignations will also be welcomed by some. In a fund finance context, it will make it easier to take effective second ranking security – simplifying the regime for second lien financing and providing a welcome solution where purview concerns might exist elsewhere within the fund structure.

2.    Intimation or registration?

From 1 April 2025, there will be two ways to effect the transfer of a right/claim pursuant to an assignation: (i) intimation (but see below); or (ii) registration.

The process of intimation will be modernised, with significant flexibility around how proper, valid intimation can be made. It will be possible to intimate an assignation to investors by email, or via an investor portal.

As an alternative to intimation, it will be possible to register an assignation in the new Register of Assignations. The rights and claims that are subject of the assignation will be effectively transferred upon registration in this publicly searchable register.

3.    Future rights

It has been clarified that, from 1 April 2025, it will be possible to assign future rights. A right/claim will automatically transfer from an assignor to an assignee when that right/claim comes into existence. There are some insolvency considerations to consider, but this is a significantly positive clarification, particularly in the context of subline arrangements being put in place at first close, and negating the need for supplemental assignations in security on the admission of new partners.

Great news!

This long-awaited modernisation of Scots law will be very welcome by practitioners, lenders and borrowers alike. The raft of changes brought about by the MT(S)A sees Scotland become much more aligned with other jurisdictions active in the private funds/fund finance space and adds to the benefits of using Scottish limited partnerships in private fund structures. Exciting times ahead. Please do explore our dedicated MT(S)A articles for more information and if you have any questions, or if you would like to discuss any of the changes, please do get in touch. 

Related News, Insights & Events