Until now, the fixed security options for moveable property available to lenders and borrowers operating in Scotland have been unsatisfactory, drawing unfavourable comparisons with other jurisdictions, including our neighbours in England and Wales.

The Act remedies numerous issues in the law by providing that:

• Fixed security can now be taken over stock, equipment, vehicles, livestock etc. by way of a statutory pledge, without possession of the relevant asset having to be transferred to the lender. In this way, the statutory pledge will operate in a similar way to an English law chattel mortgage.
• Intellectual property can also be secured under a statutory pledge, without any transfers of title and licensing-back arrangements required and so that the IP can continue to be used by the borrower in the usual course of its business. This should mean that the approach in Scotland is aligned with the experience of borrowers and lenders with an English law fixed charge over IP.
• Fixed security over shares in Scottish companies under a statutory pledge is now a viable option, without those shares having to be transferred to the lender (or its nominee) and voting proxies and/or dividend nominations put in place to allow the borrower to continue acting as shareholder of its subsidiary day-to-day. In the same way as an English law fixed charge over shares, this now means concerns over the responsibilities and liabilities of the lender (or its nominee) because of the previously required share transfer fall away prior to enforcement.
• Perfection of a statutory pledge will be through registration in a new public Register of Statutory Pledges, a significantly more straightforward mechanic than what existed before the Act.
• Security over rights arising under Scots law governed contracts (e.g. SPAs, bank accounts, development documents etc.) will continue to be taken by way of assignation in security. The Act clarifies that control of the asset (e.g. by blocking an account) is not required to create the security, removing uncertainty in the law as it previously stood.
• Perfection of an assignation in security can now occur through registration in a new public Register of Assignations, meaning that there is no need to intimate (notify) each relevant counterparty as was previously the case.
• Intimation to counterparties remains an alternative method of perfection for an assignation in security and whilst we anticipate that registration will be the preferred method of perfection, intimation may be appropriate in addition (or in substitution) to registration in certain circumstances
• Appropriate drafting in an assignation in security and/or statutory pledge will also allow for any future assets that come into the borrower's ownership to be captured. This is similar to the position found under English law.

In real estate financing transactions, in both development and investment contexts, parties have suffered from outdated Scots law requirements which had to be followed to take effective fixed security over real estate-related moveable assets.

With the key assets in any REF transaction, other than the property itself, likely to be rights owned by a borrower under the contracts to which it is a party (including building contracts, collateral warranties and occupational leases), the need to intimate (notify) assignations in security to each individual counterparty has been unwieldy to say the least. 

Uncertainty over the capturing of future assets under security documents has also been problematic in certain transactions, e.g. those involving shopping centres and student accommodation with regularly changing pools of occupational tenants. This has necessitated supplemental security on a rolling basis, which has led to additional legal costs and a greater administrative burden.

The Act improves the position significantly in the following ways:

• An assignation in security (e.g. of rights under development documents, or rights to rental income from tenants under leases of a property), no longer requires intimation to each relevant counterparty. Instead, perfection will be through registration in a new Register of Assignations or by electronic intimation, eliminating the administratively burdensome parts of the old law.
• Though there are alternative methods of perfecting an assignation in security (registration or intimation), we anticipate that registration will be the preferred method. However, in certain circumstances, it may be necessary to register and intimate, e.g. where no managing agent is appointed to collect the rental income from tenants of a property and those tenants require to be directed to pay the rental income into a rent account held with the lender.
• Security documents with appropriate framing will capture not only present, but also future, rights as they come into existence. Supplemental assignations will no longer be required on an ongoing basis, aligning Scots law with what would typically be seen in an English law context.
• Fixed security over corporeal moveable assets located at a property, including equipment, plant and machinery, no longer requires the transfer of possession to the lender. A statutory pledge can now be entered into instead, allowing the borrower's day-to-day use of the asset to continue. It will therefore operate similarly to an English law chattel mortgage.
• Shares in Scottish companies involved in a REF structure can also be secured on a fixed basis under a statutory pledge, without any transfers of title, voting proxies and/or dividend nominations required. In this way, the approach in Scotland should fall into line with the experience of borrowers and lenders with an English law fixed charge over shares.
• Perfection of the statutory pledge will be by registration in a new Register of Statutory Pledges, and suitable drafting will also ensure that present and future property can be secured as and when it comes into the borrower's ownership.
• Importantly, the way fixed security is taken over Scottish real estate is unaffected by the Act, so a standard security will remain the only option.

Scots law has compared unfavourably with other jurisdictions when it comes to the options for taking fixed security over corporeal (tangible) moveable assets located in Scotland, such as stock, grain, fish, livestock, vehicles, equipment and machinery due to the requirement for physical possession of the asset requiring to be held or controlled by the lender to perfect the security. This has been unduly prohibitive in the asset-based lending space over the years, with lenders having to rely on floating security as the only viable option.

Security over a borrower's rights to receivables, including under invoices issued by them to their customers, has been equally problematic, owing to the onerous perfection method for assignations in security and requiring periodic trust arrangements to be put in place as a workaround.

The Act looks to resolve a number of these issues as follows:

• Fixed security over assets like stock, vehicles and equipment no longer requires actual, or constructive, delivery to the lender. A statutory pledge can now be entered into instead, allowing the borrower's day-to-day use of the asset to continue, so it will operate similarly to an English law chattel mortgage.
• Importantly, a statutory pledge over such assets can also be granted by sole traders and partnerships, opening a new route to secured finance for these individuals and businesses. Perfection of a statutory pledge will be by registration in a new public Register of Statutory Pledges.
• Care will require to be taken if any assets are released from a statutory pledge to avoid the so-called "torpedo risk". This will arise where the release process set out in the Act is not followed and could lead to the entirety of the pledge in force over a class of assets being undermined.
• On the receivables side, an effective assignation in security no longer requires intimation (notification) to each relevant counterparty. Instead, perfection will now be through registration in a new public Register of Assignations.
• Intimation (now including by electronic means) will remain an alternative method of perfection for assignations in security, though we anticipate that registration will be the preferred method. Intimation may, however, continue to be appropriate in addition (or in substitution) to registration in certain circumstances.
• Appropriate drafting in securities (assignations in security and/or statutory pledges) will also now capture future assets that come into the borrower's ownership.
• However, where there are concerns about registering assignations publicly in the Register of Assignations, we anticipate that existing trust structures will continue to be used for confidentiality reasons.

The fixed security options available in Scottish project financing transactions have compared poorly with other jurisdictions, most notably our neighbours in England and Wales. Chief among the issues in this area has been that taking fixed security over (often) high-value corporeal (tangible) moveable assets at project sites (e.g. plant, equipment, machinery) has been practically impossible.

Concerns about fixed security over shares in Scottish companies also often meant that project companies were incorporated in England and Wales for ease of taking security over shares. Key issues relating to the interplay between perfected Scots law share pledges and the Persons with Significant Control and National Security and Investment Act regimes have been avoided by using this workaround, though the need to use it has been unsatisfactory.

The new and improved position following the reforms introduced by the Act is as follows:

• Project-related plant, equipment and machinery can now be secured under a statutory pledge, without those assets having to be delivered to the lender, meaning that the security will operate in much the same way as an English law chattel mortgage.
• Fixed security over shares in Scottish project companies will also be possible under a statutory pledge. There will be no need for title transfers and convoluted arrangements for proxy voting and dividend nominations, meaning that a Scots law share security will now operate in much the same way as an English law share charge.
• Rights under Scots law governed contracts (e.g. project documents, bank accounts, intercompany loan agreements etc.) will continue to be secured by way of assignation in security. Control of the asset (e.g. by blocking the relevant bank account) is not required to create the security, removing uncertainty in the law as it previously stood.
• Perfection of a statutory pledge and/or assignation in security will be through upfront registration in a new Register of Statutory Pledges and/or Register of Assignations, respectively.
• An effective assignation in security no longer requires intimation (notification) to each relevant counterparty though intimation (which is also now possible electronically) is an alternative to registration for perfection, and there may be certain circumstances where both steps are taken.
• It is also now possible to conditionally assign the rights under Scots law governed contracts, with perfection "suspended" until such time as the relevant conditions are satisfied.
• Appropriate framing in security documents will capture not only present but also future assets as they come into existence. Supplemental security will therefore no longer be required on an ongoing basis, aligning Scots law with what would typically be seen in an English law context.

The inadequacy of fixed security options available in the context of borrowers and lenders operating in the Scottish oil and gas sector has been regrettable. 

Simply put, the flexibility of the security options available to borrowers and lenders operating in the non-Scottish areas of the UK Continental Shelf versus the inflexibility of the corresponding position in the Scottish areas has put Scotland at a relative disadvantage.

The Act improves the security options available in the sector in the following ways:

• Fixed security over corporeal moveable assets (such as plant and machinery located on offshore installations) no longer requires delivery of possession to the lender. A statutory pledge over those assets can now be granted, with that security operating in much the same way as an English law chattel mortgage, i.e. allowing continued day-to-day use of the pledged assets by the borrower.
• Intellectual property can also be secured under a statutory pledge, without any transfers of title and licensing-back arrangements required so that the IP can continue to be dealt with by the borrower in the usual course of its business. This should mean that the approach in Scotland is aligned with the experience of borrowers and lenders with an English law fixed charge over IP.
• Fixed security over shares in Scottish companies under a statutory pledge is now a viable option, without those shares having to be transferred to the lender (or its nominee) and voting proxies and/or dividend nominations put in place to allow the borrower to continue acting as shareholder of its subsidiary day-to-day. In the same way as an English law fixed charge over shares, this now means concerns over the responsibilities and liabilities of the lender (or its nominee) because of the previously required share transfer fall away prior to enforcement.
• For any rights under Scots law governed contracts held by a borrower, an effective assignation in security of those rights no longer requires intimation (notification) to each relevant counterparty.
• Perfection of an assignation in security and/or statutory pledge will now be through registration in a new Register of Assignations and/or Register of Statutory Pledges, respectively.
• Intimation (now including by electronic means) will remain an alternative method of perfecting an assignation in security, though we anticipate that registration will be the preferred method. Intimation may, however, continue to be appropriate in addition (or in substitution) to registration in certain circumstances.
• Assignations in security and statutory pledges with suitable drafting will capture future assets that come into the borrower's ownership. This is similar to the position found under English law.
• We anticipate that it may ultimately be possible for oil and gas production licences issued by the North Sea Transition Authority to become the subject of a statutory pledge. At least, if the scope of Act is widened accordingly, the terms of The Open Permission (Creation of Security Rights over Licences) would not appear to preclude such security.

Until now, taking fixed security in fund financing structures involving Scottish limited partnerships (SLPs) has, unfortunately, not been as straightforward as the approach that borrowers and lenders may be familiar with in similar contexts involving English limited partnerships.

Notwithstanding the obvious tax and structuring advantages that may be derived from the involvement of a SLP, it may be the case that the inadequacy of the security options previously available has somewhat restricted the full potential of these vehicles in fund financing structures.

The Act improves on the current position significantly as:

• SLPs themselves, as well as their general partners (GPs), will continue to be able to grant security over their rights to make calls for and receive investment commitments (and related rights, such as enforcement rights) from limited partners (LPs) by way of assignation in security. Security from the GP and/or LPs over the rights to receivables (i.e. their economic interest) in the SLP also remains available. Perfection of such assignations will now be available through registration in a new public Register of Assignations.
• GPs and LPs can also continue to assign their rights in SLPs in security and, as above, registration in the Register of Assignations will be the perfection mechanic. Care will still require to be taken to ensure that such an assignation does not inadvertently result in the assignee assuming responsibility for the liabilities that come with ownership rights of the GP or LP. Where lenders currently take assignations in security of the partnership interests of the GP and/or the LP (other than economic interests), such assignations are typically not perfected until enforcement to avoid taking on such obligations and liabilities.
• Intimation (notification) will remain an alternative method of perfection for assignations in security, though this can also now be done electronically via email or an investor portal (provided such portal meets the Act requirements). Registration is expected to be preferred to intimation, however in some circumstances intimation may be appropriate in addition (or in substitution) to registration (i.e. for confidentiality reasons).
• Suitable drafting will allow for future rights that come into existence to be captured by the "day 1" assignation that is granted, therefore supplemental assignations in security will no longer be required. This approach is similar to that followed under English law.
• It is also now possible to conditionally assign rights in security, with perfection "suspended" until such time as the relevant conditions are satisfied.
• The interests of GPs and LPs in SLPs can also now be secured by a statutory pledge, with perfection achieved through registration in a new public Register of Statutory Pledges. This should mirror the experience of an English law fixed charge over partnership interests, avoiding the assignation-related concerns over assuming liabilities and obligations prior to enforcement. This will allow lenders to take security over a partner's entire interest (economic and ownership) if required.
• Where the GP is a Scottish company, a statutory pledge may also now be taken over the shares in that GP, with perfection achieved by registration in the public Register of Statutory Pledges. This removes the requirement for the shares to be transferred into the name of the lender or its nominee, avoiding well-known concerns around pensions liabilities, Persons with Significant Control and National Security and Investment Act implications.

The absence in Scotland of an equivalent to the English law concept of equity has resulted in Scottish securitisations presenting as comparatively onerous and complex.

Trust arrangements have been commonplace to avoid inflexible Scots law requirements, with originators/sellers retaining legal title to the underlying receivables but the benefit of the same declared to be held on trust for the issuer. Further declarations of trust have then been required as and when additional receivables have come into existence.

Issuers have been able to grant fixed security over their rights in and to such trust assets by way of assignation in security, but uncertainty under the old regime over capturing future assets has meant that supplemental assignations were required alongside such additional declarations of trust.

The Act simplifies this cumbersome approach by providing that:

• In certain scenarios, where the issuer has the appropriate regulatory approvals, it may be possible for originators/sellers to grant a "day 1" assignation (either outright or conditional) of their rights to the receivables in favour of issuers, with that assignation perfected by registration in a new public Register of Assignations. This potentially removes the need for trust arrangements to avoid intimating the assignation to underlying counterparties to mirror the equitable assignment approach in English law securitisations. Analysis of this approach will require to be reviewed on the facts of each transaction.
• Issuers' rights to Scots law governed receivables will continue to be secured by way of assignation in security, though perfection will also now be through registration in the Register of Assignations.
• Intimation remains an alternative method of perfection for assignations granted by originators/sellers and issuers, though this can also now be done electronically. Whilst we anticipate that registration will be the preferred method of perfection, in certain circumstances intimation may remain appropriate in addition (or in substitution) to registration.
• To ensure compliance with regulatory requirements under the securitisation regulations, retaining periodic Scottish declarations of trust will likely remain commonplace. Crucially, however, appropriate drafting in respect of future Scottish declarations of trust will allow them to now be captured by the "day 1" assignation document, meaning that periodic assignations in security over future Scottish declarations of trust will no longer be required.
• Importantly, the reforms will not be available for use on Residential Mortgage-Backed Security transactions, as the Act does not extend to the assignation of interests in land (other than rental income from tenants of that land). The existing law continues to apply to such scenarios.
• Notwithstanding the key reforms introduced by the Act, where there are concerns about registering assignations publicly in the Register of Assignations, we expect that existing trust structures will continue to be used for confidentiality reasons.