The Scottish Government’s Moveable Transactions Bill has recently been granted Royal Assent - opening fresh avenues for many rural enterprises to secure finance. These new rules are aimed at making it easier for Scottish businesses to borrow against their moveable assets and they could prove a game-changer for farms and estates. For the first time, it means that the value held in assets such as machinery, livestock and tenancies could be used to borrow against.
Chloe Shields, a Senior Solicitor in our Rural team, says farms and estates would be well advised to see how the law could support - or even unlock - their investment plans.
Chloe said: “This has the potential to be a game-changer for farmers and estate owners in terms of realising the full value of their assets and using them to borrow against.
“Take tenant farmers as an example - because they do not own their holding, they cannot use its value as security for a loan. The true value of their business is often held in the machinery and livestock that they own outright. But, until now, they have not been able to borrow against it.
“This opens that opportunity. That could mean the difference between a diversification project happening or not - or being able to invest in any new innovation that could futureproof or take the business to the next level.
“There is also potential for farming partnerships, which might have traditionally found it challenging to secure finance, to benefit too.”
The Bill is applicable to all types of businesses. For agricultural enterprises, it may mean that the value of wholly-owned machinery, equipment and livestock could be levered.
It is also designed to make it easier for firms to secure working capital against the value of invoices which are out for payment, which may bring payments including those for the likes of natural capital projects, contracting work and leases to energy or telecommunications companies into play. Trademarks and patents can also be used.
For estates, it means they could borrow against the value of agricultural tenancies, as well as possessions such as furniture, paintings, sculptures and books - provided they were not included in a chattel list for tax purposes.
It may also be possible to secure baronies and heraldries as incorporeal property.
Chloe said: “While these are early days - and we will have to see how lenders react - the options that the theory of this new law opens are incredibly broad.
“It is important, however, that anyone considering using this as a means of securing finance seeks expert advice to ensure that all details and eventualities are fully considered.”
With owed invoices, businesses will be able to transfer the benefit of those payments to lenders for money up front so there is access to capital on the basis of the monies owed to them.
There will be a registration process for some of the documents needed by lenders to take advantage of the changes to better grant security.
Speaking about the Bill generally, Gavin Buchan, a Partner who heads our banking law team, advising banks, lenders and borrowers, added: “This is good news for Scottish businesses. It makes the process of being able to borrow against assets and income streams far simpler.
“The system as it was had far too many hurdles to overcome, ranging from difficult to impossible. This new Bill simplifies that.
“There will be companies with assets which they have not previously considered accessible. Mainstream banks and lenders will no doubt be pushing this as an angle to secure further funds for their business clients.”
The Bill implements recommendations made by the Scottish Law Commission’s Report on Moveable Transactions.
This article featured in the Courier on 2 August 2023.
