IP backed finance in Scotland due to get big boost in April as law changes

Innovative Scottish companies should soon be able to use the value of their intellectual property and intangible assets as collateral for loans.

The Moveable Transactions (Scotland) Act 2023, which will take effect from April 1, 2025, will give lenders the ability to take an effective security over IP rights.

Intangible assets are classed as "moveable property". Under current Scottish law, exercising effective security over an asset involves taking physical or quasi possession of the asset in question, which is considered highly problematic  with moveable assets.

Legally, the Moveable Transactions (Scotland) Act 2023 creates a new right, a statutory pledge, which can be exercised over Scottish companies’ moveable property. Consumers can’t grant a statutory pledge and sole traders, charity trustees , clubs and societies will only be allowed to pledge “permitted assets”.

Incidentally, it’s not just IP rights like patents, copyright, and trade marks that this change applies to; it also affects other asset classes including book debts (money owed but unpaid);loan books (sums due on mortgage, credit cards, car loans etc.); stock in trade; equipment (vehicle fleets and machinery); and intellectual property rights.

It will not initially apply to shares, but that will apparently be addressed in future legal changes.

So why does the creation of the new statutory pledge matter so much to IP-rich Scottish companies, particularly scaleups? Simple. At the moment, lenders can only take a floating charge over intangible assets owned by Scottish companies. 

But a floating charge is not as strong a protection as a statutory pledge; and it also affects the lender’s position in the hierarchy of debtors, placing them behind preferential debtors such as HMRC should a company run into financial difficulty. By contrast, a statutory pledge over an asset places the lender ahead of HMRC.

From the point of view of IP finance, the change will allow lenders to more effectively take security over a firm’s intangible assets, so allowing Scottish companies the option of borrowing against their patents, trade marks, copyrights and related IP rights.

The changes to the law governing ‘moveable property’ have been discussed for more than a decade now; the new act has been called the biggest upheaval in Scots law since at least the 1890s (some legal experts say since the 1680s).

As part of the new Act, Registers of Scotland, the Scottish Government department which collects and maintains records relating to property and other legal documents, is creating two new registers – the Register of Assignations and the Register of Statutory Pledges.

Full details of these Registers, and costs for using them, are expected to be published soon.