Regulations banning the prohibition on assignment of receivables now in force
by Grant Eldred & Emma Halton
The Business Contract Terms (Assignment of Receivables) Regulations 2018 (the “Regulations”) came into force on 24 November 2018. The Regulations are particularly significant for businesses involved in receivables financing, whether as borrower or as lender.
For this purpose, a receivable is defined as the right to be paid any amount under a contract for the supply of goods, services or intangible assets.
The Regulations stipulate that “a term in a contract has no effect to the extent that it prohibits or imposes a condition, or other restriction, on the assignment of a receivable arising under that contract or any other contract between the same parties”. Also, if a contract restricts an assignee from determining the validity or the value of the receivable, or its ability to enforce it, that restriction will be void, since it would have the practical effect of making that receivable unassignable.
The Regulations apply to any term in a contract:
- entered into on or after 31 December 2018;
- where the supplier of the goods, services or tangible assets is, at the time of the assignment, is neither a large group (defined by reference to the Companies Act 2006) nor a special purpose vehicle;
- entered into by at least one of the parties in the course of business in the UK; and
- governed by the laws of England and Wales, or the law of Northern Ireland – although there are provisions to prevent the parties from choosing a foreign law, if the purpose for doing so is to avoid the operation of the Regulations.
For more detailed information, please see our article on the draft Regulations – that draft was adopted with no substantive changes – or contact us directly.