Regulations banning the prohibition on assignment of receivables now in force
by Emma Halton
Following our article on the draft regulations published in July 2018, the Business Contract Terms (Assignment of Receivables) Regulations 2018 (the “Regulations”) came into force on 24 November 2018, with no substantive changes from the draft.
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”.
The Regulations expressly nullify any term which prevents an assignee from determining the validity or the value of the receivable, or, their ability to enforce it. For the purposes of identifying such a clause, the Regulations provide categories of information, such as the identity of the parties, and if the contract restricts the assignee from obtaining any of the listed information, the restriction will be void.
A receivable is defined as the right to be paid any amount under a contract for the supply of goods, services or intangible assets. In practice, receivables are transferred in a number of ways, but since there is no definition of “assignment” in the Regulations, there is uncertainty as to which types of transaction will be covered.
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, an SME (small and medium-sized enterprise) which is not a special purpose vehicle. The contract must be governed by the laws of England and Wales, or the law of Northern Ireland, and one of the parties to the contract must have entered into it in the course of business in the UK. As a general rule, the Regulations will not apply to contracts governed by foreign law; however, 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.
Certain contracts are exempt from the scope of the Regulations. These include contracts which concern land, prescribed financial services, the acquisition, disposal or transfer of any interest in a business or undertaking, and contracts concerning swaps and other derivatives.
The Regulations are particularly significant for businesses involved in the financing of receivables.
If you have any queries about this article, please contact Emma Halton, whose details appear below.