Controversial ban on restricting assignment of receivables


The financing of receivables is an important and useful way for businesses to raise much needed working capital. With the aim of improving access to receivables financing for businesses, The Business Contract Terms (Assignment of Receivables) Regulations 2018 (the Regulations) came into force in the UK on 24 November 2018.

The effect of the Regulations is to nullify any term in a contract for the supply of goods, services or intangible assets to the extent that it prohibits or imposes a restriction on the assignment of a receivable, which includes any term that prevents the assignee of a receivable from determining the validity or value of that receivable, or their ability to enforce the receivable.


The Regulations only apply to contracts entered into on or after 31 December 2018 and include an exception for contracts with large suppliers and special purpose vehicles.

Also excluded are certain specified contracts, including contracts for financial services, the sale of a business, and contracts where none of the parties have entered into it in the course of carrying on a business in the United Kingdom. This is seemingly to prevent the Regulations negatively affecting the use of English law among internationally contracting parties.


The Regulations generally apply to contracts governed by English or Northern Ireland law. Contracts governed by a different foreign law are not covered, save to the extent it can be established that the main purpose for choosing a foreign governing law was to evade the operation of the Regulations.


While many commentators have welcomed the change in law, believing that a ban on anti-assignment clauses will enhance the availability of credit for SMEs, others point out that anti-assignment provisions are often included in contracts for good commercial reason - e.g. to prevent assignments to a competitor or hostile third-party.


The Regulations are accessible here.


Disclaimer


This material is for general information only and does not constitute legal advice. Specialist legal advice should be obtained before taking or refraining from any action as a result of the contents of this material.



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