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Invalidating clauses that ban assignment of receivables

30 Nov 2015

As mentioned in our June 2015 e-bulletin, the Small Business, Employment and Enterprise Act 2015 introduced a power to make regulations to ensure that any nonassignment of receivables clauses would be invalidated.

The UK Government is concerned that any term in a contract between a supplier and customer that does not allow a supplier to assign the debt arising under its invoices to an invoice finance provider may raise the cost of the supplier accessing invoice financing or even prevent its access to invoice finance altogether.

This is important as for some businesses, the only assets against which they can borrow are invoices for payment due to them for goods or services they provide.

Update

In December 2014, the UK Government consulted on the proposals and draft regulations and it has published its response. The Government has concluded that:

  • The regulations will apply to business to business contracts of all sizes (but not business to consumer contracts).
  • They will not apply to financial services contracts or contracts with an interest in land.
  • No special provisions will be created for supply chain finance arrangements.
  • They will allow debtors to take action against suppliers if they breach commercial confidentiality.
  • The regulations will not apply retrospectively.
  • The regulations will apply where the parties conduct a business to business transaction using English contract law and one of them carries on business in the UK.

The Government aims to begin the Parliamentary process to make these new regulations as soon as possible.

For more information on asset based finance matters please contact:

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