New UK Regulations Will Affect Non-Assignment Of Receivables Provisions In Certain Contracts

It has taken quite a while1 but the Business Contract Terms (Assignment of Receivables) Regulations 2018 (the Regulations)2 were made on 23 November 2018. The intention of the Regulations is to make it easier for small businesses to access invoice finance. The UK government has previously estimated that these new laws will provide a £1 billion long-term boost to the UK economy.

Invoice finance, often described or structured for example as receivables purchase or receivables discounting, supply chain finance, forfaiting, or factoring, typically involves the assignment of receivables and can be a useful financing tool for small businesses, particularly in sectors where such businesses have to wait a long time between issuing an invoice and receiving payment. Commercial contracts, however, often include a non-assignment of receivables clause and the concern is that smaller suppliers are unable to negotiate changes to such provisions.

The Regulations came into effect on 24 November 2018. They will apply to all contracts entered into on or after 31 December 2018. Essentially, the Regulations will nullify terms in business contracts that prohibit or restrict the assignment of receivables, unless the relevant contract is exempt.

Key points to note

The Regulations change the law. Subject to certain exemptions, a term in a business contract that prohibits or imposes a condition or other restriction on the assignment of a receivable arising under that contract or another contract between the same parties will be void. The definition of 'receivable' is very broad and covers payments for goods, services or intangible assets (including electricity and data in digital form). The Regulations do not apply to contracts for prescribed financial services3 or to a number of other specific types of contracts, including those relating to land, petroleum licences, certain derivatives, project finance, energy and operating leases. The Regulations do not apply where one or more of the parties is a consumer, or where none of the parties has entered into the contract in the course of carrying on a business in the UK. The Regulations do not apply to contracts entered into in connection with the acquisition, disposal or transfer of an ownership interest in a firm or of a business or undertaking or part of a business or undertaking, provided the relevant contract includes a...