Prohibitions On Restrictions To Assignment Of Receivables

Many businesses assign or charge their receivables in order to obtain finance, and in many cases, to improve cashflow. Following the financial crisis of 2008, alternatives to bank-led finance have been sought by businesses, with the government making efforts to facilitate access to alternative finance.

Commercial contracts often contain provisions prohibiting the assignment of payment obligations, for example, preventing a business from assigning the debts owed to it by another party without the consent of that party. Such terms will often prevent, or make it much more expensive and time-consuming to achieve, the assignment or granting of a charge over the debt.

The Impact of the Small Business, Enterprise and Employment Act 2015

Certain provisions of the (the "Act") came into force on 26 May 2015, section 1 grants powers to the Secretary of State to enact regulations for the purpose of securing that any non-assignment of receivables term of a relevant contract (a) has no effect; (b) has no effect in relation to persons of a prescribed description; or (c) has effect in relation to persons of a prescribed description only for such purposes as may be prescribed. A "relevant contract" includes contracts for goods, services or intangible assets but which are not "excluded financial services contracts".

"Financial services contracts" are defined as (i) contracts for financial services (an extensive list is incorporated by reference to section 2 of the Act, which includes insurance or banking activities including retail, trading and investment), (ii) any regulated agreement under the Consumer Credit Act 1974 or (iii) any prescribed by the regulations made under the Act.

Much of the detail as to the impact of the provisions therefore remains subject to the wording of the regulations, which are currently in draft form.

Regulations: Consultation and Response

The government published draft regulations with a consultation on 6 December 2014. The consultation indicated that any changes will apply automatically to contracts entered into after the relevant legislation comes into force and will not apply retrospectively to existing contracts.

In the government's response to...