Draft Business Contract Terms (Assignment of Receivables) Regulations 2018

On 4 July 2018 draft regulations were laid before both Houses of Parliament which would ban non-assignment clauses in business contracts, with the aim to improve access to receivables financing.

These regulations are made under sections 1 and 161 of the Small Business, Enterprise and Employment Act 2015 (‘SBEEA’). The regulations prohibit terms which impose a condition or restriction on an assignment or the assignee being able to ascertain the validity and quantity of the debt, or ability to enforce that debt (Reg 2(1)-(2)). This is extended to overcome certain confidentiality clauses which would prevent the assignee obtaining the necessary information to claim or enforce against the debtor (Reg 2(3)).

However, the regulations do not apply when the supplier (would be assignor) is a large company (defined in regulation 3(3)). Nor do they apply to suppliers who are special purpose vehicles which hold assets or finance commercial transactions involving incurring a liability of £10m or more (Reg 3(4)).

Furthermore, specific contracts are excluded under regulation 4. This includes non-business contracts (Reg 4(c)). It importantly excludes prescribed financial services contracts (Reg 4(a)). That means any regulated contract under the Consumer Credit Act 1974, and also those contracts specified in section 2 of the SBEEA for banking and insurance related business (Reg 1(3)). Additionally the regulations specify that certain derivative contracts not covered as a prescribed financial service will also be excluded provided they are traded on a regulated market or subject to close-out netting (Reg 4(j)).

Regulation 4 also excludes contracts where none of the parties have entered into it in the course of carrying on a business in the United Kingdom (Reg 4(d)). This is seemingly to prevent these regulations negatively affecting the use of English law among internationally contracting parties.

The explanatory notes make clear that these regulations do not affect contractual set-off the debtor could have exercised against the assignor before the assignment or but for the assignment. There is not, in its current form, explicit recognition of this on the face of the regulations.

The regulations are subject to the affirmative procedure, requiring a resolution of assent from both Houses of Parliament. It is expected that this will be at some time in the Autumn.

If passed, the regulations would apply to contracts entered into on or after 31 December 2018 (Reg 1(2)).

The Draft Regulations and Explanatory Notes are accessible here. They are also accessible at www.legislation.gov.uk.

The Explanatory Memorandum is accessible here.

The Impact Assessment is accessible here.