The Business Contract Terms (Assignment of Receivables) Regulations 2018 came into force on 24th November 2018.

The Regulations nullify the effect of terms in contracts that impose conditions or restrictions on the assignment of receivables, subject to an exception for contracts with large suppliers or special purpose vehicles. They will apply to contracts made on or after 31st December 2018.

This change is to be welcomed. Anti-assignment clauses are a hindrance to the availability of credit for small businesses whose main assets are their receivables. The benefit of those clauses to their customers is, in many cases, more imaginary than real. Moreover, the effect of such clauses produces uncertainty (see Beale, Gullifer and Paterson [2016] Journal of Business Law 203). The ban on their use in contracts with SMEs should therefore enhance the availability of a major source of credit for those businesses.

The Regulations were the subject of a previous post on this blog, available here.

 

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.

A new discussion paper, by Duncan Sheehan, has been published on the topic of reform to inventory and supply chain finance. The paper discusses issues of registration, priority and surplus of security in that context.

For an overview of the purpose and intention behind the STR’s discussion papers, please click here.

• Inventory and Supply Chain Finance

All views and comments are very much welcomed. Please direct correspondence to this email address.

On the 24^th November 2017, the Law Commission published their report on the Goods Mortgages Bill  following a consultation, and has recommended replacing the Bills of Sale Acts. The Law Commission set out a number of proposals including the draft text of a the proposed Goods Mortgages Bill which can be found here.

Jacqueline Cook of Stephenson Harwood LLP and a member of  Lexis®PSL Banking & Finance consulting editorial board, has written a practice note examining some of the key provisions of the proposed bill. Jacqueline Cook has kindly given the STR permission to post this practice note, which is available here.

Further updates on the progress of the proposed bill will be published on this blog and in the STR mailer.

STOP PRESS: On 14 May 2018, HM Treasury (HMT) published its findings after considering the responses it received to its consultation dated 22 September 2017 on the proposal to reform the Bills of Sale Acts.

HMT has announced, given the concerns that were raised in the consultation, the small and reducing market and wider work on high-cost credit, the government is not intending to introduce new legislation at this point in time.

 

On the 4th July 2017 Professor Louise Gullifer gave a presentation about the work of the Secured Transaction Law Reform Project and some of the issues considered in the discussion papers written by academic members of the project to stimulate debate, published in January 2017.

The presentation was attended by lawyers from Clifford Chance and elsewhere, as well as by bankers and policy makers. Some of the authors of the papers also attended and took part in the question and answer session.

The presentation is accessible here.

The discussion papers can be found here.

As always the project is very grateful to those who have responded so far and with the debate continuing we would be delighted if others could join by adding there comments to the papers. These comments should be sent to securedtransactionsproject@gmail.com.

Rich Eldrige and John Chater of Penningtons Manches LLP have published a brief commentary on the STR’s January 2017 Discussion Papers.

Click here to view this feedback.

Article briefly summarises the progress of the Secured Transactions Law Reform Project thus far, and the steps to be taken by the STR.

The STLRP has published six new Discussion Papers intended to engender a wide debate on the reform of secured transactions law.

For an overview of the purpose and intention behind the STR’s discussion papers, please click here.

• Asset Finance (PDF | DOC)
• Fixed and Floating Charges (PDF | DOC)
• Personal Property Security and Consumers (PDF | DOC)
• Priorities (PDF | DOC)
• Registration (PDF | DOC)
• Sale of Receivables (PDF | DOC)

All views and comments are very much welcomed. Please direct correspondence to this email address.

Professor Duncan Sheehan of the University of Leeds Law Faculty will be hosting a conference entitled Secured Transactions Law Reform: Priority Rules and the Impact on Consumers on the 6th of January 2017.

The conference, held in conjunction with the Secured Transactions Law Reform Project, and part-funded by the Society of Legal Scholars, will assess different models of secured transactions law reform, the impact on other areas of law, and specific problematic asset classes such as financial collateral, intellectual property rights and bitcoin.

It will examine the relationship of a reformed law on two areas in particular. The first is the effect of reform on priorities and nemo dat quod non habet. The latter is the rule that a transferor cannot give his transferee any better title to an asset than he has. These issues will be also considered in the context of consumer protection.

The details of this conference are as follows:

06 January 2017 | 9.30 – 16:45 | Conference
The Liberty Building, Moot Court Room
This is a free event.
Refreshments will be provided.

Please note that registration is required in advance. Click here to register for the conference.

A limited amount of money is available to help with the travel expenses of PhD students attending the conference.

For more information, please contact lawmso@leeds.ac.uk.

In a report published on 12 September 2016 the Law Commission recommended that the Bills of Sale Acts 1878-1882 be repealed (report No 369 Bills of Sale). The report concludes a two-year period of consultation, which saw submission of 38 responses to the Consultation Paper (CP 225), including one on behalf of this Project (http://www.lawcom.gov.uk/wp-content/uploads/2016/02/cp225_bills_of_sale_analysis.pdf). In place of the Acts, the Law Commission recommends introduction of a new Goods Mortgages Act, regulating ‘vehicle mortgage’ and ‘goods mortgage’. The former would be registrable in asset registries, to be designated by the Treasury. Security in goods already owned by borrowers as well as general assignments of book debts made by unincorporated businesses would continue to be registrable at the High Court registry in a simplified process. As a response to the significant appetite for electronic registration, the Law Commission recommended that the new legislation should contain a power to make regulations for implementation of an electronic register in the future. It also recommended that there should be a power to make regulations allowing registration of goods mortgages and general assignments of book debts at the Companies House to streamline the registration regime of security between companies and non-corporates. The legislation would introduce a range of statutory protections, both for borrowers (e.g. a right of voluntary termination) and for private purchasers who act in good faith and without actual notice of security. The Law Commission intends to present the new Act before the Parliament as an uncontroversial Law Commission Act.