Receivables financing is a very important source of finance for small businesses. Anything which limits the availability of this type of financing, or which increases its costs, requires examination. Receivables financiers take an assignment or a charge over the receivables they finance.
Some contracts for the supply of goods or services by small businesses include a clause banning assignment of the receivables arising under the contracts: we call these ‘ban on assignment clauses’. If receivables arising from such a contract are the subject of an assignment to a receivables financier, it may be difficult for an assignee to enforce collection of those receivables if the assignor experiences financial difficulties, and the debtor can refuse to pay the financier directly. The concern which arises is whether these difficulties mean that finance of such receivables is refused, or that steps have to be taken which increase the cost of financing.
Statutory controls on the effect of ban on assignment clauses have been introduced in a number of jurisdictions as well as in the 1988 UNIDROIT Convention on International Factoring, the 2001 UN Convention on the Assignment of Receivables in International Trade, the 2007 UNCITRAL Legislative Guide on Secured Transactions and, more recently, have been included in the UNCITRAL draft Model Law on Secured Transactions. The draft regulations in the Law Commission Consultation Paper 176 and Report 296 also included a limited override of such clauses. The project is considering whether a limited override should be introduced into English law, and, if so, what the limits should be.
Detailed arguments for and against a limited override are set out in presentations delivered at a recent seminar for receivables financiers.
It is reasonably clear that outside the context of trade receivables financing, ban on assignment clauses perform a useful and important function, and should not be overridden. The important debate focuses on whether a limited override would improve access to financing for small businesses.
In order to inform this debate, we are very keen to find out the views of anyone who is interested in this area. We have drafted a short survey for those financing against receivables, looking at whether ban on assignment clauses cause problems and increase costs, methods used to overcome difficulties in enforcement and frequency of the use of such clauses.
If you are involved in the receivables financing industry, please take a few moments to fill in the survey and send a scanned copy to email@example.com
Nullification of a ban on invoice assignment clauses was proposed in the form of a power of a Secretary of State to make Regulations in clause 1 of the Small Business, Enterprise and Employment Bill (SMEE Bill). At the beginning of the year BIS conducted consultation on the Bill, which closed in February 2015. The summary of responses along with draft regulations are available here. On 26th March the SMEE Bill ill received royal assent.
The text of the Small Business, Enterprise and Employment Act 2015 can be found here.
On 9 August 2015, the Government responded to its consultation and announced that a ban on anti-assignment clauses would be brought in under the Act early next year. The Asset Based Finance Association and the National Federation for Small Businesses have spoken in support of the move.