The Business Contract Terms (Assignment of Receivables) Regulations 2018 were published on 4th July. They provide in principle (and subject to many exclusions) that as from 31st December 2018 a contract term will have no effect to the extent that it prohibits the assignment of a receivable. These are the successor to the 2017 version which was withdrawn after it was legally savaged by the CLLS and the FMLC on the grounds that there were defects in the drafting, that any interference with freedom of contract would be detrimental to the global popularity of English law, and that the Regulations were ultra vires because they went beyond the ambit of the Small Business, Enterprise and Employment Act 2015 (which is the principal legislation), and even that they might avoid negative pledge clauses. The 2018 version has several changes from the ill-fated 2017 one, many adding further detail about things previously rather unclear or to create new exempt categories of contract or contract party, but we wait to see what the CLLS and FMLC make of them. Some significant changes are:
· They now only apply to contracts entered into on or after 31st December 2018;
· They will expressly not apply to (a) M&A contracts, (b) contracts for any financial service – very widely defined (loans, leases, swaps, etc) – amongst many other types of excluded contracts, (c) contracts where the supplier is a “large enterprise” or a “special purposes vehicle” (both as defined in detail), and (d) contracts where none of the parties has entered into it in the course of a business carried on in the UK.
The intention is to make it easier for suppliers to factor book debts, and for financial firms, they are not bad news, and will be relevant to ABL, English law trade receivables securitisations, and so on. There is no substitute for reading the detail of these sadly, and judging from the outcry last in 2017, we have probably not heard the last of them, but the UK government seems determined to bring something in.
Head of Knowledge Management (Finance and Projects)
Mark Daley joined DLA Piper in 2015 after over thirty years’ experience as a debt finance lawyer in private practice in London and Hong Kong.