Business Contract Terms (Assignment of Receivables) Regulations 2017: Unexpected consequences for lenders

Business Contract Terms (Assignment of Receivables) Regulations 2017: Unexpected consequences for lenders

A new draft of the proposed Business Contract Terms (Assignment of Receivables) Regulations 2017 (the Regulations) published in September 2017 has caused considerable consternation to some participants in the loan markets. This news analysis discusses why the draft Regulations might affect important provisions in loan and other finance agreements in unexpected ways.

Original news

The City of London Law Society (CLLS) has written to the Department for Business, Energy & Industrial Strategy concerning its issues with the Business Contract Terms (Assignment of Receivables) Regulations 2017. The chair, Dorothy Livingstone states that the letter is to explain why the CLLS believes the Regulations ‘will create substantial uncertainty in a wide range of financial transactions and may adversely affect access to finance for UK businesses if they are adopted’. The CLLS believes the best outcome would be for the Regulations to not be approved and the terms be reconsidered.

What are the draft Regulations intended to do?

The aim of the Regulations, made under the Small Business, Enterprise and Employment Act 2015 (the Act), is to make it easier for small and medium-sized business to raise finance by using their receivables as collateral. The primary effect of the draft Regulations would be to make ineffective any contract term that prohibited the assignment of receivables. By doing so it is hoped that small and medium-sized enterprises (SMEs) would be able to use all of their customer debts to raise finance through invoice discounting (sometimes called ‘factoring’ of debts) not just those customer debts arising under contracts which did not contain a prohibition on assignment of the contract or rights arising under it.

When are the Regulations intended to become effective?

The date upon which the Regulations may come into force depends upon their being approved by Parliament but it could be before the end of 2017.

What contracts would

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About the author:

Miranda is a solicitor specialising in leveraged and acquisition finance. She trained at Hogan Lovells International LLP and qualified into the international banking and finance team. During her time at Hogan Lovells she worked on a variety of domestic and cross-border transactions, acting for both borrowers and lenders. She also experienced secondments to Barclays Bank PLC and Kaupthing Bank hf.