Q&As

How might the European Commission proposal for new conflict of law rules for assigned claims impact the secondary loan market?

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Produced in partnership with Brian Cain
Published on LexisPSL on 12/06/2018

The following Banking & Finance Q&A produced in partnership with Brian Cain provides comprehensive and up to date legal information covering:

  • How might the European Commission proposal for new conflict of law rules for assigned claims impact the secondary loan market?
  • Summary
  • The scope of the Proposal
  • What is the new conflict rule?
  • Problems with the new rules
  • Not all loan transfers will be caught by the Proposal
  • Habitual residence
  • Successive assignments
  • Multiple assignors
  • Insolvent assignors
  • More...

Summary

The European Commission’s proposal for a Regulation on the law applicable to the third-party effects of assignments (the Proposal) published on 12th March 2018 could have a dramatic impact on the market for trading participations in syndicated and bilateral loans. Both of the Loan Market Association (LMA) and the City of London Law Society (CLLS) have made representations asking for the Proposal to be shelved or at least amended to accommodate current market practice in the secondary loan market. Their representations are available on their respective websites—LMA (membership login required) and CLLS Representations. It is fair to say that in its current form the Proposal would disrupt the secondary loan market by making due diligence on the part of a buyer much more complicated for the reasons given below.

The scope of the Proposal

The objective of the Proposal is to facilitate the factoring or invoice discounting of receivables in the EU by imposing a uniform conflict of law rule in transactions involving the assignment of debt claims. The scope of the Proposal is limited.

The Proposal would not affect the current conflict of law rules set out in Council Regulation (EC) 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) that operate between:

  1. the assignor and assignee of a debt which would continue

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