Receivables financing—insolvency issues
Produced in partnership with DLA Piper

The following Banking & Finance practice note produced in partnership with DLA Piper provides comprehensive and up to date legal information covering:

  • Receivables financing—insolvency issues
  • Security
  • Order of distributions
  • Appointment of administrator
  • The financier must be the 'holder' of a 'qualifying floating charge'
  • The financier must give notice to prior-ranking charge holders
  • Avoidance or reversal of pre-insolvency transfers and transactions
  • Avoidance of property dispositions
  • Avoidance of floating charges
  • Preferences
  • More...

Receivables financing—insolvency issues

Every financing facility is predicated on the solvency of the borrower and its ability to discharge its financial obligations under the facility. A receivables financing facility is no different.

Before committing to fund a client’s receivables, the financier should:

  1. evaluate the potential impact of a client incurring financial difficulties

  2. obtain a security package that will maximise the financier’s chance of recovery on the client’s insolvency, and

  3. have a clear exit strategy

This Practice Note explains:

  1. the security that a receivables financier should look to take to protect itself in the event of its client’s insolvency

  2. the statutory ranking of an insolvent client’s creditors

  3. the financier’s ability to appoint an administrator (often the preferred option if a client becomes insolvent)

  4. the potential challenges to a financier’s security by an insolvency practitioner appointed in respect of an insolvent client’s assets, and

  5. the impact of insolvency set-off on a receivables financier

Security

The security sought by a financier in a receivables finance transaction will differ depending on whether the financing is structured as an outright purchase of receivables (eg invoice discounting or factoring) or as a loan secured against receivables. For information on the distinction between these two financing structures, see Practice Note: Distinguishing between lending against the security of receivables and purchasing receivables.

If purchasing receivables, the financier will typically take:

  1. a first ranking fixed charge on what are

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