The impact of new UK regulations on assignment of receivables
The Business Contract (Assignment of Receivables) Regulations 2018 (the Regulations) came into force on 24 November 2018. A key objective of the Regulations is to facilitate easier access to finance for a number of businesses by enabling them to assign receivables (the right to be paid under a contract for goods, services or intangible assets) to a finance provider to raise cash. The UK government has previously estimated that the coming into force of the Regulations will produce a £1 billion long-term boost to the economy.
For a number of companies, receivables are one of the largest assets on their books. Receivable finance can therefore be especially helpful for SME companies, particularly when they are experiencing cash flow difficulties or there is a long time to wait between issuing an invoice and receiving payment.
Under English law, many commercial contracts often include a non-assignment of receivables clause. This prevents a business supplier from being able to transfer and assign its rights created under such commercial contract, thereby making it hard for businesses to raise finance on their receivables. The Regulations essentially nullify such terms in commercial contracts that prohibit or restrict the assignment of receivables, unless such contract is exempt.
The Regulations apply to contacts entered into on or after 31 December 2018 and will only be applicable in England, Wales and Northern Ireland.
The contracts to which the Regulations do not apply include:
- financial services contracts
- contracts relating to land, petroleum licences and project finance
- contracts where one or more of the parties is a consumer (i.e. not acting in the course of business)
- contracts where neither party has entered into the contract in the course of carrying on a business in the UK
- corporate acquisition contracts, being contracts entered into in connection with the acquisition, disposal or transfer of an ownership interest in a firm or of a business or undertaking (provided the relevant corporate acquisition contract must includes a statement to that effect)
- if the assignor (the party owed the receivable) is a large enterprise or a special purpose vehicle holding assets or financing commercial transactions involving it incurring a liability of £10 million or more
Looking forward, the coming into force of the Regulations should result in a reduction in the number of commercial contracts that contain a restriction or a prohibition on the assignment of receivables. However practically, it would still be advisable to explicitly cite the relevant exemption, as set out in the Regulations, which the parties seek to rely on when drafting commercial contracts that do contain such prohibition or restrictions.