The City of London Law Society has written to the Department for Business, Energy and Industrial Strategy outlining a number of concerns with the draft Contract Terms (Assignment of Receivables) Regulations 2017.
The draft regulations will invalidate contract terms which prohibit the assignment of receivables. However, CLLS comment that 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”, and suggest that the regulations should not be approved and their terms reconsidered following proper consultation.
CLLS’ concerns about the regulations include:
- The purpose of the regulations was said to be to give SMEs greater access to finance, however they apply to all companies of any size, not just SMEs
- They appear to apply to existing contracts as well as future ones
- It is not clear which types of assignments are covered and which types of prohibitions and restrictions are caught
- The regulations appear to make confidentiality clauses unlawful if they relate to receivables
- The regulations provide that a term in a contract has no effect if it prohibits the assignment of a receivable arising under that contract or any other contract – this would invalidate a negative pledge in a finance document to the extent it restricted the assignment of receivables
The draft regulations have been laid before Parliament for approval.