BUSINESS CONTRACT TERMS REGULATIONS RESURRECTED

The draft Business Contract Terms (Assignment of Receivables) Regulations, which appeared to have been scrapped in late 2017, have been resurrected with a revised draft laid before Parliament for approval. The Regulations make ineffective contract terms that prohibit or restrict the assignment of receivables. Their aim is to facilitate businesses raising finance against invoices.

The draft has been revised following concerns raised by the City of London Law Society (CLLS). The main changes are:

  • The Regulations no longer apply if the entity to whom the receivable is owed is a large enterprise or SPV; broadly speaking, large enterprises are enterprises which are not SMEs, sole traders, partnerships or unincorporated associations
  • The Regulations are now stated to only apply to contracts entered into on or after 31 December 2018
  • Financial services contracts (including loans and derivatives), contracts which none of the parties has entered into in the course of carrying on business in the UK, and contracts entered into in connection with the transfer of all or part of a business (including transitional services agreements) and which contain a statement excluding the Regulations, are now among the categories of contract excluded from the scope of the Regulations.

Whilst most of the issues raised by the CLLS have been addressed in the revised draft, there are a few remaining uncertainties. For example, it is still unclear what amounts to an “assignment” under the Regulations, and whether this would extend to, for example, both outright assignments and assignments by way of security.