Secured Transactions Law Reform Project
Considering the need and shape of future reform, ban on assignment clauses.
Receivables financing is a very important source of finance for small businesses. Anything which limits the availability of this type of financing, or which increases its costs, requires examination. Receivables financiers take an assignment or a charge over the receivables they finance.
Some contracts for the supply of goods or services by small businesses include a clause banning assignment of the receivables arising under the contracts: we call these ‘ban on assignment clauses’. If receivables arising from such a contract are the subject of an assignment to a receivables financier, it may be difficult for an assignee to enforce collection of those receivables if the assignor experiences financial difficulties, and the debtor can refuse to pay the financier directly. The concern which arises is whether these difficulties mean that finance of such receivables is refused, or that steps have to be taken which increase the cost of financing.
Statutory controls on the effect of ban on assignment clauses have been introduced in a number of jurisdictions as well as in the 1988 UNIDROIT Convention on International Factoring, the 2001 UN Convention on the Assignment of Receivables in International Trade, the 2007 UNCITRAL Legislative Guide on Secured Transactions and, more recently, have been included in the UNCITRAL draft Model Law on Secured Transactions. The draft regulations in the Law Commission Consultation Paper 176 and Report 296 also included a limited override of such clauses. The project is considering whether a limited override should be introduced into English law, and, if so, what the limits should be.
Detailed arguments for and against a limited override are set out in presentations delivered at a recent seminar for receivables financiers .
It is reasonably clear that outside the context of trade receivables financing, ban on assignment clauses perform a useful and important function, and should not be overridden. The important debate focuses on whether a limited override would improve access to financing for small businesses.
In order to inform this debate, we are very keen to find out the views of anyone who is interested in this area. We have drafted a short survey for those financing against receivables, looking at whether ban on assignment clauses cause problems and increase costs, methods used to overcome difficulties in enforcement and frequency of the use of such clauses.
If you are involved in the receivables financing industry, please take a few moments to fill in the survey and send a scanned copy to [email protected]
Nullification of a ban on invoice assignment clauses was proposed in the form of a power of a Secretary of State to make Regulations in clause 1 of the Small Business, Enterprise and Employment Bill (SMEE Bill). At the beginning of the year BIS conducted consultation on the Bill, which closed in February 2015. The summary of responses along with draft regulations are available here . On 26th March the SMEE Bill ill received royal assent.
The text of the Small Business, Enterprise and Employment Act 2015 can be found here .
On 9 August 2015, the Government responded to its consultation and announced that a ban on anti-assignment clauses would be brought in under the Act early next year . The Asset Based Finance Association and the National Federation for Small Businesses have spoken in support of the move.
As of the 31st December 2018, the Business Contract Terms (Assignment of Receivables) Regulations 2018 will nullify the effect of terms in contracts that impose conditions or restrictions on the assignment of receivables in contracts with SMEs.
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Invoice finance: nullifying the ban on invoice assignment contract clauses
Read the full outcome, government response: nullification of ban on invoice assignment clauses.
Ref: BIS/15/441
PDF , 209 KB , 3 pages
Detail of outcome
We plan to stop bans on invoice assignment clauses in business to business contracts. These powers are granted to us through the Small Business, Employment and Enterprise Act 2015 .
Feedback received
Summary of responses to the nullification of ban on invoice assignment clauses.
PDF , 201 KB , 13 pages
Detail of feedback received
We received 20 responses to the consultation. These mainly came from:
- business representative bodies
- invoice financiers and law practitioners
We also had some responses from large businesses in the retail and construction industry. A full list of respondents is available in Annex A of the summary of responses.
Original consultation
We’re asking for views on our proposals to nullify bans on invoice assignment terms in business to business commercial contracts.
This consultation ran from 9am on 6 December 2014 to 11:45pm on 11 February 2015
Consultation description
Invoice finance allows a business to give the right to future payment to a finance provider in exchange for a loan up to the full value of the invoice. It can provide a vital source of finance if a business has to wait a long time between completing a job and receiving payment.
The ban on invoice assignment is often part of a more general ban on an assignment clause in the contract to stop a supplier from sub-contracting. As a result, a business’ access to invoice finance is often unintentionally restricted.
In December 2013, we published our discussion paper Building a responsible payment culture . This asked whether removing contractual barriers to selling invoices would be helpful to small businesses by increasing their access to different finance options. The majority of respondents agreed that it would be helpful.
We announced in the government response that we would legislate to remove these barriers to financing. Clauses 1 and 2 of the Small Business, Enterprise and Employment Bill provide the broad legislative power to do this.
We propose to introduce a regulation that would nullify any bans on invoice assignment terms in business to business commercial contracts. We want to know your views on our proposals, the draft regulations and the costs and benefits of the measure on both companies and the invoice finance market.
Small Business, Enterprise and Employment Bill: nullification of ban on invoice assignment clauses
Ref: BIS/14/1232
PDF , 240 KB , 19 pages
Draft Statutory Instrument: Business Contract Terms (Restrictions on Assignment of Receivables) Regulations 2015
Ref: BIS/14/1232/AN1
PDF , 181 KB , 2 pages
Measure to nullify ban on assignment clauses in a debtors terms of sale: impact assessment
Ref: BIS/14/1233
PDF , 982 KB , 47 pages
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Updates to this page
Added government response.
A summary of public responses has been added.
Consultation closing date corrected (from 16 to 11 Feb 2015).
First published.
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IMAGES
VIDEO
COMMENTS
2. Introducing the nullification of ban on invoice assignment . Our consultation proposed that nul lifying anti-assignment clauses in contracts would be the most efficient way to implement this measure. The intention of this method was to keep costs to business low; it would prevent debtors from having to retrospectively revise their contracts.
Nullification of a ban on invoice assignment clauses was proposed in the form of a power of a Secretary of State to make Regulations in clause 1 of the Small Business, Enterprise and Employment Bill (SMEE Bill). At the beginning of the year BIS conducted consultation on the Bill, which closed in February 2015.
The ban on invoice assignment is often part of a more general ban on an assignment clause in the contract to stop a supplier from sub-contracting. As a result, a business' access to invoice ...
NULLIFICATION OF BAN ON INVOICE ASSIGNMENT CLAUSES 1 This is a response by the Financial Law Committee of the City of London Law Society to the Consultation Paper issued by the Department for Business Innovation and Skills in December 2014. It is concerned with the proposal to nullify bans on invoice
bans on assignment. In parallel, in December 2014, the Government consulted on its initial proposals (Nullification of Ban on Invoice Assignment Clauses), including draft Regulations. We received 20 responses from a range of respondents including invoice financers, academics, legal practitioners, representative bodies and businesses of all sizes.
marked as a response to the 'Nullification of ban on invoice assignment clauses'. This mail box will be monitored on a daily basis. If further information or clarification is required, we will make contact as appropriate. 3.4 When responding please state whether you are responding as an individual or representing the views of an organisation.
/bis-15-165-nullification-of-ban-on-invoice-assignment-clauses-summary-of-responses.pdf . A summary of the main points raised is given below. ... /BIS-15-441-nullifying-the-ban-on-invoice-assignment-contract-clauses-government-response.pdf . 10.5 The consultation of December 2014 led to responses from trade representative bodies,
invoice financers ranging from large banks to small providers and legal practitioners. The consultation received 20 responses with 60% being supportive of the policy. The responses suggested that nullification of ban on assignment clauses should: • Apply to business to business contracts only (and not to consumer contracts or
Innovation & Skills' Consultation Paper entitled Nullification of Ban on Invoice Assignment Clauses (the "Consultation Paper"). The Committee has seen the response to the Consultation Paper by the CLLS's Financial Law Committee dated 2 February 2015, and agrees with that response. In
The UK Government proposes to make a change to the law so that a clause in an agreement which prohibits the assignment of a receivable will have no effect under English law.