However, parties are not prevented from restricting other contracts rights. Such clauses will be covered by the regulations when terms prevent the assignee from determining the validity or value of the receivable or their ability to enforce it.
Overall, these legislations will have an important impact for businesses involved in the financing of receivables, by facilitating such process for SMEs.
The Business Contract Terms (Assignment of Receivables) Regulations 2018 (the "Regulations") are now in force.
The Regulations are intended to make it easier for small businesses to access receivables-based finance by making ineffective any prohibitions, conditions and restrictions on the assignment of receivables arising under contracts for the supply of goods, services or intangible assets. The Law Commission advocated legislation to limit the effectiveness of anti-assignment clauses in 2005, however, the proposal failed to gain momentum and lay dormant for more than a decade.
The Effect of the Regulations A term in a contract to which the Regulations apply is ineffective to the extent that it prohibits or imposes a condition or other restriction on the assignment of a receivable arising under that contract or another contract between the same parties.
That does not necessarily mean that the term will be entirely void as a result: contractual prohibitions on assignment often do not distinguish between the right to performance of the contract and the right to be paid amounts arising under it.In 2015, the UK Government enacted the Small Business, Enterprise and Employment Act (SBEEA) by which raising finance on receivables is facilitated.Pursuant to this Act, regulations can be made to invalidate restrictions on the assignment of receivables in certain types of contract.In section 4, are listed exclusions for various contracts such as contracts “for, or entered into in connection with, prescribed financial services”, contracts “where one or more of the parties to the contract is acting for purposes which are outside a trade, business or profession” or contracts “where none of the parties to the contract has entered into it in the course of carrying on a business in the United Kingdom”.Also, specific exclusions relate to contracts in energy, land, share purchase and business purchase.Draft legislation finally appeared in 2017, but was withdrawn following criticism by the Loan Market Association and others.The final form of the Regulations addresses some of the criticisms, but adds complexity in what is already a complex area of the law.Certain types of contract are excluded from the Regulations.For example, the Regulations The Regulations do not apply if the supplier is a "large enterprise" or a "special purpose vehicle" (the "SME Test") at the time of the assignment.The aforementioned regulations, which allow invalidations of such restrictions on the assignment of receivables, are contained in the Business Contract Terms (Assignment of Receivables) Regulations 2018, which will apply to any term in a contract entered into force on or after 31 December 2018.By virtue of its section 2(1) “Subject to regulations 3 and 4, a term in a contract has no effect to the extent that it prohibits or imposes a condition, or other restriction, on the assignment of a receivable arising under that contract or any other contract between the same parties.” Such regulations apply to contracts for the supply of goods, services or intangible assets under which the supplier is entitled to be paid money.