Green light for invoice assignment ban

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Summary: Following a December 2014 consultation, the Government announced in August that regulations will be introduced as soon as possible to prohibit bans on invoice assignment terms in business-to-business commercial contracts.

Following a December 2014 consultation, the Government announced in August that regulations will be introduced as soon as possible to prohibit bans on invoice assignment terms in business-to-business commercial contracts.

Most commercial contracts contain provisions relating to assignment. These frequently reverse the common law position and prevent assignment of the benefit of a contract, usually with the exception of transfers to associated companies. The Government is particularly concerned about the routine ban on invoice assignment, which often forms part of the more general prohibition. The problem this causes is that it can unintentionally restrict small businesses from accessing invoice finance.

In December 2014, the Government launched a consultation (including draft legislation) on its initial proposals to ban invoice assignment. In August 2015, the Government announced the results of the consultation.

Draft Regulations will be introduced as soon as possible to prohibit bars on invoice assignment. Commentators suggest this could be as early as January 2016. Key points to note include:

  • The ban will not apply retrospectively.
  • The ban will only apply to B2B transactions conducted under English law where one of the parties carries on business within the UK.
  • The ban will apply to all businesses, but only to B2B contracts not B2C contracts.
  • The ban will not cover financial services contracts, nor contracts relating to interests in land.
  • No special provisions will apply to supply chain finance arrangements.
  • Debtors will be allowed to take action against suppliers if commercial confidentiality is breached.

Many questions remain as to how the prohibition will work in practice. The publication of the Regulations later this year should provide clarity in this regard.

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