If you contract with a supplier of goods or services who is an SME, you may want to re-evaluate the validity of certain contract terms in the light of the recent Business Contract Terms (Assignment of Receivables) Regulations 2018 (the "Regulations"). The Regulations are expected to facilitate SMEs' access to working capital through invoice financing (such as discounting or factoring) and thus reduce the dependency on customers' payment. To achieve such goal, these Regulations will invalidate clauses which, in effect, prohibit or restrict an eligible supplier from assigning their receivables (i.e. the right to payment) under commercial contracts. A key point to note is that the Regulations will not nullify the contract as a whole or the entire invalid clause, but only to the extent the Regulations are applicable to receivables.
Contractual terms entered into (including via novation) on or after 31 December 2018 will be subject to the Regulations, save for the specified exceptions. For example, the Regulations do not apply if the person to whom the receivable is owed is a large enterprise or a special purpose vehicle. Various types of contracts are also excluded, such as contracts relating to financial services, interests in land or sale of shares, etc.
These Regulations may lead to the need for certain changes to the drafting and implementation of relevant commercial contracts:
If you would like to have a further discussion about these Regulations and their impact on supply of goods and services contracts, please contact Brian Farrell.
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