Restriction on contractual prohibitions on assignment of debts

The Business Contract Terms (Assignment of Receivables) Regulations 2018 (the "Regulations") have been introduced by Parliament with the stated objective of facilitating access to finance for businesses by allowing them to assign receivables (essentially, the right to payment) to a finance provider.

The Regulations are now in force and apply to contracts entered into after 31 December 2018. 

The Regulations provide that contractual terms prohibiting or imposing a condition or other restriction on the assignment of a receivable will have no effect.  As such, a term in a contract stating that a contractor cannot assign, or needs the employer's consent to do so, will have no effect to the extent that it applies to receivables.

A restriction includes a term which prevents the person to whom the receivable is assigned from determining the validity or value of the receivable or their ability to enforce the receivable.  So, for example, a confidentiality clause which prevents a contractor from providing information to a finance provider about a debt it is assigning, is enforceable save only for essential information for the assignee to be able to assess the value of the receivable and their ability to enforce it. The confidentiality clause, to the extent that it prevents the assignee from assessing the validity or value of the receivable, or its ability to enforce it, will have no effect.  Commercially sensitive information, such as pricing, would remain protected.

Whilst the Regulations will apply to many business to business contracts, there are numerous exclusions. In particular, the Regulations will not apply if the supplier is a "large enterprise" or a "special purpose vehicle" (both as defined in the Regulations).  Furthermore, there is an extensive list of types of contracts which are not caught by the Regulations, including contracts concerning an interest in land, and contracts for prescribed financial services.

For more information please contact s.wasniowski@ashfords.co.uk.