Ban on restricting assignment of receivables

Draft regulations have been published which will nullify contractual clauses which ban the assignment of receivables under a contract for goods, services or intangible assets. This is intended to allow businesses owed money to more easily use their invoices as collateral for loans (also known as invoice discounting).

Non-assignment clauses will only be ineffective in business-to-business contracts. There are exemptions for contracts relating to financial services (e.g. insurance, banking or asset management contracts); which create an interest in land; or a contract where one or more of the parties to the contract is acting for purposes which are outside a trade, business or profession.

The prohibition applies to contracts under the law of England and Wales or Northern Ireland but not Scotland, and does not apply to contracts where the law of England and Wales or Northern Ireland applies by the choice of the parties and, if it were not for the choice of law, the law of Scotland or a country outside the UK would apply. However, a choice of another country's law will not work if the purpose is wholly or mainly to avoid the operation of the regulations.

This was one of the measures introduced in March 2015 in the Small Business, Enterprise and Employment Act 2015 that needs to be activated by a statutory instrument. It is expected the Regulations will come into force by the end of 2017.

Click here for the draft Business Contract Terms (Assignment of Receivables) Regulations 2017.