The Department for Business Innovation & Skills (BIS) published its consultation paper and draft regulations1 in December 2014. The consultation closed on 11 February 2015 and a summary of responses will be provided by BIS no later than May 2015. The purpose of the proposal is to increase the ability of small and medium-sized enterprises (SMEs) to obtain finance by using their receivables. The regulations will achieve this by nullifying any term of a contract that prohibits or imposes a condition or other restriction on the assignment of a receivable.
The current intention is to limit nullification to business to business contracts for the supply of good, services or intangible assets. Financial services contracts are amongst the contracts that are excluded. Also excluded are exclusivity clauses for buyer-led supply chain finance, on the basis that some supply chain finance providers have said that it would be uneconomic to provide supply chain finance without these exclusivity clauses. Furthermore, nullification will not cover clauses where the purpose of the restriction on receivable assignment is to protect confidentiality.
Nullification will apply automatically to contracts agreed after the proposal comes into force. However, it will not apply retrospectively to contracts then in existence.
Nullification will be left to contract law for the parties to the contract to enforce.
Since the proposal has the support of the main political parties, it is not expected to be upset by the forthcoming general election.
The consultation paper explains that removing obstacles to invoice finance for SMEs is an important part of government policy. Anti-assignment clauses are seen as a significant barrier to SMEs raising finance. The hope and expectation is that their nullification will lead to a significant increase in receivables finance for SMEs.
The draft regulations are not drafted as precisely as they might have been and as a result potentially create some uncertainties. It will be interesting to see what issues arise if the draft regulations are brought into force in their current form.