A further step has been made towards a more uniform European capital markets framework as the European Commission published a proposal regarding the law applicable to cross-border transactions in claims on 12 March 2018.
Assignments of claims are used in many ways by market participants to obtain liquidity and to access credit on the financial markets, e.g. by way of factoring, securitising pools of receivables or by using such receivables as underlying collateral for bank debt.
While the existing Rome I Regulation covers part of the conflict of law rules on assignments of claims, the Regulation did not cover the question of the enforceability of the assignment of claims against third parties. As a result, existing conflict of law rules are very diverse as the question is governed by the national conflict of law rules of each Member State. It is not uncommon that different conflict of law regimes refer to each other, resulting in a catch-22 conundrum.
In line with current Belgian conflict of law rules and with previous Commission proposals, the Commission opts for the law of the habitual residence of the assignor to govern the third-party effects of an assignment of claims as the principal rule. Exceptions include cash credited to an account in a credit institution and claims arising from a financial instrument, which would be governed by the law applicable to the assigned claim. In addition, in view of a securitisation parties may also choose the law applicable to the assigned claim instead of the default rule.
The scope of the proposal is broad and extends to ‘traditional’ assignments as well as to assignments for security purposes and to pledges of claims.
The proposal will likely be welcomed by market participants as the increased uniformity of conflicts of law rules will among others lead to more legal certainty and lower costs when performing cross-border transactions.