Section 1 of the Small Business, Enterprise and Employment Act 2015 allows regulations to be made to invalidate clauses in certain contracts which prevent the assignment of receivables. The Business Contract Terms (Assignment of Receivables) Regulations 2017 have now been laid before Parliament for approval by resolution of each House of Parliament. It is expected that they will come into force in November or December 2017.

The purpose of this note is to discuss the implications of the new law.

What types of contract does it apply to?

This question can be broken down into three issues:

  • the nature of the contract
  • the law governing the contract
  • the time the contract was entered into.

As far as the nature of the contract is concerned, the new law will apply to all contracts except those excluded. The exclusions are:

  • Financial services contracts (Regulations, clause 1(2)(a)). The meaning of “financial services” is set out in clause 1(2) of the Regulations and section 2 of the Act. It means “any service of a financial nature”, and then there is a long inclusive list of specifics.
  • Contracts which concern any interest in land (Regulations, clause 1(2)(b)).
  • Contracts where one or more of the parties is acting for purposes which are outside a trade, business or profession (Regulations, clause 1(2)(c)).
  • Certain energy and petroleum contracts (Regulations, clause 1(2)(f)-(h)).
  • Contracts concerning national security interests (Regulations, clause 1(2)(e)).

Despite the title of the Act, the new law does not only apply to small companies.

Parties will need to consider the precise scope of these exclusions in the light of the types of transactions they see in practice.

The new law applies to contracts which are governed by English law (this is not explicit, but it is implicit in clauses 1(2)(d) and 1(3) of the Regulations). But it does not apply where English law has been chosen by the parties and, apart from that choice, the governing law would be the law of another country (Regulations, clause 1(2)(d)). The dividing line between these two may not be straightforward.

It follows that the new law does not generally apply to contracts governed by foreign laws. But there is an anti-avoidance provision in the Regulations (clause 1(3)), which provides for the prohibition to apply where the parties have chosen a foreign law wholly or mainly for the purpose of evading the operation of the Regulations. So, for instance, it would not be possible to have a contract which was governed by English law generally, but where the prohibition on assignment was governed by, say, Irish law.

Once the law comes into effect, it reads so that it covers all contracts, including those in existence at the time the new law comes into effect. That is not what one would normally expect.

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