Factoring Legislation and Regulation. Douala, Cameroon 22nd November 2013

Transcription

1 Factoring Legislation and Regulation Douala, Cameroon 22nd November 2013

2 Definition Legislation o A law or set of laws made by a governing body Regulation o Rules or directives made and maintained by an authority to control or govern conduct and behaviour

3 Factoring Legislation Different legal systems around the world Essentials of factoring expressed in different ways and may or may not be part of law: Transfer of Receivables ( Assignment ) Notice of assignment a requirement? Debtor s duty to pay the factor Rights over existing and future debts Receivables transferred to the factor when they come into existence Rights of set-off by the debtor

4 Factoring Legislation UNIDROIT Convention on International Factoring, Ottawa 1988 Targeted the adoption of rules to provide a legal framework to facilitate international factoring 23 articles over 6 pages Concerns international factoring, but useful guide for developing domestic factoring law

5 Factoring Legislation UNIDROIT Copies in English and French on your USB sticks It lists the 4 functions performed by a factor (a1) It states that notice of assignment of the receivables [must] be given to the debtors Describes the rights and duties of the parties (a5-10) Scope limited to notified factoring only

6 Factoring Legislation UNIDROIT Position paper Assignment of Contractual Rights and Duties (Rome, February 1999) highlights terminology issues A transfer of rights may be achieved by different mechanisms in different legal systems (e.g. in France cession de créance or subrogation ) Differences of interpretation in Civil Law and Common Law

7 Factoring Legislation UNIDROIT (a6) assignment to a factor is effective even if there is a prohibition of assignment agreement between supplier and debtor The above article was the subject of much disagreement between different Countries

8 Factoring Legislation UNIDROIT As at 31/12/90 (closing date) 15 (of 59) countries signed the Convention, including Ghana, Morocco, Nigeria and Tanzania Of those 15, seven countries have ratified the Convention, including Nigeria, therefore Convention came into effect (1995)

9 Factoring Legislation UNCITRAL United Nations Commission on International Trade Law Convention on the Assignment of Receivables in International Trade New York, 2001 Receivables refers to a variety of transactions including factoring, forfaiting, securitisation, etc To date the Convention is not ratified

10 Comparison UNIDROIT & UNCITRAL Reference University of Manchester study Scope of UNCITRAL very wide Overlap is only on notified factoring of receivables arising from sale and service contracts UNCITRAL also discusses the international assignment of domestic receivables (securitisation)

11 Comparison UNIDROIT & UNCITRAL UNIDROIT UNCITRAL Definitions Variation of provisions Debtor s duty to pay assignee (factor) Point of time when notification effective Debtor s right of set-off Only defines factoring contract Not allowed If notice of assignment given by assignor (supplier) Not addressed Allows debtor defences from original sales contract Many, including assignor, assignee, receivables Allowed by agreement of the parties Allows notice given by assignee (factor) useful if assignor goes bankrupt Addressed - receipt by the debtor Allows defences from other closely related contracts

12 IFG Model Factoring Law Prepared by the Legal Committee of the IFG Currently in its second draft stage; May 2013 Ideas and most of the wording is taken from UNCITRAL but scope is narrowed to factoring (but all forms, including reverse factoring and non-notified products) Applies to domestic or international assignments

13 IFG Model Factoring Law Assignment includes future receivables without a new act of transfer Ban of assignment clauses imposed by the debtor do not prevent a factoring transaction BUT Debtor may claim damages from the supplier (not the factor) for breach of contract

14 IFG Model Factoring Law Assignor represents that they have the right to assign the receivable they have not previously assigned the receivable to another assignee If debtor payment is to assignor, the assignee (factor) is entitled to payment of the proceeds

15 IFG Model Factoring Law A registration system (for the assignment) on an internet platform might be useful for emerging markets o The factor can easily ascertain priority of assignment without detailed due diligence The Model Law invites national legislators to adapt its scope and content to their specific legal environment

16 GRIF: the General Rules of International Factoring A set of rules for international factoring The aim is to ensure daily operations are managed consistently and correctly Self-regulation The GRIF can usefully inform development of a national (domestic) law Regulation of factoring and factors a factoring agreement for use between factor and assignor

17 GRIF: the General Rules of International Factoring 8 sections including Assignments Credit Risks Collection of Receivables Representations Transfer of Funds Disputes

18 Regulation Rules or directives made and maintained by an authority to control or govern conduct and behaviour Regulation of factoring varies from country to country For example: France is highly regulated UK is unregulated

19 Regulation Central Bank regulation e.g. France Financial Services authorities e.g. Egypt National factoring associations e.g. ABFA (Asset Based Finance Association), UK

20 Central Bank In France factoring companies are, like banks, credit institutions governed by the Banking Act of 24 January 1984 They must be authorised They are subject to supervision by the National banking regulator Bound by banking regulations Must comply with cover and risk-division ratios

21 Egypt Financial Services Authority A factoring company shall meet the following conditions: It shall be a joint-stock company It shall practice factoring only A financial institution shall be a shareholder Paid capital shall be 10 million EGP The Managing Director shall have 10 years financial or banking or insurance experience

22 Egypt Financial Supervisory Authority To practice factoring the company shall: Notify EFSA of its standards, rules and regulations Keep registries of its details of operations Be a member of an international factoring association (e.g. IFG) if financing cross-border factoring

23 ABFA, UK Self regulatory framework: ABFA code of conduct: 6 key commitments. Members shall 1. abide by the code 2. act with integrity and responsibility 3. provide appropriate information in a timely and transparent manner 4. ensure legal documents are clear and unambiguous 5. Provide effective and timely client services 6. Operate their own complaints procedure

24 ABFA, UK Self regulatory framework: An independent complaints process A professional standards council

25 Regulation Positives Sets minimum standards Controls behaviour Transparency Customer confidence Mitigation of risks Industry reputation Negatives Cost Ties up resources Anti-competition Fewer providers Bureaucracy Too prescriptive

26 * Notes from Kazakhstan Market immaturity and lack of sophistication Legislation allows both Bank or independent. Being bankowned may be advantageous re taxation (Banks exempt from VAT) Independents pay more for refinancing Like Russia, Kazakhstan is regulated by Civil Code but it does not differentiate between n/r and recourse Banking regulations state factors must undertake the risk of debtor not paying (i.e. non/recourse) Yet recourse is the major product (a) work around is Debtor guarantees to pay (b) no credit insurance available (c) early stage of development of market

27 * Notes from Serbia Market started years of growth in unfavourable regulatory environment July 2013: law on factoring adopted Until then there was law on obligations as a framework for assignment of receivables but did not specify how obligations were notified Existence of a specific law will educate the market clear legal environment allows existing factors to invest in educating the market Law now overrules prohibition on assignment clauses in favour of factor Requirement of registration of factoring companies will cut out quasi-factoring (confusing) products

28 * Francophone Factoring Agreement Créancier djlfsjd (subrogeant) Supplier Tiers(3rd party) (subrogataire) FACTOR Créancier (cédant) Supplier Tiers(3rd party) (cessionnaire) FACTOR Debtor (subrogé) Debtor (cédé) Subrogation Loi Dailly

29 * Subrogation SUBROGATION is the substitution of one party in the place of another concerning rights and remedies against a another party. The factor substitutes for the supplier Refer French Civil Code article 1250 A «subrogation» form could be completed at each assignment or a permanent (one original) form is kept Supplier has to put assignment text on all invoices informing debtors Supplier assigns receivables to the factor without any formal process (he only needs to send them by electronic process )

30 * Loi Dailly Supplier has to put an assignment label on all receivables assigned to his factor with specific wording The details of all assigned receivables has to shown on the assignment form sent to the factor. The factor has to indicate the receipt date on the assignment form. Normally the assignment form should be an original one and not a document received by and/or fax The factor also has the obligation to send by registered mail a formal notification of the assignment to debtors.

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32 French Assignment Label Receivables assigned to ABN AMRO Commercial Finance pursuant to articles L to L of Loi Dailly Payments to be made out to ABN AMRO Commercial Finance and sent to : ABN AMRO Commercial Finance 39, rue Anatole France Levallois-Perret cedex Bank : Banque Neuflize OBC (ABN AMRO Group)- 3, avenue Hoche Paris Bank Code : Desk Code : Account n : XXXX RIB Key : XXX IBAN : XXXXXX the French Monetary and Financial Code Subrogation

33 * Anglophone Factoring Agreement TRANSFER OF RECEIVABLES 1. Legal Assignment re. s136 of Property Act 2. Equitable Assignment (does not fully comply with 1) a) Whole turnover : «The client sells and the factor purchases all existing and future debts» b) Facultative arrangement: individual receivables offered for sale to the factor Equitable assignments avoid stamp duty

34 * Anglophone Factoring Agreement Legal Assignment Must be in writing Notice must be given to the debtor Assiognment must be absolute for the whole receivable Factor can sue in his own name for recovery Equitable Assignment Does not have to be in writing Notice does not have to be given to the debtor Assignment can be for part of the receivable Factor should join the client to sue for recoivery

35 * Anglophone Factoring Agreement TYPICAL CLAUSES Client warrants: 1. any receivable is due and owing (delivery has been executed, invoice value correct & the receivable is free from set-off 2. To disclose any material facts concerning the receivable which may affect bad debt protection 3. He will not grant any rights over the receivable to any other third party etc.

36 * Conclusions Factoring is often started in an environment where there is no factoring law Existing legislation may be applied or interpreted but it may lack the fundamentals of factoring: receivables, assignment, the factor s rights, etc Development of a factoring law defines the product, raises the profile and clarifies rights and obligations of the parties Existing models can inform local legislation development Regulation again raises the profile of factoring and seeks to define good practice

37 Any questions?