assignment of receivables ireland

Securitisation Laws and Regulations Ireland 2024

ICLG - Securitisation Laws and Regulations - Ireland Chapter covers common issues in securitisation laws and regulations – including receivables contracts, receivables purchase agreements, asset sales, security issues, insolvency laws, special rules, regulatory issues and taxation.

Chapter Content Free Access

1. receivables contracts, 2. choice of law – receivables contracts, 3. choice of law – receivables purchase agreement, 4. asset sales, 5. security issues, 6. insolvency laws, 7. special rules, 8. regulatory issues, 9. taxation.

1.1        Formalities. In order to create an enforceable debt obligation of the obligor to the seller: (a) is it necessary that the sales of goods or services are evidenced by a formal receivables contract; (b) are invoices alone sufficient; and (c) can a binding contract arise as a result of the behaviour of the parties?

In respect of (a), as a general principle, a debt obligation must be evidenced by a contract, whether that be written, oral or partly written and partly oral.  Accordingly, there is no requirement for a “formal receivables contract” to necessarily be in writing.

There are some exceptions to the general principle, including that consumer credit agreements, contracts that are not to be performed within the space of one year from the making thereof, and contracts for the sale of land must either be in writing or evidenced in writing.

In respect of (b), subject to the exceptions noted above, it is possible for an invoice alone to constitute sufficient evidence of an enforceable debt obligation.

Finally, in respect of (c), subject to the exceptions noted above, it is possible for a contract to be implied based on the conduct of the parties.

1.2        Consumer Protections. Do your jurisdiction’s laws: (a) limit rates of interest on consumer credit, loans or other kinds of receivables; (b) provide a statutory right to interest on late payments; (c) permit consumers to cancel receivables for a specified period of time; or (d) provide other noteworthy rights to consumers with respect to receivables owing by them?

The main areas of regulation that apply to credit in Ireland are:

• the European Communities (Consumer Credit Agreements) Regulations 2010 (as amended) (the “CCR”);
• the Consumer Credit Act, 1995 (as amended) (the “CCA”);
• the Central Bank Act, 1997 (as amended) (the “CBA”); and
• the European Union (Consumer Mortgage Credit Agreements) Regulations 2016 (the “CMR”).

Regarding (a), the CCA and the CCR do not limit rates of interest on consumer credit.  However, the CCA provides that lenders are required to notify the Central Bank of Ireland (the “CBI”) of every proposal to increase any charge that has previously been notified to the CBI, or any proposal to increase any charge in relation to the provision of a service to a customer, that has not been previously notified to the CBI.  The CBI may direct the lender to refrain from imposing or changing a charge.

The EU Credit Servicing Directive was transposed into Irish law by the European Union (Credit Servicers and Credit Purchasers) Regulations 2023 (the “2023 Regulations”).  The 2023 Regulations provide that any charge that a creditor may impose on a consumer arising from the consumer’s default, subject to section 149 of the CCA, and any requirements that may be imposed by the CBI from time to time, shall be no greater than is necessary to compensate the creditor for the costs it has incurred as a result of the default.

In respect of (b), there is no statutory right to interest on late payments in consumer transactions.  Late payment interest is payable on commercial transactions.

The CCA provides for a cooling-off period during which the consumer has a right to withdraw from the agreement without penalty if the consumer gives written notice to this effect to the creditor within a period of 10 days of the date of receipt by the consumer of a copy of the agreement.  In addition, a creditor shall not be entitled to enforce a credit agreement unless the requirements specified in the CCA have been complied with.

Under Regulation 26 of the CMR, a consumer has a right to fully or partially discharge his or her obligations under a credit agreement prior to the expiry of that agreement, and in such cases, shall be entitled to a reduction in the total cost of the credit to the consumer.  A consumer shall be entitled to fair compensation where justified, for possible costs linked to the early repayment.

Other consumer rights include:

• The CCR and CCA provide that where “credit” is being provided, or a “credit agreement” is being entered into with a “consumer”, then certain information must be provided to the consumer and the credit agreement must contain specific information.
• The Consumer Protection Act 2007, as amended, gave effect to the Unfair Commercial Practices Directive and protects consumers against such practices.
• Part 6 of the Consumer Rights Act 2022 (the “CRA”) protects consumers against unfair contract terms.
• The Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 (the “2022 Act”) provides protections in respect of hire purchase and consumer hire agreements.
• The CBI’s Consumer Protection Code (“CPC”) imposes obligations on regulated entities when providing financial services to customers in Ireland, including in relation to the provision of information, post-sale information requirements, records and compliance.  The CBI also has a number of other statutory codes of conduct, including the Code of Conduct on Mortgage Arrears and Code of Conduct for Business Lending to Small and Medium Enterprises.

1.3        Government Receivables. Where the receivables contract has been entered into with the government or a government agency, are there different requirements and laws that apply to the sale or collection of those receivables?

Pursuant to the Prompt Payment of Accounts Act 1997, Irish governmental bodies and agencies are required to pay amounts due for the provision of goods and services by the contractual payment date, or if there is no contractual payment date, within 45 days of receipt of the invoice or the relevant goods and services.

Otherwise, the only different requirements and laws that may apply where the obligor is the government or a government agency would be those that may arise from a claim of sovereign immunity.

2.1        No Law Specified. If the seller and the obligor do not specify a choice of law in their receivables contract, what are the main principles in your jurisdiction that will determine the governing law of the contract?

If a receivables contract that does not specify a choice of law is entered into on or after 17 December 2009, then the provisions of Regulation (EC) No. 593/2008 of 17 June 2008 (“Rome I”) will apply in determining what the governing law of that contract should be.

Depending on the nature of the receivables contract, there are a number of provisions that may apply.  For example, Article 4(1) provides that if the receivables contract is a contract for the sale of goods, then the governing law shall be the law of the country where the seller has their habitual residence.  If it is a contract for the provision of services, then the governing law shall be the law of the country where the service provider has their habitual residence.  There are also specific rules that would apply if the receivables contract were a contract of carriage, a consumer contract, insurance contract, etc.

If the receivables contract does not fall within any of the specific categories mentioned above, then Article 4(2) would apply.  That Article states that the contract shall be governed by the law of the country where the party required to effect the characteristic performance of the contract has their habitual residence.  If the governing law of a contract cannot be determined by applying this test, then it shall be governed by the law of the country with which it is most closely connected.

Notwithstanding the above, if it is clear from all the circumstances of the case that the receivables contract is manifestly more closely connected with a country other than that indicated by applying Article 4(1) and 4(2), then the law of that other country will apply.  In addition, certain matters are excluded from the scope of Rome I, including obligations arising under bills of exchange, cheques and promissory notes and other negotiable instruments to the extent that the obligations under such negotiable instruments arise out of their negotiable character.

Finally, if it is determined that a receivables contract entered into on or after 17 December 2009 falls outside the scope of Rome I, the applicable law will be determined based on Irish common law principles.  In doing so, Irish courts will have regard to the parties’ intentions or, where the parties’ intentions cannot be established, use the “closest connection” test.

2.2        Base Case. If the seller and the obligor are both resident in your jurisdiction, and the transactions giving rise to the receivables and the payment of the receivables take place in your jurisdiction, and the seller and the obligor choose the law of your jurisdiction to govern the receivables contract, is there any reason why a court in your jurisdiction would not give effect to their choice of law?

Irish courts should give effect to the choice of Irish law in these circumstances.

2.3        Freedom to Choose Foreign Law of Non-Resident Seller or Obligor. If the seller is resident in your jurisdiction but the obligor is not, or if the obligor is resident in your jurisdiction but the seller is not, and the seller and the obligor choose the foreign law of the obligor/seller to govern their receivables contract, will a court in your jurisdiction give effect to the choice of foreign law? Are there any limitations to the recognition of foreign law (such as public policy or mandatory principles of law) that would typically apply in commercial relationships such as that between the seller and the obligor under the receivables contract?

Rome I recognises the general freedom of contracting parties to choose the governing law of their contract and accordingly the courts of Ireland would generally give effect to the parties’ choice of a foreign law.  This general freedom is, however, subject to exceptions that may limit the application of the chosen foreign law or result in the application of certain laws of other jurisdictions, such as if it was contrary to public policy or certain overriding mandatory provisions of Irish law.

3.1        Base Case. Does your jurisdiction’s law generally require the sale of receivables to be governed by the same law as the law governing the receivables themselves? If so, does that general rule apply irrespective of which law governs the receivables (i.e., your jurisdiction’s laws or foreign laws)?

No, Irish law does not require the sale of the receivables to be governed by the same law as the receivables themselves.  Under Irish law, parties can choose the governing law of the contract, regardless of the law governing the receivables, and the chosen law (subject to the limitations discussed in the response to question 2.3 above) will govern the relationship between the seller and the purchaser.  It is common for parties to select the law governing the majority of the receivables to govern the sale agreement.

Notwithstanding the governing law of the receivables purchase agreement, certain matters, however, will be determined by the law governing the receivables, such as the assignability of the receivables, the conditions under which the assignment can be invoked against the obligor and the relationship between the purchaser and the obligor.

3.2        Example 1: If (a) the seller and the obligor are located in your jurisdiction, (b) the receivable is governed by the law of your jurisdiction, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of your jurisdiction to govern the receivables purchase agreement, and (e) the sale complies with the requirements of your jurisdiction, will a court in your jurisdiction recognise that sale as being effective against the seller, the obligor and other third parties (such as creditors or insolvency administrators of the seller and the obligor)?

Yes, Irish courts should recognise such a sale as being effective.  However, this is subject to the limitations discussed in the response to question 2.3 above, including the possibility that the Irish courts may apply mandatory rules of the jurisdiction in which the purchaser is located if such rules were to render the performance of any obligations to be performed in that jurisdiction unlawful.  This may also be subject to the mandatory set-aside provisions outlined in question 6.3 below.

3.3        Example 2: Assuming that the facts are the same as Example 1, but either the obligor or the purchaser or both are located outside your jurisdiction, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller), or must the foreign law requirements of the obligor’s country or the purchaser’s country (or both) be taken into account?

Yes, Irish courts should recognise such a sale as being effective against the seller.  However, this is subject to the limitations discussed in the response to question 2.3 above, including the possibility that the Irish courts may apply mandatory rules of the jurisdiction in which the obligor or purchaser is located if such rules were to render the performance of any obligations to be performed in that jurisdiction unlawful.  This may also be subject to the mandatory set-aside provisions outlined in question 6.3 below.

3.4        Example 3: If (a) the seller is located in your jurisdiction but the obligor is located in another country, (b) the receivable is governed by the law of the obligor’s country, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of the obligor’s country to govern the receivables purchase agreement, and (e) the sale complies with the requirements of the obligor’s country, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller) without the need to comply with your jurisdiction’s own sale requirements?

Yes, the Irish courts should generally recognise such a sale as being effective against the seller.  The Irish courts should recognise and apply the law chosen by the parties to govern the receivables purchase agreement to determine the relationship between the seller and the purchaser (subject to the exceptions detailed in the response to question 2.3 above, including the mandatory rules of Ireland that cannot be disapplied by the parties’ choice of law).  Furthermore, questions concerning the perfection of the sale of the receivables should be determined by the Irish courts by applying the law governing the receivables.  This may also be subject to the mandatory set-aside provisions outlined in question 6.3 below.

3.5        Example 4: If (a) the obligor is located in your jurisdiction but the seller is located in another country, (b) the receivable is governed by the law of the seller’s country, (c) the seller and the purchaser choose the law of the seller’s country to govern the receivables purchase agreement, and (d) the sale complies with the requirements of the seller’s country, will a court in your jurisdiction recognise that sale as being effective against the obligor and other third parties (such as creditors or insolvency administrators of the obligor) without the need to comply with your jurisdiction’s own sale requirements?

Yes, Irish courts should recognise such a sale as being effective against the obligor.  Questions concerning the perfection of the sale of the receivables and the relationship between the purchaser and the obligor should be determined by the Irish courts by applying the law governing the receivables.  This is subject to the exceptions detailed in the response to question 2.3 above, including the potential application of mandatory provisions of Irish law to the extent that they are relevant to the performance by the obligor of its obligations.

3.6        Example 5: If (a) the seller is located in your jurisdiction (irrespective of the obligor’s location), (b) the receivable is governed by the law of your jurisdiction, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of the purchaser’s country to govern the receivables purchase agreement, and (e) the sale complies with the requirements of the purchaser’s country, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller, any obligor located in your jurisdiction and any third party creditor or insolvency administrator of any such obligor)?

Whether the Irish courts would recognise such a sale as being effective against the seller and an obligor located in Ireland would depend upon whether the sale complies with the perfection requirements of Irish law as the governing law of the receivable.  This is subject to the exceptions detailed in the response to question 2.3 above, including the potential application of mandatory provisions of Irish law to the extent that they are relevant to the performance by the seller or the obligor of their obligations.  This may also be subject to the mandatory set-aside provisions outlined in question 6.3 below.

4.1        Sale Methods Generally. In your jurisdiction what are the customary methods for a seller to sell receivables to a purchaser? What is the customary terminology – is it called a sale, transfer, assignment or something else?

In Ireland, the customary way of selling receivables is by assignment, which can either be an equitable or legal assignment.  An assignment transfers the seller’s rights in respect of the receivables (but not the seller’s obligations).

Other less common methods include novation (where, unlike an assignment, both the rights and obligations of the seller are transferred) or creating a trust over the receivables.  A sub-participation may be used to transfer the economic risk of the receivables.

The outright sale of receivables may be described as a “sale”, a “true sale”, a “transfer” or an “assignment”.  A true sale refers to a sale that is not subject to recharacterisation as a secured loan.  The term “assignment” can be used to indicate a transfer of rights but not obligations while the term “transfer” generally refers to a transfer of both rights and obligations.  An assignment by way of security (rather than an outright assignment) can be described as a “security assignment”.

4.2        Perfection Generally. What formalities are required generally for perfecting a sale of receivables? Are there any additional or other formalities required for the sale of receivables to be perfected against any subsequent good faith purchasers for value of the same receivables from the seller?

A sale of receivables by way of assignment can become a “perfected” legal assignment if:

• the assignment must be an absolute assignment (and not merely by way of charge);
• the assignment must be in writing under the hand of the assignor/seller;
• express notice in writing of the assignment must be given to the underlying obligor;
• the assignment is of the entire receivable (not part only); and
• the assignment is of a present receivable (and not a future receivable).

If these criteria are not met, the assignment will likely constitute an equitable assignment.  In that case, a subsequent assignment may take priority where it is notified to the obligor prior to the date of notification of the original assignment unless the subsequent purchaser knew of the original assignment.  

A sale that is to be effected by way of novation requires the consent of the obligor, in addition to the seller and the purchaser.

4.3        Perfection for Promissory Notes, etc. What additional or different requirements for sale and perfection apply to sales of promissory notes, mortgage loans, consumer loans or marketable debt securities?

Transfers of promissory notes and other negotiable instruments are perfected by way of delivery or delivery and endorsement.

Mortgage loans and their related mortgages are generally transferred by way of assignment.  In addition to giving notice to the underlying borrower, in order to effect a full legal assignment of the mortgage over real property, a transfer must be registered with the Land Registry (if the land is registered) or Registry of Deeds (if the land is unregistered).  In the event the mortgage was granted by an Irish company, the assignee may also need to make certain filings with the Irish Companies Registration Office (the “CRO”) to reflect the transfer.

Under the CCR a consumer should be provided with notice of the assignment of their loan except where the original lender, by agreement with the assignee, will continue to service the loan.  Pursuant to the CPC, a regulated entity (which includes a credit servicing firm) must (among other things) provide two months’ notice to affected consumers of their loans being transferred.

The requirements for transfers of marketable debt securities will depend on the form of the securities and how they are held:

• if in bearer form, they can be transferred by delivery;
• if in registered form, they can be transferred by completing an instrument of transfer and registration of the transferee in the relevant register; and
• if immobilised or dematerialised and held in a clearing system, they can be transferred by debiting the account of the seller and crediting the account of the purchaser.

4.4        Obligor Notification or Consent. Must the seller or the purchaser notify obligors of the sale of receivables in order for the sale to be effective against the obligors and/or creditors of the seller? Must the seller or the purchaser obtain the obligors’ consent to the sale of receivables in order for the sale to be an effective sale against the obligors? Whether or not notice is required to perfect a sale, are there any benefits to giving notice – such as cutting off obligor set-off rights and other obligor defences?

There is no requirement for the seller or purchaser to notify the obligors to effect a valid equitable sale.  The consent of the obligor is not necessary unless it is an express contractual requirement.

However, failure to notify the obligors will mean that the assignment of the receivables will take effect only as an equitable assignment, not a legal assignment.  There are a number of disadvantages to this, including:

• an obligor can discharge its obligations by making payment to the seller (such that the purchaser must rely on the seller to pass on the payment to it);
• an obligor can exercise any rights of set-off it has against the seller against the purchaser, even if such rights arise after the date of the assignment;
• the purchaser may not sue for the debt in its own name, but must instead join the seller as co-plaintiff in the action; and
• a subsequent purchaser without notice of the original assignment may gain priority over the original purchaser.

See question 4.2 above on further criteria for perfecting a sale by way of assignment.

4.5        Notice Mechanics. If notice is to be delivered to obligors, whether at the time of sale or later, are there any requirements regarding the form the notice must take or how it must be delivered? Is there any time limit beyond which notice is ineffective – for example, can a notice of sale be delivered after the sale, and can notice be delivered after insolvency proceedings have commenced against the obligor or the seller? Does the notice apply only to specific receivables or can it apply to any and all (including future) receivables? Are there any other limitations or considerations?

Save as mentioned below in the case of assignments of consumer loans, there is no particular form that the notice must take, other than that it should be in writing.  Notice can be given at any time by either the seller or the purchaser.

Notice can be delivered after insolvency proceedings are commenced against the obligor or the seller.

The assignment of future receivables is not uncommon in Ireland.  However, such assignment takes effect as an equitable assignment (not a legal assignment), as the debt does not exist when the assignment is entered into.  This does not prevent the assignment being converted in due course to a legal assignment (by serving a notice of assignment in respect of such future receivables).

As an exception to the general principle set out above, notices given in respect of consumer loans must adhere to requirements set out in the CPC and any other CBI requirements from time to time.

4.6        Restrictions on Assignment – General Interpretation. Will a restriction in a receivables contract to the effect that “None of the [seller’s] rights or obligations under this Agreement may be transferred or assigned without the consent of the [obligor]” be interpreted as prohibiting a transfer of receivables by the seller to the purchaser? Is the result the same if the restriction says “This Agreement may not be transferred or assigned by the [seller] without the consent of the [obligor]” (i.e., the restriction does not refer to rights or obligations)? Is the result the same if the restriction says “The obligations of the [seller] under this Agreement may not be transferred or assigned by the [seller] without the consent of the [obligor]” (i.e., the restriction does not refer to rights)?

The first and second formulations would likely be viewed by the Irish courts as prohibiting a transfer of receivables by the seller to the purchaser without the consent of the obligors.  The third formulation would likely be viewed as prohibiting a transfer of obligations only (i.e. the seller would be free to transfer its rights).

The general position under Irish law is that rights arising under the contract should be freely assignable, unless expressly prohibited by the terms of the contract.  Accordingly, if a contract is silent as to the assignment of rights, then such rights will typically be held to be freely assignable. 

4.7        Restrictions on Assignment; Liability to Obligor. If any of the restrictions in question 4.6 are binding, or if the receivables contract explicitly prohibits an assignment of receivables or “seller’s rights” under the receivables contract, are such restrictions generally enforceable in your jurisdiction? Are there exceptions to this rule (e.g., for contracts between commercial entities)? If your jurisdiction recognises restrictions on sale or assignment of receivables and the seller nevertheless sells receivables to the purchaser, will either the seller or the purchaser be liable to the obligor for breach of contract or tort, or on any other basis?

Such restrictions on the assignment and transfer of receivables are generally enforceable in Ireland.

An assignment effected in breach of a contractual provision prohibiting assignment should remain effective between the seller and the purchaser, notwithstanding that it may be ineffective between the obligor, the seller and the purchaser.  Additionally, any purported assignment by a seller in breach of a restriction on assignment would potentially expose the seller to an action for breach of contract by the obligor, though it would need to establish a resulting loss.

4.8        Identification. Must the sale document specifically identify each of the receivables to be sold? If so, what specific information is required (e.g., obligor name, invoice number, invoice date, payment date, etc.)? Do the receivables being sold have to share objective characteristics? Alternatively, if the seller sells all of its receivables to the purchaser, is this sufficient identification of receivables? Finally, if the seller sells all of its receivables other than receivables owing by one or more specifically identified obligors, is this sufficient identification of receivables?

In respect of the first question, the sale document must describe the receivables in terms specific enough to identify and distinguish them from the seller’s other assets but there are no formal requirements regarding what constitutes adequate specificity and this will depend on the individual circumstances and the similarity between receivables being sold and retained by the seller.

In respect of the second, fourth and fifth questions, unique identifiers of the receivables such as the invoice numbers, invoice dates and payment dates may be helpful in establishing the necessary specificity.  Equally, a general reference to all receivables (or to all receivables other than receivables owing by one or more specifically identified obligors) may also be sufficiently clear.  While the inclusion of an obligor name may be helpful in establishing the identity of the receivable, confidentiality and data protection considerations typically weigh against their inclusion.

Finally, as regards the third question, there is no requirement for the receivables to share objective characteristics, although ordinarily this will be the case anyway.

4.9        Recharacterisation Risk. If the parties describe their transaction in the relevant documents as an outright sale and explicitly state their intention that it be treated as an outright sale, will this description and statement of intent automatically be respected or is there a risk that the transaction could be characterised by a court as a loan with (or without) security? If recharacterisation risk exists, what characteristics of the transaction might prevent the transfer from being treated as an outright sale? Among other things, to what extent may the seller retain any of the following without jeopardising treatment as an outright sale: (a) credit risk; (b) interest rate risk; (c) control of collections of receivables; (d) a right of repurchase/redemption; (e) a right to the residual profits within the purchaser; or (f) any other term?

The Irish courts would generally respect the description and statement of intent by the parties that a transaction is treated as an outright sale.

However, there is a risk that, in some circumstances, an Irish court would recharacterise a transaction as a secured loan rather than a true sale notwithstanding that the parties may have explicitly stated their intention that it be treated as an outright sale.

In this regard, the Irish courts (in the Re: Eteams (International) Limited (in voluntary liquidation) case) have broadly endorsed the factors identified by the English courts (in, for example, Re: George Inglefield and Welsh Development Agency ) as being relevant to determining whether a transaction should be characterised as a true sale rather than a secured loan.

These include assessing whether: (i) the transaction is a sham (not reflecting the parties’ true intentions); (ii) the seller is entitled to get back the purchased property by returning the money that has passed; (iii) the purchaser has to account to the seller for any profit realised in selling the purchased property; and (iv) if the purchased property were sold at a price insufficient to recoup the purchase price, the purchaser would be entitled to recover the balance from the seller.

In respect of the characteristics (a)–(e) listed in the question, a general right to repurchase (other than for asset ineligibility) or rights to participate in the profits of the purchasers or the assets may in particular jeopardise treatment as an outright sale.  That said, the Irish courts will consider the transaction in its totality, and the presence of one of these characteristics may not be necessarily inconsistent with a transaction being characterised as a sale.

4.10      Continuous Sales of Receivables. Can the seller agree in an enforceable manner to continuous sales of receivables (i.e., sales of receivables as and when they arise)? Would such an agreement survive and continue to transfer receivables to the purchaser following the seller’s insolvency?

Yes; however, as this presumably amounts to the sale of future debts, it would take effect as an equitable assignment rather than a legal assignment and the receivables will be automatically assigned after coming into existence.  As discussed in the response to question 4.5 above, this does not prevent the assignment being converted to a legal assignment in due course (by service of a notice of assignment in connection with such receivables).  The effect of the seller’s insolvency on such an agreement is considered in question 6.5 below.

4.11      Future Receivables. Can the seller commit in an enforceable manner to sell receivables to the purchaser that come into existence after the date of the receivables purchase agreement (e.g., “future flow” securitisation)? If so, how must the sale of future receivables be structured to be valid and enforceable? Is there a distinction between future receivables that arise prior to versus after the seller’s insolvency?

Yes.  See question 4.10 above.

4.12      Related Security. Must any additional formalities be fulfilled in order for the related security to be transferred concurrently with the sale of receivables? If not all related security can be enforceably transferred, what methods are customarily adopted to provide the purchaser the benefits of such related security?

Security for a receivable is generally transferable in the same manner as the receivable itself.  The additional formalities will depend to a large degree on: (i) whether the obligor/security grantor is a natural or legal person; (ii) the type of security granted; and (iii) the nature of assets secured.

For example, if a legal mortgage was granted in respect of real property, a transfer of that mortgage must be registered with the Land Registry (if the land is registered) or Registry of Deeds (if the land is unregistered).  If a security interest was granted by an Irish company over certain assets, a filing should be made in the CRO by the assignee of the security interest to reflect the transfer.

4.13      Set-Off; Liability to Obligor. Assuming that a receivables contract does not contain a provision whereby the obligor waives its right to set-off against amounts it owes to the seller, do the obligor’s set-off rights terminate upon its receipt of notice of a sale? At any other time? If a receivables contract does not waive set-off but the obligor’s set-off rights are terminated due to notice or some other action, will either the seller or the purchaser be liable to the obligor for damages caused by such termination?

Prior to the receipt of such notice, the obligor may exercise any set-off rights it might have against the purchaser, even where the amounts owed arose after the sale.

Notice of the sale will not terminate this right but will generally prevent the obligor from exercising a right of set-off in respect of any amounts that arise after it receives notice of the sale.

In the absence of a breach of any provision to the contrary, it is unlikely that either the seller or the purchaser would be liable to the obligor for damages as a result of an obligor’s rights of set-off terminating by operation of law.

By way of exception to this general position, in respect of consumer loans, the CCA provides that where the creditor’s or owner’s rights under an agreement are assigned to a third person, a consumer is entitled to plead against that third person any defence that was available to him against the original creditor, including set-off.

4.14      Profit Extraction. What methods are typically used in your jurisdiction to extract residual profits from the purchaser?

A range of methods can be used in Ireland to extract residual profit from the purchaser and include:

• including a subordinated or equity tranche of funding that is entitled to a profit participating level of return; 
• fees being paid to the seller in respect of its appointment as a service provider to the purchaser; and
• providing for deferred consideration to be payable to the seller in respect of the receivables sold.

5.1        Back-up Security. Is it customary in your jurisdiction to take a “back-up” security interest over the seller’s ownership interest in the receivables and the related security, in the event that an outright sale is deemed by a court (for whatever reason) not to have occurred and have been perfected (see question 4.9 above)?

No, where the parties’ intention is for an outright sale of the receivables, it is not customary to take a back-up security.  However, the seller may create a trust over the receivables to provide additional protection should the sale of receivables be held to be invalid or if the sale is subsequently recharacterised.

5.2        Seller Security. If it is customary to take back-up security, what are the formalities for the seller granting a security interest in receivables and related security under the laws of your jurisdiction, and for such security interest to be perfected?

See question 5.1 above.

5.3        Purchaser Security. If the purchaser grants security over all of its assets (including purchased receivables) in favour of the providers of its funding, what formalities must the purchaser comply with in your jurisdiction to grant and perfect a security interest in purchased receivables governed by the laws of your jurisdiction and the related security?

The formalities will depend to a large degree on: (i) the type of security granted; and (ii) the nature of assets secured.

In Ireland, security over receivables is typically taken in the form of either a mortgage (effected by way of a legal or equitable assignment) or a charge.

A mortgage involves transferring the title of an asset by way of security for the discharge of the secured obligations.  Where the mortgage is created by assignment, the perfection formalities set out in question 4.2 above must be complied with (such as service of notice).

A charge is the creation of an encumbrance of assets (not a transfer of title by way of security).  There are no particular perfection formalities required to grant and perfect a charge, other than certain registrations mentioned below.

In particular, if an Irish company creates security over certain types of assets (whether by way of mortgage or charge), that security must be registered within 21 days of its creation with the Irish Registrar of Companies.  Failure to do so will result in the security interest being void against the liquidator and any creditors of the company (although an unregistered charge will still be valid as against the company, provided the company is not in liquidation).

Security created over certain categories of assets is not registrable pursuant to the Companies Act 2014 (such as cash, money credited to an account of a financial institution, shares, bonds or debt instruments, etc.).  Furthermore, registration requirements may be disapplied in respect of security arrangements that qualify as financial collateral arrangements within the scope of the EU Financial Collateral Directive (as implemented in Ireland by European Communities (Financial Collateral Arrangements) Regulations 2010 (“FCR”)).

The priority of registerable charges is determined by the date/time of receipt by the Registrar of Companies of particulars of a filed charge.

Finally, Section 1001 of the Irish Taxes Consolidation Act 1997 provides that a chargee who holds a fixed charge over book debts may be liable to the Irish Revenue Commissioners (“the Revenue”) for the VAT and PAYE debts of the chargor company.  This liability can be reduced if the chargee has notified the Revenue within 21 days of the creation of the fixed charge.

5.4        Recognition. If the purchaser grants a security interest in receivables governed by the laws of your jurisdiction, and that security interest is valid and perfected under the laws of the purchaser’s jurisdiction, will the security be treated as valid and perfected in your jurisdiction or must additional steps be taken in your jurisdiction?

The perfection requirements will be governed by the law governing the receivables itself rather than the requirements of the purchaser’s jurisdiction.  Accordingly, even if the purchaser is located in a jurisdiction other than Ireland, the security would also need to be valid and perfected under the laws of Ireland to be given effect by the Irish courts.

To the extent that the purchaser is not an Irish company, the security will not be subject to the registration requirements discussed above.  Such requirements will, however, apply if the purchaser is an Irish company, regardless of whether or not the receivables are governed by the laws of Ireland or located in Ireland.

5.5        Additional Formalities. What additional or different requirements apply to security interests in or connected to insurance policies, promissory notes, mortgage loans, consumer loans or marketable debt securities?

Security over insurance policies is generally granted by way of mortgage where the policyholder assigns the benefits of its rights by way of security.  Security over mortgage loans and consumer loans is generally granted by way of mortgage or charge (see further question 5.3 above).  In the case of a mortgage securing a mortgage loan, security is generally taken by way of an equitable mortgage.

In the case of marketable debt securities, the type of security granted will depend on the form of the securities and how they are held:

• if directly in bearer form, security is typically granted by way of pledge or mortgage (by the delivery of the relevant securities) or by way of charge;
• if directly in registered form, security will typically be granted by way of legal mortgage (whereby the mortgagee is entered on the register as the holder of the securities) or by way of equitable mortgage or charge; or
• if immobilised or dematerialised and held in a clearing system, security may be created by legal mortgage (by transferring the securities to an account of the mortgagee or its nominee) or by an equitable mortgage or charge whereby the operator of the grantor’s account agrees to act in accordance with the instructions of the chargee.

The registration requirements under the Companies Act 2014 (see the response to question 5.3 above) do not apply to security created over shares, bonds and debt instruments.

5.6        Trusts. Does your jurisdiction recognise trusts? If not, is there a mechanism whereby collections received by the seller in respect of sold receivables can be held or be deemed to be held separate and apart from the seller’s own assets (so that they are not part of the seller’s insolvency estate) until turned over to the purchaser?

Ireland recognises trusts.  A trust over collections should be recognised under Irish law provided the trust has been validly constituted.

5.7        Bank Accounts. Does your jurisdiction recognise escrow accounts? Can security be taken over a bank account located in your jurisdiction? If so, what is the typical method? Would courts in your jurisdiction recognise a foreign law grant of security taken over a bank account located in your jurisdiction?

Ireland recognises the concept of money held in escrow in a bank account.

Security can be taken over a bank account located in Ireland and is typically taken by way of a charge (fixed or floating) or a mortgage (effected by way of an assignment).  If the person entitled to the security is also the bank where the bank account is held, then a charge rather than an assignment must be used.

Security granted under a foreign law over an Irish bank account must also be valid under the laws of Ireland, in addition to the foreign law.

5.8        Enforcement over Bank Accounts. If security over a bank account is possible and the secured party enforces that security, does the secured party control all cash flowing into the bank account from enforcement forward until the secured party is repaid in full, or are there limitations? If there are limitations, what are they?

The extent of the secured party’s control rights over an account and cash flowing into an account post-enforcement will depend on a number of factors, including the terms of the security document, the nature of the security granted, the priority of the security interest and any competing interests to money paid into the account.

Typically, where security is being granted over an account, the bank where the account is held will be given notice of the security and will be requested to agree that if the security becomes enforceable, it will act in accordance with instructions given by the secured party.

5.9        Use of Cash Bank Accounts. If security over a bank account is possible, can the owner of the account have access to the funds in the account prior to enforcement without affecting the security?

This is possible, depending on the terms of the security granted over the account.

If the owner retains access to the funds, any charge granted over the account is likely to be characterised as a floating charge even if it is expressed to be a fixed charge.  See question 5.3 above for the potential disadvantages associated of such a characterisation.  Furthermore, the retention of control rights by the owner may prevent the security from qualifying as a financial collateral arrangement under the FCR.

6.1        Stay of Action. If, after a sale of receivables that is otherwise perfected, the seller becomes subject to an insolvency proceeding, will your jurisdiction’s insolvency laws automatically prohibit the purchaser from collecting, transferring or otherwise exercising ownership rights over the purchased receivables (a “stay of action”)? If so, what generally is the length of that stay of action? Does the insolvency official have the ability to stay collection and enforcement actions until he determines that the sale is perfected? Would the answer be different if the purchaser is deemed to only be a secured party rather than the owner of the receivables?

The commencement of insolvency proceedings such as liquidation or other corporate rescue proceedings (such as examinership or the small company administrative rescue process) will generally give rise to an automatic stay of action against the insolvent company.  In the case of a liquidation, no actions may be proceeded with or commenced against the company except with the leave of the courts.  In respect of the appointment of an examiner, for a period of up to 100 days from their appointment, no proceedings for the winding-up of the company may be commenced and no action may be taken to realise or enforce any security granted by the company, without the consent of the examiner.  No other proceedings in relation to the company may be commenced except by leave of the court.  Finally, it is worth noting that, where the seller is a regulated entity, there may be additional proceedings that could apply (such as bank resolution mechanisms), which may also impose stays of action.

In the case of a perfected sale of the receivables made by legal assignment, the appointment of an insolvency official to the seller should not affect the ability of the purchaser to enforce its rights under the receivables or to collect the income.  If, however, the sale has been effected by way of an equitable assignment and notice has not been delivered to the obligor, the obligor may continue to make payments to the seller.  If the seller has not agreed to hold such amounts on trust for the purchaser, the purchaser will likely be an unsecured creditor of the seller for such amounts and actions for their recovery may be impeded.

Furthermore, if the seller acts as a servicer of the receivables, actions to enforce its servicing obligations may be restricted following the commencement of insolvency proceedings.

If the purchaser is deemed to be a secured party rather than the owner of the receivables, its enforcement rights against the seller may be restricted in the manner described above.

6.2        Insolvency Official’s Powers. If there is no stay of action, under what circumstances, if any, does the insolvency official have the power to prohibit the purchaser’s exercise of its ownership rights over the receivables (by means of injunction, stay order or other action)?

If receivables have been sold by way of a perfected legal assignment and the sale does not constitute an unfair preference or an improper transfer of assets (see question 6.3 below), the insolvency official should not have the power to prohibit the exercise by the purchaser of its ownership rights.

6.3        Suspect Period (Clawback). Under what facts or circumstances could the insolvency official rescind or reverse transactions that took place during a “suspect” or “preference” period before the commencement of the seller’s insolvency proceedings? What are the lengths of the “suspect” or “preference” periods in your jurisdiction for (a) transactions between unrelated parties, and (b) transactions between related parties? If the purchaser is majority-owned or controlled by the seller or an affiliate of the seller, does that render sales by the seller to the purchaser “related party transactions” for purposes of determining the length of the suspect period? If a parent company of the seller guarantee’s the performance by the seller of its obligations under contracts with the purchaser, does that render sales by the seller to the purchaser “related party transactions” for purposes of determining the length of the suspect period?

The principal grounds on which an insolvency official may rescind or reverse transactions following the commencement of insolvency proceedings include:

• unfair preference: certain acts relating to property done by or against a company that is unable to pay its debts as they fall due, in favour of a creditor with the intention of giving any creditor (or any guarantor for the debt due to the creditor) a preference over other creditors (which shall be assumed in the case of a connected person) may be invalid if a winding-up of the company commences within six months of the act (or two years if the beneficiary is a connected person), and the company is unable to pay its debts when the winding-up commences;
• improper transfer: if it deems it just and equitable to do so, where it is shown that any property of a company that is being wound up has been disposed of by any means, and the effect of such disposal was to perpetrate a fraud on the company, its creditors or its shareholders, the Irish High Court has the power to order that the property (or the proceeds of the property) be delivered to the liquidator of the company; and
• invalidity of floating charges: a floating charge created within 12 months of the commencement of winding-up proceedings of a company (extended to two years for charges in favour of connected persons), shall be invalid (except to the extent of money actually advanced or paid, or the price or value of goods supplied or delivered, to the company) unless it can be shown that the company was solvent immediately following the creation of the charge.

The periods during which transactions can be set aside as constituting an unfair preference or for which a floating charge may be declared invalid are extended in the case of dealings with connected persons of an insolvent company.  If the purchaser is majority owned or controlled by the seller or an affiliate of the seller, the purchaser would be regarded as a “connected person” of the seller.

If the parent company of the seller guarantees the seller’s obligations, the guarantee would not, in the absence of other factors, cause the seller and purchaser to be regarded as connected persons.

6.4        Substantive Consolidation. Under what facts or circumstances, if any, could the insolvency official consolidate the assets and liabilities of the purchaser with those of the seller or its affiliates in the insolvency proceeding? If the purchaser is owned by the seller or by an affiliate of the seller, does that affect the consolidation analysis?

As a general principle, in the event of insolvency proceedings being commenced in respect of a company, there will be no consolidation of its assets and liabilities with those of any other company or person.  There are, however, exceptions to this general principle.

The Irish High Court may make a contribution order directing a related company to make a contribution to the assets and liabilities of a company being wound up.  Where two or more related companies are being wound up, the Irish High Court can also make a pooling order directing that they should be wound up together as if they were one company. 

Contribution and pooling orders will only be made where it is just and equitable to do so and regard must be had to a range of factors, such as the extent to which the businesses of the companies were intermingled.

In addition to making contribution and pooling orders, an Irish court may in other circumstances disregard the separate legal personality of a company, such as in the event of fraud, where a company is being used to evade an existing legal obligation or where an agency or nominee relationship is found to exist.

As per the grounds detailed above, the risk of a purchaser and seller being consolidated increases to the extent that the purchaser is owned by or affiliated with the seller, but this relationship is not in and of itself a sufficient basis for consolidation to occur.

6.5        Effect of Insolvency on Receivables Sales. If insolvency proceedings are commenced against the seller in your jurisdiction, what effect do those proceedings have on (a) sales of receivables that would otherwise occur after the commencement of such proceedings, or (b) on sales of receivables that only come into existence after the commencement of such proceedings?

Assuming that the agreement to sell the present and future receivables has been entered into prior to the commencement of terminal insolvency proceedings, then in both cases the effect of the commencement of such proceedings will depend upon whether further action is required to be taken by the seller to give effect to the sale of the receivables (and subject to the matters discussed in questions 6.1 and 6.3 above).

If no further action is required of the seller to transfer the receivables, the commencement of the proceedings should not have any effect on the transfer.  However, the insolvency official may seek to terminate the sale agreement based on its contractual terms.  Depending on its terms, it may be possible for the insolvency official to apply to the Irish High Court for leave to disclaim the sale agreement as an unprofitable contract.

If, however, further action is required by the seller to complete the transfer of the receivables to the purchaser, the insolvency official may be unable or may decline to take such action (depending on the terms of the agreement).  In that case, the purchaser’s remedy will likely be limited to an unsecured claim in any insolvency proceedings.

6.6        Effect of Limited Recourse Provisions. If a debtor’s contract contains a limited recourse provision (see question 7.4 below), can the debtor nevertheless be declared insolvent on the grounds that it cannot pay its debts as they become due?

Limited recourse provisions are generally considered to be enforceable under Irish law.  It should not be possible for a debtor to be declared insolvent on the basis of debts arising under an agreement that includes appropriately drafted limited recourse provisions.

7.1        Securitisation Law. Is there a special securitisation law (and/or special provisions in other laws) in your jurisdiction establishing a legal framework for securitisation transactions? If so, what are the basics? Is there a regulatory authority responsible for regulating securitisation transactions in your jurisdiction? Does your jurisdiction define what type of transaction constitutes a securitisation?

The principal dedicated legislative framework governing securitisations in Ireland consists of: (i) the EU’s securitisation regime; and (ii) the Irish tax regime.

The EU’s securitisation regime is comprised of Regulation (EU) 2017/2402, as amended (the “EU Securitisation Regulation”) and related regulatory and implementing technical standards and official guidance.  This regime is supplemented by the European Union (General Framework for Securitisation and Specific Framework for Simple, Transparent and Standardised Securitisation) Regulations 2018 (the “Irish Securitisation Regulations”).

This legislative framework only applies to “securitisations” as defined in the EU Securitisation Regulation.  Transactions not within this scope are not subject to a dedicated legislative regime but are subject to other provisions of Irish law that are discussed throughout this chapter.  Furthermore, to the extent a securitisation concerns a regulated asset type, such as Irish mortgage loans, additional regulatory requirements may apply to the transaction participants.

The EU Securitisation Regulation includes rules on matters such as investor due diligence, risk retention requirements, transparency requirements and credit granting criteria.

The Irish Securitisation Regulations designate the CBI as the “competent authority” responsible, in most instances, for ensuring compliance with the EU Securitisation Regulation in Ireland.

Special purpose entities established in Ireland are also subject to notification, registration and reporting requirements, including under the European Central Bank’s financial vehicle corporation Regulation, the Irish Securitisation Regulations and Irish Central Bank Acts.

Companies that are established as securitisation special purpose vehicles may elect to be treated pursuant to a dedicated tax regime in Ireland contained in Section 110 of the Irish Taxes Consolidation Act, 1997 (“Section 110”), which enables qualifying companies to make payments of profit-dependent interest and operate in a tax-neutral manner.

7.2        Securitisation Entities. Does your jurisdiction have laws specifically providing for establishment of special purpose entities for securitisation? If so, what does the law provide as to: (a) requirements for establishment and management of such an entity; (b) legal attributes and benefits of the entity; and (c) any specific requirements as to the status of directors or shareholders?

Special purpose entities are established as standard Irish companies, generally in the form of designated activity companies or, if securities are to be offered to retail investors, public limited companies.

In order to ensure their bankruptcy remoteness, special purpose entities are typically structured as orphan entities with their entire issued share capital (generally a nominal amount) held by a nominee for charitable purposes.

There are certain requirements that apply generally in respect of directors of Irish companies (including the requirement that at least one director be a European Economic Area (“EEA”) resident or the company puts in place a €25,000 bond), but these are not specific to special purpose entities.

Special purpose entities are generally not specially regulated, save to the extent of the requirements of the EU Securitisation Regulation and other general regulatory requirements mentioned throughout this response.

7.3        Location and form of Securitisation Entities. Is it typical to establish the special purpose entity in your jurisdiction or offshore? If in your jurisdiction, what are the advantages to locating the special purpose entity in your jurisdiction? If offshore, where are special purpose entities typically located for securitisations in your jurisdiction? What are the forms that the special purpose entity would normally take in your jurisdiction and how would such entity usually be owned?

Ireland is a leading jurisdiction for the incorporation of special purpose entities for securitisation transactions.  Some of the key benefits that Ireland offers include:

• an efficient and transparent taxation regime and comprehensive double tax treaty network;
• a member of, and the only fully common law jurisdiction in, the EU, with all resultant passporting rights (once the CBI approves the relevant offering document, debt securities issued by an Irish company can be accepted throughout the EU for public offers and/or admission to trading on regulated markets);
• flexible listing options including Euronext Dublin (the largest bond-listing venue in the world), Vienna MTF, the International Stock Exchange and the London Stock Exchange; and
• a highly developed service provider infrastructure of auditors, lawyers, corporate service providers and other professionals.

See the response to question 7.2 above in relation to the form of special purpose entities established in Ireland and their ownership.

7.4        Limited-Recourse Clause. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement’s governing law is the law of another country) limiting the recourse of parties to that agreement to the available assets of the relevant debtor, and providing that to the extent of any shortfall the debt of the relevant debtor is extinguished?

Yes, it is common to restrict recourse to particular assets of a debtor.  Limited recourse provisions are generally considered to be enforceable as a matter of Irish law, regardless of their governing law.

7.5        Non-Petition Clause. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement’s governing law is the law of another country) prohibiting the parties from: (a) taking legal action against the purchaser or another person; or (b) commencing an insolvency proceeding against the purchaser or another person?

Although there is limited authority in Irish law addressing this point, the Irish courts should give effect to a contractual provision prohibiting parties from taking legal action (or commencing insolvency proceedings) against the purchaser or another person, regardless of the governing law of the provision.

However, there may be circumstances in which an Irish court may hear a winding-up petition notwithstanding the presence of a non-petition clause such as where the petition is brought on foot of a statutory right that may not be contractually disapplied.

7.6        Priority of Payments “Waterfall”. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement’s governing law is the law of another country) distributing payments to parties in a certain order specified in the contract?

Yes, regardless of governing law, an Irish court should generally give effect to a contractual provision setting out the priority of payments, which is to apply in the distribution of the enforcement proceeds of any security.  This is subject to the proviso that certain categories of creditors (such as the Irish Revenue Commissioners in respect of certain debts) are preferred as a matter of Irish law and may need to be paid in prior to other creditors.  However, any balance remaining after the payment of such preferential creditors should be applied in accordance with the agreed waterfall.

7.7        Independent Director. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement’s governing law is the law of another country) or a provision in a party’s organisational documents prohibiting the directors from taking specified actions (including commencing an insolvency proceeding) without the affirmative vote of an independent director?

Yes, an Irish court should give effect to such a provision, whether contractual or in the organisational documents, provided that such restriction does not interfere with the ability of the directors to discharge their fiduciary and statutory responsibilities.

7.8        Location of Purchaser. Is it typical to establish the purchaser in your jurisdiction or offshore? If in your jurisdiction, what are the advantages to locating the purchaser in your jurisdiction? If offshore, where are purchasers typically located for securitisations in your jurisdiction?

It is typical to establish the purchaser in Ireland – please see questions 7.2 and 7.3 above.

8.1        Required Authorisations, etc. Assuming that the purchaser does no other business in your jurisdiction, will its purchase and ownership or its collection and enforcement of receivables result in its being required to qualify to do business or to obtain any licence or its being subject to regulation as a financial institution in your jurisdiction? Does the answer to the preceding question change if the purchaser does business with more than one seller in your jurisdiction?

A purchaser should not necessarily require authorisation or licensing in Ireland, but regulatory requirements will need to be addressed if the receivables fall within the scope of the Irish credit servicing regulatory framework, as set out in Part V of the CBA.  The credit servicing regime was introduced in Ireland by the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 (the “2015 Act”), which amended the CBA.  The CBA was further amended by the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 (the “2018 Act”), the 2022 Act and the 2023 Regulations.

A purchaser of in scope loans may itself be unregulated but will be obliged to appoint an authorised credit servicing firm to service these loans on its behalf.  The 2018 Act extended the definition of “credit servicing” to include:

• holding the legal title to credit;
• determining the overall strategy for the management and administration of a portfolio of credit agreements; and
• maintenance of control over key decisions relating to such portfolios.

The 2022 Act expanded the concept of “credit” to include a deferred payment, cash loans, and other similar financial accommodation.  The above are all regulated activities under this framework, which may trigger an authorisation requirement.  This position remains unchanged if the purchaser does business with more than one seller.

There is a securitisation exemption for SPV-issuers engaged in certain forms of primary and secondary securitisation of relevant loans set out in the CBA.

As outlined in question 1.2 above, the EU Credit Servicing Directive was transposed into Irish law by the 2023 Regulations, which apply to post-transposition sales and servicing of non-performing loans (“NPLs”) originated by EU banks.  The existing Irish credit servicing regulatory framework will continue to apply to the sale and servicing of performing loans, pre-transposition NPLs originated by EU banks, and NPLs originated by non-bank lenders.  The 2023 Regulations provide that a person shall not carry out credit servicing activities within the State unless it is authorised by the CBI or a competent authority in another Member State.

8.2        Servicing. Does the seller require any licences, etc., in order to continue to enforce and collect receivables following their sale to the purchaser, including to appear before a court? Does a third-party replacement servicer require any licences, etc., in order to enforce and collect sold receivables?

Please see the responses to questions 8.1 and 8.4.

8.3        Data Protection. Does your jurisdiction have laws restricting the use or dissemination of data about or provided by obligors? If so, do these laws apply only to consumer obligors or also to enterprises?

Тhe main legislation regulating data protection in Ireland is the GDPR, which is implemented by the Irish Data Protection Acts 1988 to 2018.  The GDPR lays down rules relating to the data of natural persons only.  As such, these laws would apply to personal data relating to individual, living and identifiable obligors only, and not enterprises.  Under the GDPR, data controllers must comply with the seven data protection principles set out in Article 5 of GDPR, and also take appropriate technical and organisational measures to ensure the security of the processing.

Data controllers must also ensure they have a legal basis for processing personal data.  Dissemination of personal data outside of the EEA is restricted unless the data exporter puts in place appropriate safeguards.

8.4        Consumer Protection. If the obligors are consumers, will the purchaser (including a bank acting as purchaser) be required to comply with any consumer protection law of your jurisdiction? Briefly, what is required?

Where the purchaser is dealing with consumers, it will need to comply with the relevant consumer protection law in Ireland, as set out in question 1.2 above.

8.5        Currency Restrictions. Does your jurisdiction have laws restricting the exchange of your jurisdiction’s currency for other currencies or the making of payments in your jurisdiction’s currency to persons outside the country?

There are currently no such currency restrictions or exchange controls in Ireland.

8.6        Risk Retention. Does your jurisdiction have laws or regulations relating to “risk retention”? How are securitisation transactions in your jurisdiction usually structured to satisfy those risk retention requirements?

Please see question 7.1 above for an overview of the legal framework governing securitisation transactions in Ireland.  Securitisation transactions within the scope of the EU Securitisation Regulation will be subject to risk retention requirements.  Article 6(1) of the EU Securitisation Regulation mandates that an originator, sponsor or original lender shall retain on an ongoing basis a material net economic interest in the securitisation of not less than 5%.

Article 6(3) sets out five modes by which the risk retention requirements can be met.  In Ireland, the most common modes are retention of the first loss tranche and retention of not less than 5% of the nominal value of each of the tranches sold or transferred to investors.

Please see question 8.7 below for an outline of recent developments in risk retention requirements pursuant to the Risk Retention RTS (as defined below).

8.7        Regulatory Developments. Have there been any regulatory developments in your jurisdiction which are likely to have a material impact on securitisation transactions in your jurisdiction?

There have been several recent regulatory developments in Ireland that are likely to have a material impact on securitisation transactions, including:

• Credit Servicing Directive.  With an effective date of 30 December 2023, the European Union (Credit Servicers and Credit Purchasers) Regulations 2023 transposed into Irish law the EU Credit Servicing Directive 2021/2167 (the “Credit Servicing Directive”).  The Credit Servicing Directive sets out a framework and requirements for loan servicers and loan purchasers with the aim of developing common standards across the EU for the transfer and management of NPLs originated by EU credit institutions.
• Central Securities Depository Regulation (Regulation (EU) No. 909/2014) (“CSDR”). The European Union (Dematerialised Securities) Regulations 2023 were introduced on 4 July 2023 to complement CSDR by facilitating the elimination of paper-based certificates (with certain exceptions) for securities admitted to trading on EU trading venues. Commission Delegated Regulation (EU) 2023/1626 amends the regulatory technical standards on settlement discipline introduced under CSDR pursuant to Commission Delegated Regulation (EU) 2018/1229 and provides that Central Securities Depositories (“CSDs”) shall take over the process of collecting and distributing cash penalties for settlement fails, with effect from 2 September 2024. CSDR Refit (Regulation (EU) 2023/2845) entered into force on 16 January 2024.  CSDR Refit is a result of the review process of CSDR and focuses on five main areas: settlement discipline; the passporting regime; banking-type ancillary services; oversight of third country CSDs; and cooperation between supervisory authorities.
• EU Regulatory Technical Standards on Risk Retention (“Risk Retention RTS”).  The long anticipated Risk Retention RTS entered into force on 7 November 2023, clarifying the risk retention requirements for securitisation transactions and addressing matters such as the calculation of the retained interest, including in securitisations of non-performing exposures and the factors to be considered for the purposes of “sole purpose” test for determining originator eligibility.
• EU Green Bond Standard.  The EU Green Bond Regulation was published on 30 November 2023 and creates the “European Green Bond Standard” as a designation that can be used by bond issuers, including issuers in the securitisation market, who wish to market their bonds as environmentally sustainable.  The standard is voluntary and issuers choosing to use the designation will need to comply with various requirements vis-à-vis asset allocation, pre- and post-issuance disclosure, external review and competent authority oversight.  To accommodate participants in the securitisation market, certain EU Green Bond Standard requirements, such as in relation to the use of proceeds, apply to the originator, as opposed to the issue.

9.1        Withholding Taxes. Will any part of payments on receivables by the obligors to the seller or the purchaser be subject to withholding taxes in your jurisdiction? Does the answer depend on the nature of the receivables, whether they bear interest, their term to maturity, or where the seller or the purchaser is located? In the case of a sale of trade receivables at a discount, is there a risk that the discount will be recharacterised in whole or in part as interest? In the case of a sale of trade receivables where a portion of the purchase price is payable upon collection of the receivable, is there a risk that the deferred purchase price will be recharacterised in whole or in part as interest? If withholding taxes might apply, what are the typical methods for eliminating or reducing withholding taxes?

Whether, or not, a payment in respect of receivables is subject to Irish withholding tax will depend on the nature of the payment being made, and the tax profile of the payor and of the recipient.  While Ireland generally imposes withholding tax obligations on the payment of yearly interest and certain other payments at the standard rate of income tax (currently 20%), there are several domestic exemptions that can apply (as discussed below).

In addition, generally, discounts are outside the ambit of Irish withholding tax on interest.  As such, the sale of a receivable at a discount to face value should not generally give rise to Irish withholding tax concerns.  Interest is generally regarded as a payment made for the use of money over time and includes the payment of a premium.  Other than in limited circumstances under new rules applicable from 1 April 2024 as set out below, withholding tax on interest applies only to yearly interest (and not short interest).  Yearly interest is regarded as interest that is payable for a period of a year or more, or capable of extending for that period.

Generally, a deferred payment arrangement should not be re-characterised as a payment of yearly interest or premium to the extent that the payment represents a part payment of the original purchase price/face value of the receivables.

There are broad domestic exemptions from withholding tax available, such as on interest paid to: (i) a company resident in an EU Member State or a country with a double tax treaty with Ireland; (ii) banks carrying on a bona fide banking business in Ireland; and (iii) a range of Irish entities, including investment funds and Section 110 Companies (as defined in question 9.2 below).  Additionally, Ireland operates a quoted Eurobond exemption from withholding tax.

From 1 April 2024, new Irish tax rules will come into effect that apply to outbound payments of tax-deductible interest (both short and yearly), by Irish companies to “associated entities” that are resident in zero-tax or EU blacklist jurisdictions.  Broadly, an “associated entity” is an entity that is in a relationship of control with the paying company.  Where an interest payment is subject to these new outbound payment rules, the withholding tax exemptions outlined above will be disapplied and as a result withholding tax will apply.  Exemptions continue to apply to certain listed debt.

9.2        Seller Tax Accounting. Does your jurisdiction require that a specific accounting policy is adopted for tax purposes by the seller or purchaser in the context of a securitisation?

Irish securitisation vehicles are typically established as a Section 110 Company.  The default accounting convention for tax purposes for a Section 110 Company is Irish generally accepted accounting practice (“GAAP”) as it applied on 31 December 2004.  However, a Section 110 Company may elect to calculate its taxable income in accordance with financial statements prepared under the current Irish GAAP/IFRS.  Where a Section 110 Company makes such an election, it is irrevocable.

9.3        Stamp Duty, etc. Does your jurisdiction impose stamp duty or other transfer or documentary taxes on sales of receivables?

Irish stamp duty at a rate of 7.5% may apply to transfers of receivables where the debt is situate in Ireland or, in the case of debts situate outside Ireland, where the relevant instrument of transfer is executed in Ireland or relates to something done, or to be done in Ireland, such as, Irish immovable property or shares in a company registered in Ireland.

However, relief from stamp duty on a transfer of a receivables may be available where the conditions of the debt factoring exemption are satisfied.  Also, the transfer of receivables or other debts by way of tri-party novation should not fall within the charge to Irish stamp duty.

9.4        Value Added Taxes. Does your jurisdiction impose value added tax, sales tax or other similar taxes on sales of goods or services, on sales of receivables or on fees for collection agent services?

Ireland is a Member State of the EU and, accordingly, VAT is imposed on the supply of goods and services.  The standard rate of VAT in Ireland is 23%.

Generally, where the assets being securitised by a Section 110 Company consist of trade receivables, the company will be engaged in VAT-exempt financial services activities, and therefore it will not be required to charge VAT with respect to this activity, save as outlined below.  In turn, this also means that VAT incurred by the company will generally be irrecoverable.  However, an Irish securitisation company is required to register and self-account for VAT under the reverse charge mechanism on taxable services it receives from outside Ireland.  Such services include professional services such as legal, accounting, consultancy, rating agency and trustee services, etc.

Management services provided to a Section 110 Company are generally exempt from VAT.  In addition, the sale of receivables is typically exempt from VAT.  Dealing in or handling payments may also be exempt from VAT.  However, debt collection and debt factoring are VATable services.  Given these distinctions, whether collection agent services are subject to VAT, or VAT-exempt, in Ireland is dependent on the facts and circumstances in each case.

9.5        Purchaser Liability. If the seller is required to pay value-added tax, stamp duty or other taxes upon the sale of receivables (or on the sale of goods or services that give rise to the receivables) and the seller does not pay, then will the taxing authority be able to make claims for the unpaid tax against the purchaser or against the sold receivables or collections?

Where a supply of VATable services is made by an Irish supplier to another Irish business, the supplier is required to charge and account for VAT to the Irish Tax Authorities.  The Irish Tax Authorities will pursue the supplier for any liability and not the recipient of the service.  Where services are provided from outside Ireland to an Irish business, the recipient is obliged to self-account for Irish VAT on receipt of the service using the reverse charge mechanism.

Generally, the purchaser or transferee is liable to pay any relevant Irish stamp duty.

9.6        Doing Business. Assuming that the purchaser conducts no other business in your jurisdiction, would the purchaser’s purchase of the receivables, its appointment of the seller as its servicer and collection agent, or its enforcement of the receivables against the obligors, make it liable to tax in your jurisdiction?

Generally, a non-Irish tax resident company is only liable to corporation tax in Ireland if it carries on a trade in Ireland through a branch, agency or permanent establishment.  Non-Irish tax resident companies can also be liable to Irish capital gains tax on disposals of certain Irish assets, such as Irish land or buildings and shares that derive the greater part of their value from Irish land or buildings or security interests over such assets.  A creditor may be liable for Irish capital gains tax on enforcement of security and sale of an asset, if that asset is within the charge to Irish capital gains tax generally, e.g. a non-resident enforcing a debt and selling Irish land in satisfaction of the debt.

In general, the purchase, collection and enforcement of the receivable should not be considered as “trading” under Irish law such that a foreign purchaser would be liable to Irish corporation tax.  However, this conclusion is dependent on the particular facts and circumstances.

9.7        Taxable Income. If a purchaser located in your jurisdiction receives debt relief as the result of a limited recourse clause (see question 7.4 above), is that debt relief liable to tax in your jurisdiction?

Irish tax resident companies (including Section 110 Companies) can claim a tax deduction in respect of a debt that is proven to the satisfaction of the Irish tax authorities to be bad, i.e. a specific provision for bad debts.  However, a tax deduction is not available for general provisions for bad debts.  If an Irish resident company subsequently recovers a bad debt in respect of which a tax deduction has been claimed, that amount will be treated as taxable income of the company.

Where the arrangements of a Section 110 Company are such that the majority of the annual profits are paid out as a coupon on a tax-deductible profit participating note then any debt relief (or income arising on the reversal of debt relief) may not affect the taxable profits but may instead result in an increase or reduction in the coupon on the profit participating note.  This will depend on the particular fact pattern as interest on a profit participating note may be restricted in certain circumstances.

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Andrew Gill Mason Hayes & Curran LLP

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Receivables Finance And The Assignment Of Receivables

Tfg legal trade finance hub, receivables finance and the assignment of receivables.

A receivable represents money that is owed to a company and is expected to be paid in the future. Receivables finance, also known as accounts receivable financing, is a form of asset-based financing where a company leverages its outstanding receivables as collateral to secure short-term loans and obtain financing.

In case of default, the lender has a right to collect associated receivables from the company’s debtors. In brief, it is the process by which a company raises cash against its own book’s debts.

The company actually receives an amount equal to a reduced value of the pledged receivables, the age of the receivables impacting the amount of financing received. The company can get up to 90% of the amount of its receivables advanced.

This form of financing assists companies in unlocking funds that would otherwise remain tied up in accounts receivable, providing them with access to capital that is not immediately realised from outstanding debts.

FIG. 1: Accounts receivable financing operates by leveraging a company’s receivables to obtain financing.  Source: https://fhcadvisory.com/images/account-receivable-financing.jpg

Restrictions on the assignment of receivables – New legislation

Invoice  discounting  products under which a company assigns its receivables have been used by small and medium enterprises (SMEs) to raise capital. However, such products depend on the related receivables to be assignable at first.

Businesses have faced provisions that ban or restrict the assignment of receivables in commercial contracts by imposing a condition or other restrictions, which prevents them from being able to use their receivables to raise funds.

In 2015, the UK Government enacted the Small Business, Enterprise and Employment Act (SBEEA) by which raising finance on receivables is facilitated. Pursuant to this Act, regulations can be made to invalidate restrictions on the assignment of receivables in certain types of contract.

In other words, in certain circumstances, clauses which prevent assignment of a receivable in a contract between businesses is unenforceable. Especially, in its section 1(1), the Act provides that the authorised authority can, by regulations “make provision for the purpose of securing that any non-assignment of receivables term of a relevant contract:

• has no effect;
• has no effect in relation to persons of a prescribed description;
• has effect in relation to persons of a prescribed description only for such purposes as may be prescribed.”

The underlying aim is to enable SMEs to use their receivables as financing to raise capital, through the possibility of assigning such receivables to another entity.

The aforementioned regulations, which allow invalidations of such restrictions on the assignment of receivables, are contained in the Business Contract Terms (Assignment of Receivables) Regulations 2018, which will apply to any term in a contract entered into force on or after 31 December 2018.

By virtue of its section 2(1) “Subject to regulations 3 and 4, a term in a contract has no effect to the extent that it prohibits or imposes a condition, or other restriction, on the assignment of a receivable arising under that contract or any other contract between the same parties.”

Such regulations apply to contracts for the supply of goods, services or intangible assets under which the supplier is entitled to be paid money. However, there are several exclusions to this rule.

In section 3, an exception exists where the supplier is a large enterprise or a special purpose vehicle (SPV). In section 4, there are listed exclusions for various contracts such as “for, or entered into in connection with, prescribed financial services”, contracts “where one or more of the parties to the contract is acting for purposes which are outside a trade, business or profession” or contracts “where none of the parties to the contract has entered into it in the course of carrying on a business in the United Kingdom”. Also, specific exclusions relate to contracts in energy, land, share purchase and business purchase.

Effects of the 2018 Regulations

As mentioned above, any contract terms that prevent, set conditions for, or place restrictions on transferring a receivable are considered invalid and cannot be legally enforced.

In light of this, the assignment of the right to be paid under a contract for the supply of goods (receivables) cannot be restricted or prohibited. However, parties are not prevented from restricting other contracts rights.

Non-assignment clauses can have varying forms. Such clauses are covered by the regulations when terms prevent the assignee from determining the validity or value of the receivable or their ability to enforce it.

Overall, these legislations have had an important impact for businesses involved in the financing of receivables, by facilitating such processes for SMEs.

Digital platforms and fintech solutions: The assignment of receivables has been significantly impacted by the digitisation of financial services. Fintech platforms and online marketplaces have been developed to make the financing and assignment of receivables easier.

These platforms employ tech to assess debtor creditworthiness and provide efficient investor and seller matching, including data analytics and artificial intelligence. They provide businesses more autonomy, transparency, and access to a wider range of possible investors.

Securitisation is an essential part of receivables financing. Asset-backed securities (ABS), a type of financial instrument made up of receivables, are then sold to investors.

Businesses are able to turn their receivables into fast cash by transferring the credit risk and cash flow rights to investors. Investors gain from diversification and potentially greater yields through securitisation, while businesses profit from increased liquidity and risk-reduction capabilities.

References:

https://www.tradefinanceglobal.com/finance-products/accounts-receivables-finance/  – 28/10/2018

https://www.legislation.gov.uk/ukpga/2015/26/section/1/enacted  – 28/10/2018

https://www.legislation.gov.uk/ukdsi/2018/9780111171080  – 28/10/2018

https://www.bis.org/publ/bppdf/bispap117.pdf  – Accessed 14/06/2023

https://www.investopedia.com/terms/a/asset-backedsecurity.asp  – Accessed 14/06/2023

https://www.imf.org/external/pubs/ft/fandd/2008/09/pdf/basics.pdf  – Accessed 14/06/2023

International Trade Law

1 | Introduction to International Trade Law 2 | Legal Trade Finance 3 | Standard Legal Charges 4 | Borrowing Base Facilities 5 | Governing law in trade finance transactions 6 | SPV Financing 7 | Guarantees and Indemnities 8 | Taking security over assets 9 | Receivables finance and the assignment of receivables 10 | Force Majeure 11 | Arbitration 12 | Master Participation Agreements 13 | Digital Negotiable Instruments 14 | Generative AI in Trade Law

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United Nations Convention on the Assignment of Receivables in International Trade (New York, 2001)

Date of adoption: 12 December 2001

The purpose of the Convention is to promote the movement of goods and services across national borders by facilitating increased access to lower-cost credit.

Why is it relevant?

The transactions covered by the Convention (e.g. asset-based lending, factoring, forfaiting, securitization, project financing) are fundamental for the financing of international trade. Yet uncertainty as to the content and choice of legal regime applicable to the assignment of receivables constitutes an obstacle to international trade. As a result, an assignment of future receivables or a bulk assignment of receivables that are not identified individually may be ineffective. In addition, an assignment that is effective according to the law under which it was concluded, may not be enforceable as against the debtor in another country or be subordinated to the rights of competing claimants in another country. Moreover, the law applicable to conflicts of priority among competing claimants may be difficult to determine. This means that either credit is not available on the basis of receivables (e.g. the claim for the payment of the purchase price in a contract for the sale of goods) or credit is available but only to those that may be able to afford its cost; and lack of sufficient access to credit or high cost of credit is a disadvantage in particular for small- and medium-size enterprises.

Key provisions

The Convention removes legal obstacles to receivables financing transactions, inter alia, by: (a) validating assignments of future receivables and bulk assignments, and by partially invalidating contractual limitations to the assignment of receivables); (b) enhancing certainty with respect to a number of issues, such as the effectiveness of an assignment as between the assignor and the assignee and as against the debtor; (c) clarifying the law applicable to key issues, such as the priority between competing claims; and (d) providing a substantive law regime governing priority between competing claims that States may adopt on an optional basis.

Relation to private international law and existing domestic law

The Convention applies only to international assignments of receivables and to the assignment of international receivables (with the exception of "financial" receivables). However, the Convention may affect a domestic assignment of a domestic receivable if: (a) it is in conflict with an international assignment of the same receivable; or (b) if it is one in a series of subsequent assignments, one of which, falls within the scope of the Convention. For the debtor, related provisions of the Convention to apply, at the time of the conclusion of the contract from which the assigned receivables arise, the debtor has to be located in a Contracting State or the law governing the assigned receivables has to be the law of a Contracting State.

Additional information

The Convention contains an optional part with applicable law rules and another optional part with substantive rules dealing with the third-party effectiveness and priority of an assignment of receivables.

The Convention is accompanied by an explanatory note. There is also an-article-by-article commentary on the draft Convention that was before the Commission at its 34 th session in 2001.

Additional Resources

• Text - Explanatory note
• UNCITRAL Legislative Guide on Secured Transactions: Supplement on Security Rights in Intellectual Property (2010)
• UNCITRAL Legislative Guide on Secured Transactions (2007)
• United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980)
• General Assembly resolution 56/81

Travaux préparatoires

• Endorsement by American Bar Association (ABA)
• Endorsement by International Chamber of Commerce (ICC)
• Endorsement by International Factors Group (IFG)
• A/48/17(SUPP)
• A/CN.9/378/Add.3
• A/49/17(SUPP)
• A/50/17(SUPP)
• A/51/17(SUPP)
• A/52/17(SUPP)
• A/53/17(SUPP)
• A/54/17(SUPP)
• A/55/17(SUPP)
• A/CN.9/472/Add.1
• A/CN.9/472/Add.2
• A/CN.9/472/Add.3
• A/CN.9/472/Add.4
• A/CN.9/472/Add.5
• A/CN.9/489/Add.1
• A/CN.9/490/Add.1
• A/CN.9/490/Add.2
• A/CN.9/490/Add.3
• A/CN.9/490/Add.4
• A.CN.9/490/Add.5
• A/CN.9/491/Add.1
• A/CN.9/WG.II/WP.87
• A/CN.9/WG.II/WP.89
• A/CN.9/WG.II/WP.93
• A/CN.9/WG.II/WP.96
• A/CN.9/WG.II/WP.98
• A/CN.9/WG.II/WP.102
• A/CN.9/WG.II/WP.104
• A/CN.9/WG.II/WP.105
• A/CN.9/WG.II/WP.106

Paul McMahon Intangibles

Assignment of a Chose in Action

Generally, a chose in action may be assigned, subject to exceptions.  A legal assignment may be effected in accordance with the Supreme Court of Judicature (Ireland) Act, 1877.  An equitable assignment is one which falls short of the requirements of a legal assignment, but to which effect is given by a court of equity.

In certain cases, the assignment is by a method peculiar to the nature of the right.  Negotiable instruments are assigned by delivery and/or endorsement. Policies of assurance are subject to special legislation. Securities generally require an instrument of transfer and registration in the company’s records. Certain choses in action are not assignable for reasons of public policy.

An assignment in writing is stampable. Most now qualify for stamp duty relief.

Statutory Legal Assignment

The 1877 Act, which merged the courts of law and the courts of equity, provides that a legal assignment must be in writing, signed by the assignor.  It must be absolute and must not be by way of charge.  Notice of the assignment must be given to the debtor or obligor.  Proof of notice is best obtained by an acknowledgement of notice signed by the obligor.  The assignment is perfected from the date of notice and is subject to any equities which subsist and have priority over the rights of the assignor, at that date.

The provisions do not make assignable, contracts which are not assignable in equity.  Contractual rights but not obligations are usually assignable.  Many contractual rights will not be assignable, as they must be performed by the counterparty personally (or through its particular agents).

It may or may not be permissible, as a matter of interpretation, to subcontract elements of performance. A sum due under a personal service contract may be assigned, notwithstanding that the personal service obligation itself is not assignable.

A legal assignment has advantages in terms of enforceability. A debt must be for a definite sum in order to be assignable under the statutory provisions for legal assignment under the 1877 Act. The assignment must be absolute and not be by way of charge.

The assignment of the balance remaining after payments and deductions to be made may be an effective legal assignment, on the basis that it attaches to an ascertainable balance. Also held to be within the legislation are judgment debts, rent already accrued, debts due on mortgage covenants and deposits standing at banks. A future debt may be capable of falling within the legislation.

Choses Non-Assignable under Act

Choses in action which are not assignable under the Act, include

• the equity redemption under a mortgage already assigned by way of mortgage;
• the right to sue for breach of contract;
• the right to sue for damages in tort;
• the benefit of a contract to lend;
• contracts requiring special qualifications on the part of the parties; and
• shares in a company.

These rights may be assignable by other means and mechanisms, but not by way of the mechanism in the Judicature Act.

A voluntary assignment may be within the Act, even if it would not be enforceable in equity by the assignee as against the assignor. The obligor may not take this up as a defence in an action by the assignee.

Requirements for Assignment

The assignment must be in writing “under the hand” of (signed by) the assignor.  No particular form of writing is required.  Formerly, many written assignments were stampable, but wide-ranging exemptions now exist for assignment of debts and obligations due.

In order for the legal assignment to take effect, notice must be given to the debtor, trustee or other person who owes the obligation (the obligor).  The notice need not be formal. It may be given to the personal representatives of a deceased obligor.  In the case of a company, a notice to the appropriate directors or managers will suffice.

Insurance policies are subject to the same rules as apply to legal assignments. This is confirmed by statute; the Policies of Assurance Act 1867

Effect of Statutory Assignment

An assignment under the Supreme Court of Judicature (Ireland) Act 1877 transfers the legal right to the assigned obligation /thing as and from the date of the notice.  The assignee may sue in his own name to enforce the assigned obligation. A legal assignment passes the full benefit of the chose in action to the assignee.

It may be enforced by the assignor in his own name in cases where before the Act, he could have sued in equity in the name of the assignor. An assignee of a judgment debt may enforce it by the usual means of enforcement.  There may be rules applicable to the method of enforcement which must be considered in the case of an assigned judgment debt.

The assignment is subject to the existing equities in respect of the chose in action which have priority.  The assignee cannot be in a better position than the assignor.  Equities and rights of the obligor which exist prior to the assignment will affect the assignee.

Where the obligor has notice that the assignor or someone who claims through him, disputes the assignment, interpleader may be required.

Equitable Assignments I

Certain categories of rights were not assignable at law but were assignable in equity.  The 1877 Act applies to certain such rights, so as to make them assignable at law. This category includes certain rights of compensation for compulsory acquisition, the benefit of certain types of supply contracts and certain types of covenant.

Equity recognises assignments of choses in action when made for valuable consideration and not contrary to public interest.  Equitable assignments may be by way of charge.  They may be based on a contract or by a direction to a third person such as a mandate.  A mandate may be revocable or irrevocable.

No particular form of wording is required for an equitable assignment.  It may be verbal, except where required by law to be in writing, as is the case in relation to an assignment of an interest in land.  It may be addressed to the debtor or the assignee.  It may arise out of a course of dealing.

Equitable Assignments II

An assignment of a chose in action may be enforced in equity even if given without value provided the donor has done everything in order to transfer the debt or fund.  Equitable assignments include directions and letters requesting monies to be paid from particular funds or accounts. An assignment of future assets may operate as a contract to assign when the property comes into existence. Accordingly, consideration is required.  An assignment by way of charge must be based on a contract / obligation and requires consideration.

A declaration of trust for the benefit of another may suffice for an equitable assignment.  An order by a creditor to a debtor to pay money to a third party where no fund is specified is not an equitable assignment.  An agreement to pay the proceeds of sale of goods purchased with borrowed money is not sufficient to assign the proceeds

A possible interest is not assignable at law.  If the assignment is for value and is binding on the conscience of the assignor, it may be binding in equity if it is of a type and nature capable of being identified. An equitable assignment does not become effective until communicated to the assignee.  It may be revoked prior to communication.

Imperfect Assignments

A request by a party who has the funds of another, made to that other to pay a sum to a third party if not communicated to the latter, is insufficient.  A direction to pay to the account of the creditor at a bank is insufficient.  An authority to collect freight given by the master of a ship to an agent is insufficient.

A garnishee order is not an equitable assignment. A promise to pay when certain funds are received is insufficient to assign or charge those sums.  A letter from a bank stating it has opened a credit for a particular sum is not an equitable assignment of that sum.

As between assignor and assignee, an equitable or incomplete assignment is effective notwithstanding that notice has not been given to the obligor, debtor, fund holder etc.  Notice is not necessary as regards third-parties who stand in the same position as the assignor, such as a receiver, a creditor who has obtained a charge over the proceeds or the benefit of a garnishee order etc.

Notice is necessary to the obligor/debtor in order to bind him to make the payment to the assignee. If the obligor pays the assignor before the assignee gives notice, then the assignee must give him credit for the payment to the assignor.  This is so even if a cheque is still outstanding in the hands of the assignor for the sum concerned.

Except where writing is required by statute, formal notice need not be given provided the assignment is definitely brought to the attention and mind of the obligor/fund holder concerned.  Notice of any disposition of an interest in the land must be in writing.  Notice given to a trustee of land after the creation of a trust must be given in writing. The notice may be received from a third party. However, it must be in definite and not be in mere casual terms.

The notice need not specify the amount of the charge. The person to be served is the person who is obligor or holds the relevant fund.  This may be a trustee, registrar, debtor etc. depending on the nature of the interest.  In some cases, the statute indicates who is to be served.

Where there are several trustees or joint obligors, it is best to give notice to each of them.  Complicated issues may arise where one trustee only has notice of the assignment. It is generally sufficient to give notice to one trustee alone, although in some cases, this may not be sufficient.

In the case of stocks and shares standing in the books of public authorities, notice may be given by service of an affidavit and notice in the manner prescribed by the rules of court.  If funds are in court, the notice is by way of a stop order. In the case of shares, notice is given to the company secretary.

Priority and Notice

Notice of the assignment must be given to the debtor or obligor.  Proof of notice is best obtained by an acknowledgement of notice signed by the obligor.  The assignment is perfected from the date of notice and is subject to any equities which subsist and have priority over the rights of the assignor, at that date.

Priority as between multiple assignments by the same assignor is determined by the order in which notice is given to the obligor.  Accordingly, if a second assignee gives notice first, he obtains priority, provided that he had no knowledge of the prior assignment.  The relevant time for the purpose of knowledge is the time when the security is taken, and not when notice is given.

Constructive notice to a second assignee of a prior assignment is sufficient.  Mere notice of the existence of a prior document which may or may not affect the property is insufficient. The absence of negligence on the part of the first assignee who does not give notice before the second assignee does so is immaterial.

Subject to Equities I

An assignee of a chose in action takes it subject to all rights as subsist between the obligor and the original debtor/assignor.  He is said to take it subject to the “equities” and rights as may exist.  The equities apply as against the assignor but not as against intermediate assignors.  With statutory exceptions, the assignee is not in any better position than the assignor, relative to the obligor.

The assignee should make enquiries of the obligor, who, however, is not bound to give information unless the notice shows that the assignee has been deceived.  In this case, if the debtor does not disabuse him of the misapprehension, he may be prevented from taking advantage of equities / rights as between himself and the assignor.

If the original obligation is voidable, so as to be vulnerable to be set aside due to some misrepresentation, fraud, mistake etc., the assignee takes it with this vulnerability.  The principle of negotiability is an exception to this principle so that in some cases, the assignor can give a better title than he himself holds.

Subject to Equities II

Where the assignor has a right to set-off which has accrued before notice, he may avail himself of the right against the assignee.  This may be varied by the terms of the contract.  Where the debt assigned is payable in the future, the debtor may set-off a debt which becomes payable by the assignor after notice of the assignment, but before the assigned debt becomes payable. This is so, provided the debt to be set-off matured at the date of the notice. It must be a present debt, albeit payable in the future.

The obligor may not set off an independent debt which has accrued since the notice of assignment, although due under a contract made before that date.  He may set-off a debt accrued before notice, if it has arisen out of a transaction inseparably connected with the original debt / transaction, or if it was the intention of the parties, that one should be set off against the other.

The debtor may meet the assignee’s claim by a counterclaim for unliquidated damages against the assignor if they arise out of the same contract.  The assignee cannot be made liable, but set-off may be allowed.  The counterclaim must arise out of the same contract and not something done outside it (as for example, a personal claim for fraud against the assignor).

Subject to Equities III

When the benefit of a contract is assigned, the assignee takes it subject to the rights of the other party to the contract, except those which are of a purely personal nature.  The debtor may contract out of his right to enforce equities against the assignee, or he may release them.  He may by his conduct waive the right to enforce them.

The assignee in due course of a negotiable instrument generally takes it free from equities. This is similar to the position of a pledgee in good faith of share certificates.

An equitable assignment transfers the right to recover the debt / obligation.  If the claim is “legal” and the assignment is absolute, the assignee may sue in his own name without making the assignor a party.  If the chose in action is “equitable”, the assignor must be made a party to the action, either as plaintiff or defendant.  Where there is an assignment by way of security, the assignor must be made a party, for the reason that he has a right to redeem.

Enforcement

If the assignor does not take legal action, the assignee may do so in the name of the assignor subject to giving a proper indemnity against costs and charges, consequent on using his name.  If the assignor fails or refuses to permit his name to be used, he may be made a defendant.  The court may dispense with the assignor being a party, if he cannot be found or if his interest in the matter has ceased.

Where there are several parties who have an interest in the matter, all must be made a party to an action.  An account may be required to be taken of the share of profits, where there are multiple parties entitled.

After the debtor/obligor receives notice of the assignment, he must not pay the assignor.  He is liable to the assignee and payment to the assignor does not discharge him.  Payment may be made with the consent of the other party to either the assignor or assignee.

Assignability

Certain types of chose in action may be assigned by statute.  These include

• administration bonds;
• negotiable instruments;
• interest in government stock;
• debentures and mortgages issued by companies;
• shares in a company;
• policies of assurance;

Bills of lading are assignable, and the assignee may sue on them in his own name, subject to the liabilities as if the contract has been made with him.

Bills of exchange, promissory notes, bearer drafts, policies of insurance and bills of lading are assignable at common law.  In some of these cases, the assignment is now regulated by statute.

Non-Assignable Choses

Some kinds of chose in action are not assignable for public policy reasons.  This includes public salaries and pension, most social welfare and social insurance benefits. Sums received by a spouse arising from matrimonial proceedings are not assignable.

A bare right of litigation is a mere right to damages and is not assignable.  An assignment of the right to sue on the chance of recovery is void.  An assignment of a licence to take possession of goods, an assignment of a right to set aside a deed, an assignment of a debt due from a company coupled with the right to proceed with a winding-up already filed, is invalid.

Contracts involving personal skill and confidence are not assignable.

Parties may by express provision render the benefit of a contract incapable of being assigned. The insertion of a condition against assignment does not necessarily prevent assignment of the beneficial interest.

Location of Chose

A chose in action, being a right to recover by legal action, does not have a specific local existence.  Debts are treated as having a location for the purpose of conflict of laws, taxation and other purposes. The chose in action are regarded as situated in the jurisdiction where they may be enforced. This is generally the place of residence of the debtor.

Specialty debts are those acknowledged in an instrument delivered as a deed.  At common law, they are situating where the instrument is situated.

The capacity to assign a chose in action is governed by the law of the domicile of the assignor or the law of the country where the assignment takes place.

References and Sources

Irish Texts

Modern law of personal property in England and Ireland 1989  Bell

Consumer Law Rights & Regulation 014       Donnelly & White

Commercial Law White           2012 2 nd  ed

Commercial & Economic Law in Ireland        2011 White

Commercial Law 2015 Forde 3 rd  ed

Irish Commercial Precedents (Looseleaf)

Commercial & Consumer Law: Annotated Statutes 2000  O’Reilly

Personal Property Law: Text and Materials  2000  Sarah Worthington

Personal Property Law (Clarendon Law Series) 2015 Michael Bridge

The Law of Personal Property 2017   Professor Michael Bridge and Prof. Louise Gullifer

The Principles of Personal Property Law 2017  Duncan Sheehan

Crossley Vaines on Personal Property 1967 by J C Vaines

The Law of Bills of Sale 2017 James Weir

Palmer on Bailment 2009  Norman Palmer

The Reform of UK Personal Property Security Law: Comparative Perspectives  2012 John de Lacy

The Law of Personal Property Security 2007  Hugh Beale and Michael Bridge

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The validity of an assignment of receivables cross-border depends on the law that applies to the assignment.

What might amount to a valid assignment in one jurisdiction does not mean that it is valid in another, and where there are competing claims to the receivables and competing jurisdictions, the question of which law applies - and therefore whether there has been a valid assignment - significantly affects the ability of the assignee to rely on the assignment.

This question arose in the context of a German bankruptcy where the issue was referred to the European Court of Justice (“ECJ “) for a preliminary ruling. The recent decision of the ECJ of 9 October 2019 surprised many because it went against the commonly held view that in determining jurisdictional questions Article 14 of the European Union Rome I Regulation applied.

In this blog we consider the implications of the ECJ judgment in Case C-548/18 BGL BNP Paribas SA vs. TeamBank AG Nürnberg and how this affects assignees and the priority of competing claims. We also consider the proposed EU Assignment Regulation and how that might assist in determining the question of jurisdiction in the future.

A national of Luxembourg (the “employee”) but resident of Germany was employed by a Luxembourg employer under Luxembourg law. A German bank granted a German law governed loan to the employee and the employee assigned to the German bank all its claims to receive remuneration from the Luxembourg employer.

Three months later the employee obtained another loan, this time from a Luxembourg bank and assigned the same remuneration claims as security for that second loan to the Luxembourg bank under a Luxembourg law governed assignment contract. The Luxembourg bank notified the assignment to the Luxembourg employer, the German bank did not do so.

The employee became insolvent and German insolvency proceedings were commenced.

Under German law notification of an assignment is not required to perfect the assignment, but under Luxembourg law it is. Accordingly, in this case if German law applied the assignment to the German bank would have had priority over the assignment to the Luxembourg bank but if Luxembourg law the priority position would have been reversed.

Which law therefore took precedence? The German court requested the ECJ give a preliminary ruling on the question.  Contrary to the commonly held view, the ECJ concluded that Article 14 of the Rome I Regulation did not assist and was therefore unable to provide for an answer to the question leaving the German court in a challenging situation particularly so, because the relevant rules for determining the conflict of law were actually deleted from German law in 2009.

So which law do the courts apply when determining whether there has been a valid cross-border assignment of receivables? Currently the answer depends on which country is being asked to consider the question:

(i)             It could be the law which is expressed to govern the contract from which the assigned receivable arises. This is the approach normally adopted in Germany.

(ii)            In England, the Netherlands and Spain it is in principle the law chosen by the assignor and the assignee to govern the contract under which the receivable is assigned;

(iii)           Whereas in the U.S., for example it is in principle the law of the jurisdiction in which the assignor is situated.

The position is far from clear meaning that an assignees of receivables cannot always be certain whether the assignment is valid and enforceable.

Hope for the future? -The proposed EU Assignment Regulation

Thankfully the European Union intends to introduce new legislation that will help clarify the position. The Assignment Regulation proposed in March 2018 is currently being discussed in the Council of the European Union. However it is likely to be subject to extensive negotiation before adoption.

The principles set out in Article 4 of the Assignment Regulation are that the law of the habitual residence of the assignor will apply (Article 4 (1)) unless:

the claim is cash credited to a bank account or claims arising from financial instruments, in which case the law governing the account or the financial instrument will apply (Article 4 (2)), or

there is a securitization, in which case the assignee and the assignor can chose the law applicable to the assignment (Article 4 (3)).

Once adopted (subject to a 18 month waiting period) the Assignment Regulation will be directly applicable. This means that whilst EU Member States do not need to implement it into their domestic laws the courts of the Member States are bound to apply it in respect of all assignments which are concluded on or after the date it comes into effect.

However, the Assignment Regulation will not apply in Denmark, it will only apply in Ireland if Ireland opts into the Assignment Regulation and will not apply to the UK since it is expected that the UK will no longer be a EU Member State at the time the regulation is adopted and becomes effective.

The Assignment Regulation does not allow parties to contract out of it or to agree the applicable law which shall regulate the assignment of claims.

Major impact on international trade finance

The Assignment Regulation is expressed to have Universal Application, which means that it will apply the law designated by the assignment, even if this is not the law of any Member State.

For example, if a US exporting company assigns an invoice or other claim arising from a contract governed by German law to an EU assignee, then US law will apply in determining whether the assignment was effective vis-à-vis third parties, and not German law.

Because of this rule the Assignment Regulation will have a major impact on international trade finance involving the assignment of receivables. It could also create uncertainty over which law is applicable if the relevant third country’s law does not recognize the rule contained in Article 4(1).

What is the effect of the Assignment Regulation on Bank Accounts?

Bank accounts and account pledges will continue to be governed by the law of the country where the relevant bank is situated, provided that the account mandate prescribes that the law of that country shall govern the banking relationship.

However, this will only apply to bank accounts held with banks where the head office is situated within the European Union and to branches of third country banks which are located within the European Union.

In respect of banks situated outside of the European Union Article 4 (1) applies and the relevant account security will be governed by the law of the country where the bank has its place of central administration. .

What is the effect of the Assignment Regulation on Financial Instruments?

The law that applies to Financial Instruments will be the law governing the instrument. Article 2 (i) of the Assignment Regulation defines “Financial Instrument” as the instruments specified as such in the MIFID II Directive (Section C of Annex I of Directive 2014/65/EU of 15 May 2014).

It is unclear how this will affect the German Schuldschein -Market, since Schuldscheine with a term of more than 397 days may not qualify as a Financial Instrument. This could mean that secondary trading in such Schuldscheine becomes quite complex since the assignment of the relevant Schuldscheine will not be governed by German law, but by the law of the jurisdiction where the previous holders of the Schuldscheine is situated – and this could be any number of jurisdictions

What is the effect of the Assignment Regulation on securitization?

Presently the Assignment Regulation provides that the assignor and the assignee of a receivable/claim may choose the law applicable to the assignment of the securitization. However, the European Parliament propose to delete this exemption. This is disappointing because the proposal made by the European Commission could make securitization much easier and less complex than is currently the case.

What is the position in respect of Factoring, Asset Based Lending and Invoice Discounting?

Article 4(1) will apply to all other forms of receivable finance such as factoring, asset based lending, invoice discounting or other forms of supply chain finance. Accordingly the law of the central place of administration of the assignor determines the effectiveness and perfection of the assignment vis-à-vis third parties.

In practice that rule will make the financing of portfolios of receivables (which could be subject to a multitude of jurisdictions) much easier, where they are owned by one assignor situated in one jurisdiction. In that case it will be much easier to identify the one relevant law applicable.

Conversely, it will make it more difficult to finance portfolios of those receivables where assignors are situated in various jurisdictions but the receivables themselves are governed by the same law.

How does the Assignment Regulation apply to cross-border assignments in insolvency?

The difficulty here, is that the relevant test for the purposes of Article 4(1) of the Assignment Regulation in determining the “habitual residence” of the assignor is the “ place of central administration ” whereas the test under the EU Insolvency Regulation is the “centre of main interests” (COMI) and the presumption that the COMI is the company’s registered office. There is no such assumption under the Assignment Regulation.

Applying either of those tests may result in the same answer but it cannot be excluded that the location of the assignor could be different in some circumstances, resulting in uncertainty as to which law might apply to cross-border assignments in insolvencies.

Further, unlike under the EU Insolvency Regulation where the definition of COMI requires the company to have held its centre of main interests for 3 months, the same does not apply under the Assignment Regulation. Therefore, it could make it difficult to identify the “place of central administration” if the assignor has recently changed location, and again, the ability to identify the relevant applicable law.

The principles set out in the Assignment Regulation are welcome because they provide much needed clarity on which law applies when determining the validity of an assignment of receivables cross-border. It will provide more certainty to assignees, and hopefully lead to less litigation as a consequence.

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1. Receivables Contracts

1.1 Formalities. In order to create an enforceable debt obligation of the obligor to the seller: (a) is it necessary that the sales of goods or services are evidenced by a formal receivables contract; (b) are invoices alone sufficient; and (c) can a binding contract arise as a result of the behaviour of the parties?

In order to create an enforceable debt obligation of the obligor to the seller:

• it is not necessary that the sale of goods or services is evidenced by a formal receivables contract. An enforceable debt obligation may be created orally or in writing;
• an invoice alone may operate as sufficient evidence of an enforceable debt obligation; and
• the behaviour of parties may be used to determine the existence of a contract implied on the basis of dealings between parties.

1.2 Consumer Protections. Do your jurisdiction's laws: (a) limit rates of interest on consumer credit, loans or other kinds of receivables; (b) provide a statutory right to interest on late payments; (c) permit consumers to cancel receivables for a specified period of time; or (d) provide other noteworthy rights to consumers with respect to receivables owing by them?

The Consumer Credit Act 1995 (as amended) (the " CCA "), the European Communities (Consumer Credit Agreements) Regulations 2010 (as amended) (the " CCA Regulations ", together with the CCA, the " CCA Rules ") and The European Union (Consumer Mortgage Credit Agreements) Regulations 2016 (which came into operation in Ireland on 21 March 2016) regulate consumer credit agreements in Ireland.

The European Union (Consumer Mortgage Credit Agreements) Regulations 2016 apply to new: (i) credit agreements secured by a charge, a mortgage or by another comparable security used in an EEA Member State on residential immovable property or secured by a right related to residential immovable property, and where the person to whom the credit is provided is a consumer; and (ii) credit agreements, the purpose of which is to acquire or retain property rights in land or in an existing or projected building, and where the person to whom the credit is provided is a consumer, entered into on or after 21 March 2016, and should be taken into account in considering what consumer protections are available to consumers in Ireland.

The CCA rules do not limit rates of interest on consumer credit, loans or other kinds of receivables. However, it is noteworthy that if the cost of credit is considered excessive, it may not be enforceable. A "credit institution" (as defined under the CCA) is required to notify the Central Bank of Ireland (the " CBI ") of any increase in its charges to consumers. The CBI has the power to instruct the credit institution to refrain from imposing the increase in charges.

Please note Directive (EU) 2021/2167 (on NPL credit servicers and purchasers) (the " NPL Directive ") includes an amendment in new Article 16a of the EU Consumer Credit Directive (2008), which allows Member States the discretion to require charges on default to be no greater than necessary to compensate the creditor for costs incurred as a result of the default. If additional charges are permitted, a cap must be imposed. Ireland is currently consulting on how/whether to exercise this discretion and the NPL Directive must be transposed by 31 December 2023.

In Ireland, there is no statutory right to interest on late payments in consumer transactions. In commercial transactions, a statutory right to interest on late payments does exist.

Consumers may cancel receivables if the consumer credit agreement the receivables were purchased under does not comply with the CCA Rules. In addition, under The European Union (Consumer Mortgage Credit Agreements) Regulations 2016, a consumer has a right to discharge fully or partially their obligations under a credit agreement prior to the expiry of that agreement and is entitled to a reduction in the total cost of the credit to the consumer (such reduction consisting of the interest and the costs for the remaining duration of the contract). Furthermore, under The European Union (Consumer Mortgage Credit Agreements) Regulations 2016, a consumer may be entitled to compensation where justified for possible costs directly linked to the early repayment.

Other noteworthy rights of consumers include:

• Rights against unfair contractual clauses – the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 (the " UTCC ").
• Protections in dealing with regulated entities – the Consumer Protection Code 2012 and the various Addendums to it (the " CPC ").
• Protections against unfair commercial practices – the Consumer Protection Act 2007.
• Protections in respect of hire purchase including PCP, consumer hire and indirect credit – Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022.

1.3 Government Receivables. Where the receivables contract has been entered into with the government or a government agency, are there different requirements and laws that apply to the sale or collection of those receivables?

As with all governments and government agencies worldwide, there is a possibility that sovereign immunity may affect the enforceability of receivables contracts in Ireland.

Irish governmental bodies and agencies are subject to the Prompt Payment of Accounts Act 1997. Under the Prompt Payments of Accounts Act 1997, Irish governmental bodies and agencies have a statutory obligation to pay monies due to their suppliers within 45 days of receipt of an invoice or delivery of the goods or services.

2. Choice of Law – Receivables Contracts

2.1 No Law Specified. If the seller and the obligor do not specify a choice of law in their receivables contract, what are the main principles in your jurisdiction that will determine the governing law of the contract?

Receivables contracts entered into on or after 17 December 2009 (contracts entered into prior to 17 December 2009 are governed by the Contractual Obligations (Applicable Law) Act 1991, pursuant to which the Rome convention on the law applicable to contractual obligations (the " Rome Convention ") was implemented in Ireland) are governed by Regulation (EC) 593/2008 of 17 June 2008 (" Rome I ").

Rome I contains specific provisions regarding certain classes of contract, which determine the applicable law in the absence of an express choice of law in such contracts. In respect of contracts that do not clearly fall within the scope of any of these specific provisions (receivables contracts are not specifically provided for), the applicable law is determined by reference to the jurisdiction where the party required to effect the characteristic performance of the contract has his habitual residence.

If the applicable law cannot be determined by reference to the foregoing, the contract shall be governed by the law of the country with which it is most closely connected.

Notwithstanding the above considerations, Rome I provides that if the circumstances of the case are such that the contract is manifestly more closely connected to another country other than that determined in accordance with the above, then the laws of that other country shall apply.

The applicable law of contracts that fall outside the remit of Rome I will be determined by reference to the parties' intentions under the principles of Irish common law. If such intentions cannot be established, the applicable law will be the law with which the contract is most closely connected. A part of a contract may be separable, in order to render such part governable by the law of another country with which it has a closer connection.

2.2 Base Case. If the seller and the obligor are both resident in your jurisdiction, and the transactions giving rise to the receivables and the payment of the receivables take place in your jurisdiction, and the seller and the obligor choose the law of your jurisdiction to govern the receivables contract, is there any reason why a court in your jurisdiction would not give effect to their choice of law?

In the absence of overriding mandatory provisions of law applying, Irish courts should give effect to such a choice of law.

2.3 Freedom to Choose Foreign Law of Non-Resident Seller or Obligor. If the seller is resident in your jurisdiction but the obligor is not, or if the obligor is resident in your jurisdiction but the seller is not, and the seller and the obligor choose the foreign law of the obligor/seller to govern their receivables contract, will a court in your jurisdiction give effect to the choice of foreign law? Are there any limitations to the recognition of foreign law (such as public policy or mandatory principles of law) that would typically apply in commercial relationships such as that between the seller and the obligor under the receivables contract?

As discussed above, under Rome I, the parties to a contract may freely choose the applicable law of their contract. Such choice would usually only be overridden if it was contrary to public policy or certain overriding mandatory provisions of law. The principles of Irish common law apply to contracts outside the scope of Rome I. Nonetheless, such principles will generally recognise the parties' right to choose the governing law of their contract and would only seek to displace such choice in exceptional circumstances.

3. Choice of Law – Receivables Purchase Agreement

3.1 Base Case. Does your jurisdiction's law generally require the sale of receivables to be governed by the same law as the law governing the receivables themselves? If so, does that general rule apply irrespective of which law governs the receivables (i.e., your jurisdiction's laws or foreign laws)?

Subject to certain exceptions, no. Irrespective of the law governing the receivable(s), the parties to the receivable(s) sale/purchase agreement are permitted to select the law of any country to govern the agreement. Typically, however, the parties will select the law governing the majority of the receivables as the law to govern the sale/purchase agreement. Transactions involving the sale/purchase of receivables governed by various different laws can comprise a single receivables sale/purchase agreement with a split governing law clause or multiple receivables sale/purchase agreements.

3.2 Example 1: If (a) the seller and the obligor are located in your jurisdiction, (b) the receivable is governed by the law of your jurisdiction, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of your jurisdiction to govern the receivables purchase agreement, and (e) the sale complies with the requirements of your jurisdiction, will a court in your jurisdiction recognise that sale as being effective against the seller, the obligor and other third parties (such as creditors or insolvency administrators of the seller and the obligor)?

Yes, the Irish courts should recognise such a sale as being effective.

3.3 Example 2: Assuming that the facts are the same as Example 1, but either the obligor or the purchaser or both are located outside your jurisdiction, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller), or must the foreign law requirements of the obligor's country or the purchaser's country (or both) be taken into account?

Section 2, and questions 3.1 and 3.4 are applicable here. Additionally, under Rome I and the Rome Convention, laws other than the governing law of the receivables sale/purchase agreement may be taken into account in certain circumstances. An example of this is where an Irish law-governed contract will be performed in a place other than Ireland; in such circumstances, the Irish courts may apply certain provisions of the law of the country where performance is to take place (where non-application of such provisions would render the contract unlawful in that country).

3.4 Example 3: If (a) the seller is located in your jurisdiction but the obligor is located in another country, (b) the receivable is governed by the law of the obligor's country, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of the obligor's country to govern the receivables purchase agreement, and (e) the sale complies with the requirements of the obligor's country, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller) without the need to comply with your jurisdiction's own sale requirements?

Section 2, and questions 3.1 and 3.3 are applicable here. Under Rome I and the Rome Convention, where there is an express choice of law by the parties to such an agreement, the Irish courts should recognise the choice of law and assess the validity of the contract in accordance with the law chosen by the parties. Nevertheless, certain principles of Irish law, such as Irish public policy or if the sale has not been made in good faith, cannot be dis-applied and to the extent the parties' chosen law conflicts with those principles the Irish courts may not apply the parties' chosen law. Furthermore, the Irish courts will not give effect to a choice of law if to do so would contravene the provisions of Rome I and/or the Rome Convention.

3.5 Example 4: If (a) the obligor is located in your jurisdiction but the seller is located in another country, (b) the receivable is governed by the law of the seller's country, (c) the seller and the purchaser choose the law of the seller's country to govern the receivables purchase agreement, and (d) the sale complies with the requirements of the seller's country, will a court in your jurisdiction recognise that sale as being effective against the obligor and other third parties (such as creditors or insolvency administrators of the obligor) without the need to comply with your jurisdiction's own sale requirements?

Yes. See section 2, and questions 3.1, 3.3 and 3.4, which are applicable here.

3.6 Example 5: If (a) the seller is located in your jurisdiction (irrespective of the obligor's location), (b) the receivable is governed by the law of your jurisdiction, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of the purchaser's country to govern the receivables purchase agreement, and (e) the sale complies with the requirements of the purchaser's country, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller, any obligor located in your jurisdiction and any third party creditor or insolvency administrator of any such obligor)?

Yes; see section 2, and questions 3.1, 3.3, 3.4 and 3.5, which are applicable here.

It should be noted that, as regards sections 2 and 3, at the date hereof, we are not aware of any circumstances, concerning the laws of England as the governing law of a Receivables Contract/Purchase Agreement, that would give rise to an Irish court holding that such choice violates Irish public policy.

4. Asset Sales

4.1 Sale Methods Generally. In your jurisdiction what are the customary methods for a seller to sell receivables to a purchaser? What is the customary terminology – is it called a sale, transfer, assignment or something else?

The most common method of selling receivables in Ireland is by way of assignment (which can be legal or equitable). Other methods that can be used are novation (which transfers both the rights and obligations), a trust over the receivables or sub-participation.

An outright sale of receivables is generally described as a "sale", "a true sale", a "transfer" or an "assignment". Often the term "assignment" indicates a transfer of rights but not obligations and the term "transfer" usually connotes a transfer of rights and obligations. The phrase "security assignment" is generally used to distinguish between a transfer by way of security and an outright transfer.

4.2 Perfection Generally. What formalities are required generally for perfecting a sale of receivables? Are there any additional or other formalities required for the sale of receivables to be perfected against any subsequent good faith purchasers for value of the same receivables from the seller?

A sale of receivables by way of legal assignment is perfected by the delivery in writing of a notice of the sale by the assignor. The assignment must be: (i) in writing under the hand of the assignor; (ii) contain details of the whole of the debt; and (iii) be absolute and not by way of charge. If an assignment does not meet this criterion, it will most likely be characterised as an equitable assignment and any subsequent assignment that does meet these requirements will take priority. The notice of assignment is often achieved through the delivery of customary "hello" letters to the borrowers.

4.3 Perfection for Promissory Notes, etc. What additional or different requirements for sale and perfection apply to sales of promissory notes, mortgage loans, consumer loans or marketable debt securities?

Transfers of promissory notes and other negotiable instruments are perfected by way of delivery or delivery and endorsement.

Mortgage loans and their related mortgages are generally transferred by way of assignment. In order to effect a full legal assignment of the mortgage, a transfer must be registered with the Land Registry (if the land is registered) or Registry of Deeds (if the land is unregistered).

Section 8 details specific regulatory requirements relating to consumer loans. Under the CCA Regulations (should they apply), a consumer should be provided with notice of the transfer of their loan unless the original lender will continue to service the loan. Pursuant to the CPC, a regulated entity (which includes a credit servicing firm – see section 8) must provide two months' notice to the consumer of their loans being transferred.

Marketable debt securities in bearer form can be transferred by delivery and endorsement and, if in registered form, by registration of the transferee in the relevant register (see section 8 below in respect of regulatory updates to bearer securities). Dematerialised marketable securities held in a clearing system may be transferred by debiting the clearing system account of the purchaser.

4.4 Obligor Notification or Consent. Must the seller or the purchaser notify obligors of the sale of receivables in order for the sale to be effective against the obligors and/or creditors of the seller? Must the seller or the purchaser obtain the obligors' consent to the sale of receivables in order for the sale to be an effective sale against the obligors? Whether or not notice is required to perfect a sale, are there any benefits to giving notice – such as cutting off obligor set-off rights and other obligor defences?

No. However, in order for a legal sale to be effected, written notice must be provided to the obligor.

The absence of notice has the following implication:

• the assignment will only be equitable;
• obligors can discharge their debts by paying the seller;
• obligors may set-off claims against the seller even if they accrue after the assignment;
• a subsequent assignee without notice of the prior assignment would take priority over the claims of the initial purchaser; and
• the purchaser cannot sue the obligor in its own name, but must join the seller as co-plaintiff.

4.5 Notice Mechanics. If notice is to be delivered to obligors, whether at the time of sale or later, are there any requirements regarding the form the notice must take or how it must be delivered? Is there any time limit beyond which notice is ineffective – for example, can a notice of sale be delivered after the sale, and can notice be delivered after insolvency proceedings have commenced against the obligor or the seller? Does the notice apply only to specific receivables or can it apply to any and all (including future) receivables? Are there any other limitations or considerations?

There are no requirements as to the form of the notice; however, it should be clear and state that from the date thereof the obligor should pay the assignee. There is no specific period during which notices should be delivered and notices may be provided following the commencement of insolvency proceedings. The notices should apply only to specific receivables.

A notice (or "hello letter") in respect of consumer loans should adhere to requirements set out in the CPC (e.g., as to certain required consumer-facing statements) and any other CBI requirements set out from time to time.

4.6 Restrictions on Assignment – General Interpretation. Will a restriction in a receivables contract to the effect that "None of the [seller's] rights or obligations under this Agreement may be transferred or assigned without the consent of the [obligor]" be interpreted as prohibiting a transfer of receivables by the seller to the purchaser? Is the result the same if the restriction says "This Agreement may not be transferred or assigned by the [seller] without the consent of the [obligor]" (i.e., the restriction does not refer to rights or obligations)? Is the result the same if the restriction says "The obligations of the [seller] under this Agreement may not be transferred or assigned by the [seller] without the consent of the [obligor]" (i.e., the restriction does not refer to rights)?

It is likely that the wording in the first two formulations above would prevent the transfer of receivables without the consent of the obligor.

Under the third formulation, it is likely that an Irish court would find that the seller has an implicit authority to transfer its rights under the agreement without the consent of the obligor.

4.7 Restrictions on Assignment; Liability to Obligor. If any of the restrictions in question 4.6 are binding, or if the receivables contract explicitly prohibits an assignment of receivables or "seller's rights" under the receivables contract, are such restrictions generally enforceable in your jurisdiction? Are there exceptions to this rule (e.g., for contracts between commercial entities)? If your jurisdiction recognises restrictions on sale or assignment of receivables and the seller nevertheless sells receivables to the purchaser, will either the seller or the purchaser be liable to the obligor for breach of contract or tort, or on any other basis?

Restrictions on the assignment of receivables or the "seller's rights" are generally enforceable in Ireland. If a contract is silent on assignability, the seller is generally free to assign their rights. If an assignment were effected in breach of a contractual provision, despite being ineffective between the seller, purchaser and obligor, it will not invalidate the assignment between the seller and purchaser. The seller may be required to hold on trust any monies received from the obligor for the purchaser.

4.8 Identification. Must the sale document specifically identify each of the receivables to be sold? If so, what specific information is required (e.g., obligor name, invoice number, invoice date, payment date, etc.)? Do the receivables being sold have to share objective characteristics? Alternatively, if the seller sells all of its receivables to the purchaser, is this sufficient identification of receivables? Finally, if the seller sells all of its receivables other than receivables owing by one or more specifically identified obligors, is this sufficient identification of receivables?

The sale document must identify the receivables to be sold with sufficient clarity so that they are identifiable and distinguishable from other receivables owned by the seller. Details of the obligor's name and the underlying contract should be sufficient, though particular care should be taken when acquiring non-performing loans, given the requirement to evidence the transfer and current ownership of the debt when enforcing it (and borrower challenges in this area). The receivables being sold do not have to share objective characteristics. The sale of all receivables the seller has, or the sale of all receivables other than some, is unlikely to sufficiently identify the transferring receivables.

4.9 Recharacterisation Risk. If the parties describe their transaction in the relevant documents as an outright sale and explicitly state their intention that it be treated as an outright sale, will this description and statement of intent automatically be respected or is there a risk that the transaction could be characterised by a court as a loan with (or without) security? If recharacterisation risk exists, what characteristics of the transaction might prevent the transfer from being treated as an outright sale? Among other things, to what extent may the seller retain any of the following without jeopardising treatment as an outright sale: (a) credit risk; (b) interest rate risk; (c) control of collections of receivables; (d) a right of repurchase/redemption; (e) a right to the residual profits within the purchaser; or (f) any other term?

Recharacterisation risk exists in Ireland, along with consequential risk that a sale found to be a security arrangement is void against a liquidator and creditors of the seller due to a failure to register any registrable security interest.

However, there is a recent upper Irish court decision ( Re: Eteams (International) Limited (in voluntary liquidation) [2017] IEHC 393, affirmed on appeal Court of Appeal, 14 May 2019 ) that, in broad terms, endorsed established English case law and principles on questions of true sale and recharacterisation (e.g., Re: George Inglefield and Welsh Development Agency ). The decision held that in the absence of the contract being held to be a "sham" (which is a serious allegation to make), the nature of the contract is determined by the objective terms and their legal effect, rather than the subjective intention of the parties or the economic effect of the arrangement. That said, a general right to repurchase (save for usual reasons such as asset ineligibility) or rights to participate in the profits of the purchasers or the assets will be problematic to the analysis and all such terms of the contract need to be closely considered.

Under Sections 443 (Power of Court to Order the Return of Assets Improperly Transferred), 604 (Unfair Preferences) and 608 (Power of Court to Order Return of Assets which have been Improperly Transferred) of the Irish Companies Act 2014 (as amended) (the " CA 2014 ") sale transactions may also be vulnerable, particularly on the insolvency of the seller.

4.10 Continuous Sales of Receivables. Can the seller agree in an enforceable manner to continuous sales of receivables (i.e., sales of receivables as and when they arise)? Would such an agreement survive and continue to transfer receivables to the purchaser following the seller's insolvency?

The seller and purchaser may agree to continuous sales of receivables whereby receivables will be automatically assigned to the purchaser upon coming into existence.

See question 6.5 regarding the effect of an insolvency of the seller on an agreement to assign a receivable not yet in existence.

4.11 Future Receivables. Can the seller commit in an enforceable manner to sell receivables to the purchaser that come into existence after the date of the receivables purchase agreement (e.g., "future flow" securitisation)? If so, how must the sale of future receivables be structured to be valid and enforceable? Is there a distinction between future receivables that arise prior to versus after the seller's insolvency?

Yes. Such an agreement is treated as an agreement to assign and gives rise to an equitable assignment upon the receivable coming into existence.

See question 6.5 on the effect of an insolvency of the seller on an agreement to assign a receivable not yet in existence.

4.12 Related Security. Must any additional formalities be fulfilled in order for the related security to be transferred concurrently with the sale of receivables? If not all related security can be enforceably transferred, what methods are customarily adopted to provide the purchaser the benefits of such related security?

Related security is generally transferable in the same manner as the receivable itself. As discussed in question 4.3, the transfer of certain types of security may require additional formalities.

4.13 Set-Off; Liability to Obligor. Assuming that a receivables contract does not contain a provision whereby the obligor waives its right to set-off against amounts it owes to the seller, do the obligor's set-off rights terminate upon its receipt of notice of a sale? At any other time? If a receivables contract does not waive set-off but the obligor's set-off rights are terminated due to notice or some other action, will either the seller or the purchaser be liable to the obligor for damages caused by such termination?

Generally speaking, an obligor's right of set-off exists until the obligor receives a notice of assignment. If the cross-debt arose before the obligor's receipt of the notice, the right of set-off will survive receipt of the notice. If an obligor's rights were terminated due to notice or some other action, it would be unlikely that the seller or purchaser would be liable to the obligor for damages.

In respect of consumer loans, the CCA provides that where the creditor's or owner's rights under an agreement are assigned to a third person, the consumer is entitled to plead against the third person any defence that was available to him against the original creditor, including set-off.

4.14 Profit Extraction. What methods are typically used in your jurisdiction to extract residual profits from the purchaser?

Methods typically used in Ireland to extract residual profit from special purpose vehicles include:

• a subordinated or equity class of note or loan;
• paying the seller fees;
• paying deferred purchase price or consideration to the seller for the receivables purchased; and/or
• making repayments or interest payments to the seller in respect of subordinated loans granted by the seller.

5. Security Issues

5.1 Back-up Security. Is it customary in your jurisdiction to take a "back-up" security interest over the seller's ownership interest in the receivables and the related security, in the event that an outright sale is deemed by a court (for whatever reason) not to have occurred and have been perfected (see question 4.9 above)?

Where an outright sale is intended, it is not customary in Ireland to take a back-up security interest over the seller's ownership interest in the receivables and the related security. It is not uncommon, however, for a seller to create a trust over its interest in the receivables in favour of the purchaser. This offers the purchaser a degree of secondary protection should the validity of the sale be questioned.

5.2 Seller Security. If it is customary to take back-up security, what are the formalities for the seller granting a security interest in receivables and related security under the laws of your jurisdiction, and for such security interest to be perfected?

See question 5.1.

5.3 Purchaser Security. If the purchaser grants security over all of its assets (including purchased receivables) in favour of the providers of its funding, what formalities must the purchaser comply with in your jurisdiction to grant and perfect a security interest in purchased receivables governed by the laws of your jurisdiction and the related security?

The most common form of security taken over receivables in Ireland is a mortgage or a charge.

A mortgage involves assigning the title of an asset by way of security for the discharge of the secured obligations. In the context of receivables, the rights of the purchaser (such as the right to receive payment) are generally assigned upon the condition that such rights will be re-assigned to the purchaser on redemption or discharge of its secured obligations. There are principally two types of mortgage: a legal mortgage; and an equitable mortgage. A legal mortgage is created when the assignment is: (i) perfected by the delivery of notice to the obligor(s) of the relevant receivables in accordance with the requirements of Section 28(6) of the Supreme Court of Judicature (Ireland) Act 1877; (ii) in writing under the hand of the assignor; (iii) in respect of the whole debt; and (iv) absolute and not by way of charge. In circumstances where the assignment does not fulfil these requirements, it will likely take effect as an equitable assignment. Until an equitable mortgage has been perfected by notice to the obligor(s), the assignee's security will be subject to prior equities and will rank behind a later assignment (in circumstances where the later assignee has no notice of the earlier assignment and has itself given notice to the obligor(s)).

A charge involves the creation of an encumbrance over assets. There are two types of charges: a fixed charge; and a floating charge. In the context of receivables, a fixed charge would attach to specific receivables on creation, whilst a floating charge would "float" over a class of present and future assets and would remain dormant until some further step is taken by or on behalf of the charge holder, a "crystallisation event". Prior to the occurrence of a crystallisation event, the class of assets over which a floating charge has been granted can continue to be managed in the ordinary course of the chargor's business. Upon a crystallisation event occurring, the floating charge attaches to the particular class of the chargor's assets and the charge effectively becomes a fixed charge. The distinguishing factor between a fixed and floating charge is the level of control over the receivable/asset that the chargee has. Irish courts will look at the substance of the security created as opposed to how it is described/named in determining one from the other.

Where an Irish company creates security over certain types of assets such as receivables (i.e., it creates a "registrable charge" for the purposes of the CA 2014), it is required to register short particulars of such security within 21 days of its creation with the Irish Registrar of Companies (the " RoC "). Failure to register a registrable charge within 21 days of its creation will result in the security interest being void against the liquidator and any creditors of the chargor. An unregistered charge will still be valid as against the chargor, provided the chargor is not in liquidation.

Security created over: (i) cash; (ii) money credited to an account of a financial institution, or any other deposits; (iii) shares, bond or debt instruments; (iv) units in collective investment undertakings or money market instruments; or (v) claims and rights (such as dividends or interest) in respect of anything referred to in (ii) to (iv) above, are not registerable charges. Whilst "cash" has not been defined in the CA 2014, it is defined in the European Communities (Financial Collateral Arrangements) Regulations 2010 (as amended) (the " FCR ") as "money credited to an account" or a claim for the repayment of money.

The priority of registerable charges is determined by the date/time of receipt by the RoC of a filed charge rather than the date of creation.

5.4 Recognition. If the purchaser grants a security interest in receivables governed by the laws of your jurisdiction, and that security interest is valid and perfected under the laws of the purchaser's jurisdiction, will the security be treated as valid and perfected in your jurisdiction or must additional steps be taken in your jurisdiction?

Where the purchaser is a foreign company and the receivables are situated in Ireland, the security created will not be subject to the requirement to register with the RoC in order to perfect the security.

Where the purchaser is an Irish company, details of the security will be subject to the requirement to register with the RoC, regardless of whether or not the receivables are located in Ireland.

5.5 Additional Formalities. What additional or different requirements apply to security interests in or connected to insurance policies, promissory notes, mortgage loans, consumer loans or marketable debt securities?

Security over contractual rights under insurance policies is created by way of a mortgage, whereby the policyholder assigns the benefit by way of security to the assignee.

Security over mortgage or consumer loans is generally created by way of a mortgage or charge. An equitable mortgage is usually created over the mortgage securing a mortgage loan.

The type of security over marketable debt securities (including promissory notes) depends on whether the securities are bearer or registered, certificated (existing in physical form), immobilised or dematerialised and/or directly-held or indirectly-held.

Directly held and registered certificated debt securities are usually secured by legal mortgage (by entry of the mortgage on the relevant register) or by equitable mortgage or charge (by security transfer or by agreement for transfer or charge).

Bearer debt securities are usually secured by way of mortgage or pledge (by delivery together with a memorandum of deposit) or charge (by agreement to charge).

Indirectly held certificated debt securities are usually secured by legal mortgage (by transfer, either to an account of the mortgagee at the same intermediary or by transfer to the mortgagee's intermediary or nominee via a common intermediary) or by equitable mortgage or charge (by agreement of the intermediary to operate a relevant securities account in the name of the mortgagor containing the debt securities to the order or control of the chargee).

Security over shares, bonds or debt instruments have been specifically excluded from the requirement to register security. If the security interest constitutes a "security financial collateral arrangement", the FCR applies.

5.6 Trusts. Does your jurisdiction recognise trusts? If not, is there a mechanism whereby collections received by the seller in respect of sold receivables can be held or be deemed to be held separate and apart from the seller's own assets (so that they are not part of the seller's insolvency estate) until turned over to the purchaser?

A validly constituted trust over collections received by the seller in respect of sold receivables should be recognised under Irish law.

5.7 Bank Accounts. Does your jurisdiction recognise escrow accounts? Can security be taken over a bank account located in your jurisdiction? If so, what is the typical method? Would courts in your jurisdiction recognise a foreign law grant of security taken over a bank account located in your jurisdiction?

Irish law recognises the concept of money held in a bank account in escrow. Security may be taken over a bank account in Ireland and is typically taken by way of a charge or security assignment.

Where a depositor grants security over a credit balance in favour of a bank at which the credit balance is held, security can only be achieved by way of a charge.

In circumstances where the security constitutes a "security financial collateral arrangement" over "financial collateral" within the meaning of the FCR, those regulations apply.

5.8 Enforcement over Bank Accounts. If security over a bank account is possible and the secured party enforces that security, does the secured party control all cash flowing into the bank account from enforcement forward until the secured party is repaid in full, or are there limitations? If there are limitations, what are they?

Generally, the bank where the secured account is held is provided with notice of the creation of security over the account and that it should, amongst other things, upon being notified that the security has become enforceable, act in accordance with the instructions of the secured party. It is recommended that an acknowledgment of such notice is obtained from the bank; however, failure to obtain such acknowledgment will not undermine the security granted to the secured party. Where such notice of creation of the security has been properly delivered to the bank and the secured party subsequently enforces its security, the bank should follow the instructions of the secured party with respect to all cash standing to the credit of (or flowing into) the secured account until the secured obligations are fully discharged and the bank has been notified that the account is no longer encumbered.

5.9 Use of Cash Bank Accounts. If security over a bank account is possible, can the owner of the account have access to the funds in the account prior to enforcement without affecting the security?

Any charge over a cash bank account that permits the chargor access to the funds prior to enforcement is likely to be categorised by an Irish court as a floating charge, even if the security is stated to be a fixed charge. In order to be categorised as a fixed charge, it would be necessary for restrictions on the chargor's ability to utilise the funds in the relevant account. The consequences of this distinction in a post-enforcement scenario are set out in question 5.3 above.

6. Insolvency Laws

6.1 Stay of Action. If, after a sale of receivables that is otherwise perfected, the seller becomes subject to an insolvency proceeding, will your jurisdiction's insolvency laws automatically prohibit the purchaser from collecting, transferring or otherwise exercising ownership rights over the purchased receivables (a "stay of action")? If so, what generally is the length of that stay of action? Does the insolvency official have the ability to stay collection and enforcement actions until he determines that the sale is perfected? Would the answer be different if the purchaser is deemed to only be a secured party rather than the owner of the receivables?

If the sale of the receivables from the seller to the purchaser was a "true sale", the appointment of an insolvency official to the seller should not affect the purchaser's rights under the receivables.

The appointment of a liquidator or an examiner to an insolvent Irish company imposes an automatic stay of action against the entity. In respect of the appointment of an examiner, the initial period of protection is 70 days, which can be extended up to 100 days. During the protection period, no proceedings for the winding-up of the company may be commenced or resolution for winding-up passed in relation to the company. Furthermore, no action may be taken to realise or enforce any security granted by the company, without the consent of the examiner. Creditors may not enforce their claims, whether by issuing court proceedings or enforcing security.

If the sale of the receivables was not a true sale, the receivables might be determined to be the property of the seller. In such an instance, the purchaser may be deemed to be a secured party of the seller and any appointment of an insolvency official (as described above) might impede the transfer of the receivables to the purchaser.

6.2 Insolvency Official's Powers. If there is no stay of action, under what circumstances, if any, does the insolvency official have the power to prohibit the purchaser's exercise of its ownership rights over the receivables (by means of injunction, stay order or other action)?

Where there is a legal assignment of the receivables to the purchaser, an insolvency official will not have the ability to interfere in the purchaser's rights over the receivables (unless there has been a fraudulent preference or an improper transfer of assets).

6.3 Suspect Period (Clawback). Under what facts or circumstances could the insolvency official rescind or reverse transactions that took place during a "suspect" or "preference" period before the commencement of the seller's insolvency proceedings? What are the lengths of the "suspect" or "preference" periods in your jurisdiction for (a) transactions between unrelated parties, and (b) transactions between related parties? If the purchaser is majority-owned or controlled by the seller or an affiliate of the seller, does that render sales by the seller to the purchaser "related party transactions" for purposes of determining the length of the suspect period? If a parent company of the seller guarantee's the performance by the seller of its obligations under contracts with the purchaser, does that render sales by the seller to the purchaser "related party transactions" for purposes of determining the length of the suspect period?

The commencement of insolvency proceedings can result in antecedent transactions being challenged by the insolvency official under a number of different statutory provisions, including the following:

• Unfair preference: The creation of security and the making of a payment to a creditor prior to being placed in an insolvent liquidation can be set aside, where the debtor company carried out the transaction with the intention of benefitting one creditor (or any guarantor of the debt due to that creditor) over the other creditors. The preference can be set aside if it occurred within six months preceding the liquidation (or two years if the beneficiary of the transaction is a related party).
• Improper transfer: If the company's assets have been improperly transferred (i.e., with the effect of perpetrating a fraud), the High Court can order assets to be returned if it considers it just and equitable to do so.

A floating charge created within 12 months before the commencement of its winding-up may be invalid (except to the extent of monies advanced or paid or the actual price or value of the goods or services sold or supplied to the company), unless it is proved that the company, immediately after the creation of the charge, was solvent. Where the floating charge is created in favour of a related party, the period of 12 months is extended to two years.

If the purchaser is majority-owned or controlled by the seller or an affiliate of the seller, the purchaser will be considered a related party. If a parent company of the seller guarantees the performance by the seller of its obligations under contracts with the purchaser, the question of whether or not the purchaser would be considered a related party depends on the relationship between the purchaser and the seller.

It should be noted that, in December 2022, the EU Commission proposed a draft Directive to harmonise certain aspects of insolvency law (COM (2022) 702). While still in its early stages, if implemented, the Directive would substantially alter the areas of preference and clawback (including a four-year lookback in certain circumstances).

6.4 Substantive Consolidation. Under what facts or circumstances, if any, could the insolvency official consolidate the assets and liabilities of the purchaser with those of the seller or its affiliates in the insolvency proceeding? If the purchaser is owned by the seller or by an affiliate of the seller, does that affect the consolidation analysis?

An Irish court has the power to "pierce the corporate veil" and make orders consolidating assets of the insolvent company with another company if there are equitable grounds to do so. An Irish court will only rarely do this.

The assets and liabilities of the purchaser could be pooled with the assets and liabilities of the seller, on the application of the insolvency official, if the purchaser was itself being wound up and Irish High Court were to make an order that the purchaser and the seller are related companies (e.g., if the purchaser is owned by the seller) and should be wound up as if they were one company. However, pooling orders are seldom made in Ireland – typically only in the context of an insolvency and where the business of the two companies in question have been so intermingled that they are not readily identifiable from each other.

6.5 Effect of Insolvency on Receivables Sales. If insolvency proceedings are commenced against the seller in your jurisdiction, what effect do those proceedings have on (a) sales of receivables that would otherwise occur after the commencement of such proceedings, or (b) on sales of receivables that only come into existence after the commencement of such proceedings?

If the sale of the receivables had been concluded and the purchase price had been received by the seller, the insolvency proceedings related to the seller would have no impact on such transfer.

If the sale had not been included and the purchase price not received by the seller, the purchaser would be an unsecured creditor of the seller (depending on how indebted the seller had become to the purchaser).

6.6 Effect of Limited Recourse Provisions. If a debtor's contract contains a limited recourse provision (see question 7.4 below), can the debtor nevertheless be declared insolvent on the grounds that it cannot pay its debts as they become due?

Limited recourse provisions are enforceable as a matter of Irish law. If the limited recourse provisions are included in every document the debtor signs and the provisions are adhered to, it should not be possible for the debtor to be declared insolvent on the basis of an inability to pay its debts as they fall due.

7. Special Rules

7.1 Securitisation Law. Is there a special securitisation law (and/or special provisions in other laws) in your jurisdiction establishing a legal framework for securitisation transactions? If so, what are the basics? Is there a regulatory authority responsible for regulating securitisation transactions in your jurisdiction? Does your jurisdiction define what type of transaction constitutes a securitisation?

The European Union Securitisation Regulation (EU) 2017/2042 (as amended pursuant to Regulation (EU) 2021/557 of the European Parliament and of the Council of 31 March 2021) (the " Securitisation Regulation ") came into force in January 2019. The Irish supplementing legislation to the Securitisation Regulation was implemented at the same time and is entitled The European Union (General Framework for Securitisation and Specific Framework for Simple, Transparent and Standardised Securitisation) Regulations 2018 (the " Irish Regulations ").

The Securitisation Regulation and the Irish Regulations only regulate a "securitisation" as defined in the Securitisation Regulation. Other transactions that do not meet this definition are not regulated per se in Ireland.

The Securitisation Regulation requires certain due diligence, risk retention and reporting obligations with respect to a securitisation to be complied with by institutional investors, originators, sponsors, original lenders and SSPEs (as each such term is defined therein). In addition, the Irish Regulations require an Irish originator, sponsor and/or SSPE (as applicable) to notify the CBI of a securitisation not later than 15 working days after the first issue of securities of that securitisation.

The CBI has powers to supervise and enforce compliance with the Securitisation Regulation and the Irish Regulations.

Where the CBI suspects negligent or intentional contraventions of the Securitisation Regulation or the Irish Regulations, it may appoint an assessor to investigate and make determinations. As such, each SSPE should seek reasonable assistance covenants from relevant deal counterparties in the transaction documents to facilitate compliance with its obligations in such a scenario. Similarly, the costs of an SSPE in complying with its obligations should be provided for in the transaction documents as appropriate.

Additionally, Section 110 of the Taxes Consolidation Act 1997 (the " TCA ") facilitates the structuring of securitisations and other structured transactions by allowing for the special tax treatment of Irish companies that meet the conditions set out in Section 110 TCA (" Section 110 Companies "). See section 9 for further details.

7.2 Securitisation Entities. Does your jurisdiction have laws specifically providing for establishment of special purpose entities for securitisation? If so, what does the law provide as to: (a) requirements for establishment and management of such an entity; (b) legal attributes and benefits of the entity; and (c) any specific requirements as to the status of directors or shareholders?

The establishment of special purpose entities for securitisation transactions is not specifically provided for under Irish law; however, where it is envisaged that a company will issue listed debt securities, it must be a designated activity company (" DAC ") under the CA 2014 (or a PLC if offering the securities to retail investors). Section 110 Companies are unregulated entities and as such there is no regulatory authority responsible for regulating securitisation transactions in Ireland (other than as noted above in respect of the Securitisation Regulation). For further information, see section 9.

7.3 Location and form of Securitisation Entities. Is it typical to establish the special purpose entity in your jurisdiction or offshore? If in your jurisdiction, what are the advantages to locating the special purpose entity in your jurisdiction? If offshore, where are special purpose entities typically located for securitisations in your jurisdiction? What are the forms that the special purpose entity would normally take in your jurisdiction and how would such entity usually be owned?

Ireland is an attractive jurisdiction in which to establish companies to effect securitisation transactions for both Irish and non-Irish assets. Globally, investors and market participants are familiar with the well-established legal framework that exists in Ireland for such transactions. The tax regime applicable, and tax treatment afforded, to Section 110 Companies is a key advantage of using Ireland. Furthermore, Ireland provides an efficient listing mechanism for debt securities. The Irish Stock Exchange plc, trading as Euronext Dublin, has extensive experience in listing specialist debt securities and delivers a turnaround time of maximum three working days.

Ireland has a recognised infrastructure with experienced professionals, corporate administrators, auditors, lawyers and other service providers.

Another advantage to establishing a Section 110 Company in Ireland is that debt securities issued by such a company can, once the CBI has approved the relevant offering document, be accepted throughout the EU for public offers and/or admission to trading on regulated markets under the EU Prospectus Regulation.

A Section 110 Company is generally incorporated in Ireland under the CA 2014 as a DAC, being a private company limited by shares; for retail offerings, a PLC must be used.

Section 110 Companies are generally structured as orphan entities, the shares of which are held by a professional share trustee on trust for charitable purposes.

7.4 Limited-Recourse Clause. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement's governing law is the law of another country) limiting the recourse of parties to that agreement to the available assets of the relevant debtor, and providing that to the extent of any shortfall the debt of the relevant debtor is extinguished?

Yes, an Irish court should give effect to such provision in the context of a securitisation transaction.

7.5 Non-Petition Clause. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement's governing law is the law of another country) prohibiting the parties from: (a) taking legal action against the purchaser or another person; or (b) commencing an insolvency proceeding against the purchaser or another person?

Whilst there is little authority in Irish law, an Irish court should give effect to such provision in the context of a securitisation transaction. It is possible, however, that an Irish court would deal with a winding-up petition even if it were presented in breach of a non-petition clause. This is because a party may have a statutory or constitutional right to take legal action against the purchaser or such other person, which may not be contractually disapplied.

7.6 Priority of Payments "Waterfall". Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement's governing law is the law of another country) distributing payments to parties in a certain order specified in the contract?

Yes, an Irish court should give effect to such provision in the context of a securitisation transaction. Certain creditors are preferred in an Irish insolvency, and so may rank in priority to the security trustee and the application of the security enforcement proceeds in that regard, but an insolvency official should not be able to challenge the application of the remaining balance in accordance with the post-enforcement priority of payments.

7.7 Independent Director. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement's governing law is the law of another country) or a provision in a party's organisational documents prohibiting the directors from taking specified actions (including commencing an insolvency proceeding) without the affirmative vote of an independent director?

Irish directors have statutory and common law duties that as directors they must adhere to. The Irish courts should recognise most agreed board governance matters, subject to those limitations. Any limitation or restriction on a director's ability to bring insolvency proceedings may be invalid as a matter of public policy or incompatible with certain statutory duties of the directors.

7.8 Location of Purchaser. Is it typical to establish the purchaser in your jurisdiction or offshore? If in your jurisdiction, what are the advantages to locating the purchaser in your jurisdiction? If offshore, where are purchasers typically located for securitisations in your jurisdiction?

Yes. See question 7.3 for further details.

8. Regulatory Issues

8.1 Required Authorisations, etc. Assuming that the purchaser does no other business in your jurisdiction, will its purchase and ownership or its collection and enforcement of receivables result in its being required to qualify to do business or to obtain any licence or its being subject to regulation as a financial institution in your jurisdiction? Does the answer to the preceding question change if the purchaser does business with more than one seller in your jurisdiction?

This will depend on the nature of the acquired receivables. Certain consumer and SME receivables as well as hire purchase, indirect or point of sale credit and similar products, fall within the scope of the Irish credit servicing regime pursuant to Part V of the Central Bank Act, 1997 (as amended).

As well as borrower-facing loan administration, the scope of regulated activities includes: (a) the holding of legal title to relevant loans; and (b) the managing or administering of the relevant loans, including by (i) determining the overall strategy for the management and administration of a portfolio of Relevant Loans, or (ii) maintaining key control over key decisions relating to such portfolios.

A regulated credit servicer must be appointed to each of these functions, unless they are being carried by or on behalf of certain other regulated persons such as credit institutions.

There is also a safe-harbour for an SPV issuer engaged in certain forms of primary and secondary securitisations of such loans. The securitisation must be risk-retention-compliant under the relevant EU rules and an exempted person must hold legal title to the portfolio.

Other forms of compliance may attract, for example, where the underlying obligors under a credit agreement are consumers, a purchaser is required to comply with consumer protection regulations and data protection rules and regulations under the GDPR.

Please note the NPL Directive, as transposed into law in Ireland (see question 1.2), may change the scope of the existing domestic regime above. Equally, it may only be applied to loans in scope of the NPL Directive, in which case both regimes will sit alongside one another and apply to the relevant loan (or together for mixed portfolios).

8.2 Servicing. Does the seller require any licences, etc., in order to continue to enforce and collect receivables following their sale to the purchaser, including to appear before a court? Does a third-party replacement servicer require any licences, etc., in order to enforce and collect sold receivables?

No. However, see questions 8.1 and 8.4.

8.3 Data Protection. Does your jurisdiction have laws restricting the use or dissemination of data about or provided by obligors? If so, do these laws apply only to consumer obligors or also to enterprises?

GDPR came into effect in Ireland on 25 May 2018. It strengthened the data protection rights of individuals and imposed strict obligations on businesses, banks and other bodies when holding and processing data of personal data.

GDPR does not apply to the data of corporations and only applies to that of natural persons. In some instances (such as in an RMBS securitisation) there might be the transfer of residential mortgages from a seller to the SPV. If this was the case, certain transaction documents might refer to the specific residential mortgages that are being transferred. It is normal for the names and personal details of such natural persons to be anonymised or not included in the transaction documents at all. It would not be normal to inform an obligor of a securitisation and therefore it would not be possible to obtain a waiver of confidentiality.

8.4 Consumer Protection. If the obligors are consumers, will the purchaser (including a bank acting as purchaser) be required to comply with any consumer protection law of your jurisdiction? Briefly, what is required?

If the obligors are consumers, then a bank acting as purchaser will need to comply with the terms of its authorisation and all applicable codes of conduct/advertising rules as well as Irish consumer protection laws. These include the CCA Rules, the UTCC and the CPC.

Please see question 1.2 for details of what is required under the CCA Rules.

The UTCC contains a non-exhaustive list of terms that will be deemed "unfair". It includes terms that try to exclude/limit the legal liability of a seller in the event of the death of, or personal injury to, a consumer due to an act or omission by the seller, or, require any consumer who fails to fulfil his obligation to pay a disproportionately high compensation. Unfair terms of a contract will not be binding on a consumer. A term will be regarded as unfair if it causes a significant imbalance in the parties' rights and obligations under the agreement to the detriment of the consumer.

The CPC imposes various obligations on all regulated entities dealing with customers in Ireland to act honestly, fairly and professionally and with due skill, care and diligence in the best interests of their customers and to avoid conflicts of interest, while there are additional codes of conduct imposed by the CBI in respect of mortgage arrears, SME loans and other specific asset classes.

These codes are applied to securitisation transactions where the credit servicing regime in question 8.1 applies, via the medium of the credit servicing firm who is obliged to comply with them.

8.5 Currency Restrictions. Does your jurisdiction have laws restricting the exchange of your jurisdiction's currency for other currencies or the making of payments in your jurisdiction's currency to persons outside the country?

This jurisdiction does not have such legislation at present.

8.6 Risk Retention. Does your jurisdiction have laws or regulations relating to "risk retention"? How are securitisation transactions in your jurisdiction usually structured to satisfy those risk retention requirements?

Yes, in respect of securitisation transactions that are in scope of the Securitisation Regulation. In such cases, the originator, sponsor or original lender (each as defined in the Securitisation Regulation) of a securitisation is required to retain on an ongoing basis a material net economic interest in the securitisation of not less than 5%. Such holding is required to comply with one of the methods prescribed in the Securitisation Regulation (e.g., "horizontal" first loss position or "vertical slice" position).

8.7 Regulatory Developments. Have there been any regulatory developments in your jurisdiction which are likely to have a material impact on securitisation transactions in your jurisdiction?

In May 2022, the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act came into force and extended the existing regulatory regimes for hire purchase including PCP, consumer hire and indirect credit.

The Central Securities Depositories Regulation came into force on 1 January 2023 in respect of newly issued debt securities that are admitted to trading on an EU exchange. Any such debt securities will be required to be represented in book entry form. This can be achieved by the securities being held by a central securities depositary such as Euroclear or Clearstream. All existing debt securities admitted to trading on an EU exchange must be represented in book entry form from 1 January 2025.

Please see the above discussions on the NPL Directive in questions 1.2 and 8.1.

Investors are increasingly seeking to invest in companies that have the capabilities to both achieve and maintain strong financial and Environmental, Social, and Governance (" ESG ") performance. ESG and sustainable finance is an area that is continuously evolving and growing to meet the expectations of a wide number of stakeholders, including shareholders, policymakers, regulators and central banks. Within the EU and Ireland, new regulatory frameworks are being introduced to address and support the European Commission's revised Action Plan on Sustainable Finance and the Renewed Sustainable Finance Strategy. This includes the Taxonomy Regulation, the Sustainable Finance Disclosure Regulation (the " SFDR ") and the Low Carbon Benchmark Regulation. For example, the SFDR requires collateral and asset managers to disclose the manner in which sustainability risks are integrated into their investment decisions, as well as the results of the assessment of the likely impacts of sustainability risks on the returns of the financial products they make available.

9. Taxation

9.1 Withholding Taxes. Will any part of payments on receivables by the obligors to the seller or the purchaser be subject to withholding taxes in your jurisdiction? Does the answer depend on the nature of the receivables, whether they bear interest, their term to maturity, or where the seller or the purchaser is located? In the case of a sale of trade receivables at a discount, is there a risk that the discount will be recharacterised in whole or in part as interest? In the case of a sale of trade receivables where a portion of the purchase price is payable upon collection of the receivable, is there a risk that the deferred purchase price will be recharacterised in whole or in part as interest? If withholding taxes might apply, what are the typical methods for eliminating or reducing withholding taxes?

Tax at the standard rate of Irish income tax (currently 20%) is required to be withheld from payments of Irish-source yearly interest. However, it is generally possible to structure a securitisation transaction in Ireland such that payments are not subject to Irish withholding tax.

In general, the sale of receivables at a discount will not result in the discount being recharacterised as interest and no Irish interest withholding tax should apply. Similarly, the deferred payment of purchase price on collection of a receivable should be treated as such and not recharacterised as interest.

There are a large number of domestic Irish exemptions available from the requirement to withhold on payments of interest, including for interest paid:

• to a bank carrying on a bona fide banking business in Ireland;
• to a company that is resident in an EU Member State or a country with which Ireland has signed a double tax treaty where that territory imposes a tax that generally applies to interest receivable in that territory from outside that territory;
• to a US corporation that is subject to tax in the US on its worldwide income; and
• to certain Irish entities, including Section 110 Companies, investment undertakings and certain government bodies.

In terms of securitisation transactions, debt securities issued are often listed for transferability purposes with the additional benefit being that they fall within an exemption from Irish withholding tax for quoted Eurobonds. A quoted Eurobond is a security that is issued by a company, carries a right to interest and is quoted on a recognised stock exchange.

Interest paid on such quoted Eurobonds can be paid free of Irish withholding tax, provided certain additional conditions are met.

9.2 Seller Tax Accounting. Does your jurisdiction require that a specific accounting policy is adopted for tax purposes by the seller or purchaser in the context of a securitisation?

Securitisation companies in Ireland tend to be structured to qualify for a particular tax regime under Section 110 TCA. The taxable profits of a qualifying company under Section 110 TCA are calculated as if it is a trading entity with the result that the company can deduct funding costs, including swap payments and profit-dependent interest, provided certain conditions are met. The default position is that such companies calculate their tax returns in accordance with Irish GAAP 2004 unless the company elects otherwise.

9.3 Stamp Duty, etc. Does your jurisdiction impose stamp duty or other transfer or documentary taxes on sales of receivables?

Ireland imposes stamp duty on certain written documents where the document is both:

• listed in Schedule 1 to the Stamp Duties Consolidation Act 1999; and
• executed in Ireland or, if executed outside Ireland, relates to property situated in Ireland or to any matter or thing done or to be done in Ireland.

A receivable that has an Irish legal situs may be chargeable to Irish stamp duty under these provisions. There are certain exemptions that may be relevant to the transfer of receivables, including an exemption for debt factoring and for transfers of loan capital. In addition, the transfer of receivables or other debts by way of novation should not be subject to Irish stamp duty.

9.4 Value Added Taxes. Does your jurisdiction impose value added tax, sales tax or other similar taxes on sales of goods or services, on sales of receivables or on fees for collection agent services?

As a Member State of the EU, Ireland imposes VAT on the supply of goods and services. The standard rate of VAT in Ireland is 23%.

In general, securitisation companies in Ireland are not required to charge VAT with respect to services they provide as those constitute VAT-exempt financial services. However, an Irish company will be required to register and account for Irish VAT where it receives non-VAT-exempt services from outside Ireland under the reverse-charge mechanism. Services such as legal, accounting, trustee and rating agent services are all taxable services for VAT purposes and would trigger the reverse-charge accounting requirements.

Whether a particular service is subject to VAT will depend on the facts and the actual service provided. In general, the sale of receivables is exempt from VAT where it does not form part of a debt factoring arrangement. Dealing in payments is also generally exempt from VAT but debt collection is a VATable service and, as such, whether collection agent services are subject to VAT will depend on the factual circumstances and terms of the documents. Where collection agent services are provided as part of a bundle of services to a securitisation company, those services are likely to be exempt from VAT as administration services.

9.5 Purchaser Liability. If the seller is required to pay value-added tax, stamp duty or other taxes upon the sale of receivables (or on the sale of goods or services that give rise to the receivables) and the seller does not pay, then will the taxing authority be able to make claims for the unpaid tax against the purchaser or against the sold receivables or collections?

As set out above, where services are provided between two businesses based in different EU Member States, the reverse-charge rules apply for VAT purposes and it is the recipient of the services that is required to account for VAT in their country of establishment (under the reverse-charge provisions). If the supply of services is made by an Irish supplier to another Irish company, it is the supplier who is required to account for VAT and the tax authorities cannot pursue the recipient or purchaser of the service.

In general, Irish stamp duty is payable by the purchaser of the asset being transferred.

9.6 Doing Business. Assuming that the purchaser conducts no other business in your jurisdiction, would the purchaser's purchase of the receivables, its appointment of the seller as its servicer and collection agent, or its enforcement of the receivables against the obligors, make it liable to tax in your jurisdiction?

A company that is not resident for tax purposes in Ireland is generally only subject to tax in Ireland if it carries on a trade in Ireland through a branch, agency or permanent establishment and, in certain circumstances, in respect of certain Irish-source income. Non-Irish resident companies are also subject to capital gains on the disposal of certain specified Irish assets including Irish land or shares deriving their value from Irish land.

In general, a purchaser should not be considered to be trading in Ireland solely by reason of the purchase, collection and enforcement of receivables. A creditor may be liable for capital gains tax on enforcement of security and sale of an asset if that asset is within the charge to Irish capital gains tax generally, e.g., a non-resident enforcing a debt and selling Irish land.

9.7 Taxable Income. If a purchaser located in your jurisdiction receives debt relief as the result of a limited recourse clause (see question 7.4 above), is that debt relief liable to tax in your jurisdiction?

An Irish tax resident purchaser can claim a deduction for tax purposes in respect of a debt that is proven to the satisfaction of the Irish tax authorities to be bad. However, a tax deduction is not available for general provisions for bad debt. If an Irish resident purchaser subsequently recovers a bad debt in respect of which a tax deduction has previously been claimed, that amount will be treated as taxable income of the purchaser.

Originally published by The International Comparative Legal Guide.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Finance and Banking

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Regulations banning the prohibition on assignment of receivables come into force

Controversial regulations that nullify contractual clauses restricting the assignment of receivables came into force on 24 November 2018.

The Small Business, Enterprise and Employment Act 2015 allows regulations to be made invalidating contractual restrictions on the assignment of receivables in particular types of contracts. The Government’s stated intention behind this provision was to remove barriers inhibiting small businesses from gaining access to invoice finance.

Initial draft regulations, (the Business Contract Terms (Restrictions on Assignment of Receivables) Regulations 2015) were published for consultation in 2014, with a revised version published in September 2017. These 2017 draft regulations were withdrawn, however, two months after their publication. This followed wide-ranging feedback from, among others, the City of London Law Society and the Financial Markets Law Committee.

Among the criticism directed at the draft regulations was that they were too wide ranging and did not sufficiently identify the supply of goods and services by SMEs as the particular finance sector to which the regulations should apply. There was also significant concern that the wider finance markets, which make use of receivables finance, should not be caught by the regulations.

In July 2018, the government published a further revised draft of the regulations - the draft Business Contract Terms (Assignment of Receivables) Regulations 2018. These contained several modifications from the 2017 version, including specifying that the restrictions do not apply where the person to whom the receivable is owed is a large enterprise or a special purpose vehicle and adding to the list of types of contract that are exempt (e.g. a contract to acquire a business or an ownership interest in a firm.)

The Regulations were finally published on 30 November 2018 with no substantive changes from the draft version published in July. They were made on 23 November 2018 and came into force on 24 November 2018.

What is the effect of the Regulations?

Under the Regulations, any term in a contract entered into on or after 31 December 2018, “has no effect to the extent that it prohibits or imposes a condition, or other restriction, on the assignment of a receivable arising under that contract or any other contract between the same parties” (Regulation 2).

A receivable is broadly defined as a right to be paid any amount under a contract for the supply of goods, services or intangible assets. There is no definition of “assignment” in the Regulations, which has caused some uncertainty over what types of transaction this term will cover.

As well as nullifying terms that prohibit the assignment of receivables, the Regulations also make ineffective any term that imposes a condition or other restriction on their assignment. This would include a term which prevents an assignee from determining the validity or value of the receivable or their ability to enforce it. These provisions should prevent devices such as confidentiality clauses from being used to circumvent the legislation.

The Regulations list categories of information which are relevant to these anti-avoidance provisions and if a contract restricts an assignee from obtaining this information, that restriction will be void. The categories of information include the identity of the parties, the goods or services that gave rise to the receivable and the date on which they were supplied, the amount payable (including VAT) and the credit period for paying the receivable.

Exemptions for “large” suppliers or SPVs

Regulation 2 does not apply to contracts where the supplier of the goods or services (i.e. the person entitled to the receivable) was, at the time of the assignment, a “large” enterprise or a “special purpose vehicle”. This means that contractual prohibitions or restrictions on assignment will continue to be valid where the supplier falls into one of these categories at the time of the assignment.

Broadly speaking, a supplier will be “large” unless:

• it is an individual, an unincorporated association or a partnership (excluding LLPs or limited partnerships)
• it falls within the small companies or small LLPs regime in the relevant financial year (as set out in ss 381-384 Companies Act 2006) and it was not a member of a large group in that year, or
• it qualifies as a medium-sized company or LLP (as defined in ss 465-467 Companies Act 2006) in the relevant financial year and was not a member of a large group in that year.

A firm will be a “special purpose vehicle” (wherever it is incorporated or established) if its primary purpose is to hold assets (other than trading stock) or to finance commercial transactions and in either case, it incurs a contractual liability of £10m or more.

Exempt contracts

Regulation 2 also does not apply to several types of specified contract. These include:

• a contract for, or entered into, in connection with prescribed financial services (which includes any service of a financial nature)
• a contract for or in connection with the transfer of any ownership interest in a firm or a business (including transitional services agreements) and which includes a statement to that effect
• a contract which concerns any interest in land, and
• a contract where none of the parties has entered into it in the course of carrying on a business in the UK.

Other exemptions exist for certain project finance contracts, petroleum licenses, contracts concerning national security, securities options, swaps and other derivatives.

Applicable law

The Regulations apply to terms in a contract to which the law of England and Wales or the law of Northern Ireland applies, and at least one of the parties has entered into it in the course of carrying on business in the UK.

Although the Regulations will not generally apply to contracts governed by foreign laws, they do include deeming provisions to prevent parties from choosing Scottish, or another non-UK governing law, in order to avoid their operation.

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This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.

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Assignment of a Chose in Action

Generally, a chose in action may be assigned, subject to exceptions.  A legal assignment may be effected in accordance with the Supreme Court of Judicature (Ireland) Act, 1877.  An equitable assignment is one which falls short of the requirements of a legal assignment, but to which effect is given by a court of equity.

In certain cases, the assignment is by a method peculiar to the nature of the right.  Negotiable instruments are assigned by delivery and/or endorsement. Policies of assurance are subject to special legislation. Securities generally require an instrument of transfer and registration in the company’s records. Certain choses in action are not assignable for reasons of public policy.

An assignment in writing is stampable. Most now qualify for stamp duty relief.

Statutory Legal Assignment

The 1877 Act, which merged the courts of law and the courts of equity, provides that a legal assignment must be in writing, signed by the assignor.  It must be absolute and must not be by way of charge.  Notice of the assignment must be given to the debtor or obligor.  Proof of notice is best obtained by an acknowledgement of notice signed by the obligor.  The assignment is perfected from the date of notice and is subject to any equities which subsist and have priority over the rights of the assignor, at that date.

The provisions do not make assignable, contracts which are not assignable in equity.  Contractual rights but not obligations are usually assignable.  Many contractual rights will not be assignable, as they must be performed by the counterparty personally (or through its particular agents).

It may or may not be permissible, as a matter of interpretation, to subcontract elements of performance. A sum due under a personal service contract may be assigned, notwithstanding that the personal service obligation itself is not assignable.

A legal assignment has advantages in terms of enforceability. A debt must be for a definite sum in order to be assignable under the statutory provisions for legal assignment under the 1877 Act. The assignment must be absolute and not be by way of charge.

The assignment of the balance remaining after payments and deductions to be made may be an effective legal assignment, on the basis that it attaches to an ascertainable balance. Also held to be within the legislation are judgment debts, rent already accrued, debts due on mortgage covenants and deposits standing at banks. A future debt may be capable of falling within the legislation.

Choses Non-Assignable under Act

Choses in action which are not assignable under the Act, include

• the equity redemption under a mortgage already assigned by way of mortgage;
• the right to sue for breach of contract;
• the right to sue for damages in tort;
• the benefit of a contract to lend;
• contracts requiring special qualifications on the part of the parties; and
• shares in a company.

These rights may be assignable by other means and mechanisms, but not by way of the mechanism in the Judicature Act.

A voluntary assignment may be within the Act, even if it would not be enforceable in equity by the assignee as against the assignor. The obligor may not take this up as a defence in an action by the assignee.

Requirements for Assignment

The assignment must be in writing “under the hand” of (signed by) the assignor.  No particular form of writing is required.  Formerly, many written assignments were stampable, but wide-ranging exemptions now exist for assignment of debts and obligations due.

In order for the legal assignment to take effect, notice must be given to the debtor, trustee or other person who owes the obligation (the obligor).  The notice need not be formal. It may be given to the personal representatives of a deceased obligor.  In the case of a company, a notice to the appropriate directors or managers will suffice.

Insurance policies are subject to the same rules as apply to legal assignments. This is confirmed by statute; the Policies of Assurance Act 1867

Effect of Statutory Assignment

An assignment under the Supreme Court of Judicature (Ireland) Act 1877 transfers the legal right to the assigned obligation /thing as and from the date of the notice.  The assignee may sue in his own name to enforce the assigned obligation. A legal assignment passes the full benefit of the chose in action to the assignee.

It may be enforced by the assignor in his own name in cases where before the Act, he could have sued in equity in the name of the assignor. An assignee of a judgment debt may enforce it by the usual means of enforcement.  There may be rules applicable to the method of enforcement which must be considered in the case of an assigned judgment debt.

The assignment is subject to the existing equities in respect of the chose in action which have priority.  The assignee cannot be in a better position than the assignor.  Equities and rights of the obligor which exist prior to the assignment will affect the assignee.

Where the obligor has notice that the assignor or someone who claims through him, disputes the assignment, interpleader may be required.

Equitable Assignments I

Certain categories of rights were not assignable at law but were assignable in equity.  The 1877 Act applies to certain such rights, so as to make them assignable at law. This category includes certain rights of compensation for compulsory acquisition, the benefit of certain types of supply contracts and certain types of covenant.

Equity recognises assignments of choses in action when made for valuable consideration and not contrary to public interest.  Equitable assignments may be by way of charge.  They may be based on a contract or by a direction to a third person such as a mandate.  A mandate may be revocable or irrevocable.

No particular form of wording is required for an equitable assignment.  It may be verbal, except where required by law to be in writing, as is the case in relation to an assignment of an interest in land.  It may be addressed to the debtor or the assignee.  It may arise out of a course of dealing.

Equitable Assignments II

An assignment of a chose in action may be enforced in equity even if given without value provided the donor has done everything in order to transfer the debt or fund.  Equitable assignments include directions and letters requesting monies to be paid from particular funds or accounts. An assignment of future assets may operate as a contract to assign when the property comes into existence. Accordingly, consideration is required.  An assignment by way of charge must be based on a contract / obligation and requires consideration.

A declaration of trust for the benefit of another may suffice for an equitable assignment.  An order by a creditor to a debtor to pay money to a third party where no fund is specified is not an equitable assignment.  An agreement to pay the proceeds of sale of goods purchased with borrowed money is not sufficient to assign the proceeds

A possible interest is not assignable at law.  If the assignment is for value and is binding on the conscience of the assignor, it may be binding in equity if it is of a type and nature capable of being identified. An equitable assignment does not become effective until communicated to the assignee.  It may be revoked prior to communication.

Imperfect Assignments

A request by a party who has the funds of another, made to that other to pay a sum to a third party if not communicated to the latter, is insufficient.  A direction to pay to the account of the creditor at a bank is insufficient.  An authority to collect freight given by the master of a ship to an agent is insufficient.

A garnishee order is not an equitable assignment. A promise to pay when certain funds are received is insufficient to assign or charge those sums.  A letter from a bank stating it has opened a credit for a particular sum is not an equitable assignment of that sum.

As between assignor and assignee, an equitable or incomplete assignment is effective notwithstanding that notice has not been given to the obligor, debtor, fund holder etc.  Notice is not necessary as regards third-parties who stand in the same position as the assignor, such as a receiver, a creditor who has obtained a charge over the proceeds or the benefit of a garnishee order etc.

Notice is necessary to the obligor/debtor in order to bind him to make the payment to the assignee. If the obligor pays the assignor before the assignee gives notice, then the assignee must give him credit for the payment to the assignor.  This is so even if a cheque is still outstanding in the hands of the assignor for the sum concerned.

Except where writing is required by statute, formal notice need not be given provided the assignment is definitely brought to the attention and mind of the obligor/fund holder concerned.  Notice of any disposition of an interest in the land must be in writing.  Notice given to a trustee of land after the creation of a trust must be given in writing. The notice may be received from a third party. However, it must be in definite and not be in mere casual terms.

The notice need not specify the amount of the charge. The person to be served is the person who is obligor or holds the relevant fund.  This may be a trustee, registrar, debtor etc. depending on the nature of the interest.  In some cases, the statute indicates who is to be served.

Where there are several trustees or joint obligors, it is best to give notice to each of them.  Complicated issues may arise where one trustee only has notice of the assignment. It is generally sufficient to give notice to one trustee alone, although in some cases, this may not be sufficient.

In the case of stocks and shares standing in the books of public authorities, notice may be given by service of an affidavit and notice in the manner prescribed by the rules of court.  If funds are in court, the notice is by way of a stop order. In the case of shares, notice is given to the company secretary.

Priority and Notice

Notice of the assignment must be given to the debtor or obligor.  Proof of notice is best obtained by an acknowledgement of notice signed by the obligor.  The assignment is perfected from the date of notice and is subject to any equities which subsist and have priority over the rights of the assignor, at that date.

Priority as between multiple assignments by the same assignor is determined by the order in which notice is given to the obligor.  Accordingly, if a second assignee gives notice first, he obtains priority, provided that he had no knowledge of the prior assignment.  The relevant time for the purpose of knowledge is the time when the security is taken, and not when notice is given.

Constructive notice to a second assignee of a prior assignment is sufficient.  Mere notice of the existence of a prior document which may or may not affect the property is insufficient. The absence of negligence on the part of the first assignee who does not give notice before the second assignee does so is immaterial.

Subject to Equities I

An assignee of a chose in action takes it subject to all rights as subsist between the obligor and the original debtor/assignor.  He is said to take it subject to the “equities” and rights as may exist.  The equities apply as against the assignor but not as against intermediate assignors.  With statutory exceptions, the assignee is not in any better position than the assignor, relative to the obligor.

The assignee should make enquiries of the obligor, who, however, is not bound to give information unless the notice shows that the assignee has been deceived.  In this case, if the debtor does not disabuse him of the misapprehension, he may be prevented from taking advantage of equities / rights as between himself and the assignor.

If the original obligation is voidable, so as to be vulnerable to be set aside due to some misrepresentation, fraud, mistake etc., the assignee takes it with this vulnerability.  The principle of negotiability is an exception to this principle so that in some cases, the assignor can give a better title than he himself holds.

Subject to Equities II

Where the assignor has a right to set-off which has accrued before notice, he may avail himself of the right against the assignee.  This may be varied by the terms of the contract.  Where the debt assigned is payable in the future, the debtor may set-off a debt which becomes payable by the assignor after notice of the assignment, but before the assigned debt becomes payable. This is so, provided the debt to be set-off matured at the date of the notice. It must be a present debt, albeit payable in the future.

The obligor may not set off an independent debt which has accrued since the notice of assignment, although due under a contract made before that date.  He may set-off a debt accrued before notice, if it has arisen out of a transaction inseparably connected with the original debt / transaction, or if it was the intention of the parties, that one should be set off against the other.

The debtor may meet the assignee’s claim by a counterclaim for unliquidated damages against the assignor if they arise out of the same contract.  The assignee cannot be made liable, but set-off may be allowed.  The counterclaim must arise out of the same contract and not something done outside it (as for example, a personal claim for fraud against the assignor).

Subject to Equities III

When the benefit of a contract is assigned, the assignee takes it subject to the rights of the other party to the contract, except those which are of a purely personal nature.  The debtor may contract out of his right to enforce equities against the assignee, or he may release them.  He may by his conduct waive the right to enforce them.

The assignee in due course of a negotiable instrument generally takes it free from equities. This is similar to the position of a pledgee in good faith of share certificates.

An equitable assignment transfers the right to recover the debt / obligation.  If the claim is “legal” and the assignment is absolute, the assignee may sue in his own name without making the assignor a party.  If the chose in action is “equitable”, the assignor must be made a party to the action, either as plaintiff or defendant.  Where there is an assignment by way of security, the assignor must be made a party, for the reason that he has a right to redeem.

If the assignor does not take legal action, the assignee may do so in the name of the assignor subject to giving a proper indemnity against costs and charges, consequent on using his name.  If the assignor fails or refuses to permit his name to be used, he may be made a defendant.  The court may dispense with the assignor being a party, if he cannot be found or if his interest in the matter has ceased.

Where there are several parties who have an interest in the matter, all must be made a party to an action.  An account may be required to be taken of the share of profits, where there are multiple parties entitled.

After the debtor/obligor receives notice of the assignment, he must not pay the assignor.  He is liable to the assignee and payment to the assignor does not discharge him.  Payment may be made with the consent of the other party to either the assignor or assignee.

Assignability

Certain types of chose in action may be assigned by statute.  These include

• administration bonds;
• negotiable instruments;
• interest in government stock;
• debentures and mortgages issued by companies;
• shares in a company;
• policies of assurance;

Bills of lading are assignable, and the assignee may sue on them in his own name, subject to the liabilities as if the contract has been made with him.

Bills of exchange, promissory notes, bearer drafts, policies of insurance and bills of lading are assignable at common law.  In some of these cases, the assignment is now regulated by statute.

Non-Assignable Choses

Some kinds of chose in action are not assignable for public policy reasons.  This includes public salaries and pension, most social welfare and social insurance benefits. Sums received by a spouse arising from matrimonial proceedings are not assignable.

A bare right of litigation is a mere right to damages and is not assignable.  An assignment of the right to sue on the chance of recovery is void.  An assignment of a licence to take possession of goods, an assignment of a right to set aside a deed, an assignment of a debt due from a company coupled with the right to proceed with a winding-up already filed, is invalid.

Contracts involving personal skill and confidence are not assignable.

Parties may by express provision render the benefit of a contract incapable of being assigned. The insertion of a condition against assignment does not necessarily prevent assignment of the beneficial interest.

Location of Chose

A chose in action, being a right to recover by legal action, does not have a specific local existence.  Debts are treated as having a location for the purpose of conflict of laws, taxation and other purposes. The chose in action are regarded as situated in the jurisdiction where they may be enforced. This is generally the place of residence of the debtor.

Specialty debts are those acknowledged in an instrument delivered as a deed.  At common law, they are situating where the instrument is situated.

The capacity to assign a chose in action is governed by the law of the domicile of the assignor or the law of the country where the assignment takes place.

References and Sources

Irish Texts

Modern law of personal property in England and Ireland 1989  Bell

Consumer Law Rights & Regulation 014       Donnelly & White

Commercial Law White           2012 2 nd  ed

Commercial & Economic Law in Ireland        2011 White

Commercial Law 2015 Forde 3 rd  ed

Irish Commercial Precedents (Looseleaf)

Commercial & Consumer Law: Annotated Statutes 2000  O’Reilly

Personal Property Law: Text and Materials  2000  Sarah Worthington

Personal Property Law (Clarendon Law Series) 2015 Michael Bridge

The Law of Personal Property 2017   Professor Michael Bridge and Prof. Louise Gullifer

The Principles of Personal Property Law 2017  Duncan Sheehan

Crossley Vaines on Personal Property 1967 by J C Vaines

The Law of Bills of Sale 2017 James Weir

Palmer on Bailment 2009  Norman Palmer

The Reform of UK Personal Property Security Law: Comparative Perspectives  2012 John de Lacy

The Law of Personal Property Security 2007  Hugh Beale and Michael Bridge

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3 December 2018

Prohibiting the assignment of receivables: new Regulations

A piece of legislation that aims to increase small and medium sized businesses' ability to raise finance based on money owed to them has made its way through Parliament for the second time. Although The Business Contract Terms (Assignment of Receivables) Regulations 2018 (the Regulations ) made their parliamentary debut in 2017, they were subsequently withdrawn in November of that year as a result of considerable criticism from the market. Following further representations from the market, revised proposals for the Regulations were published in July 2018.

The Regulations have been laid before Parliament and approved; they come into force on 24 November, the last stages of this process having been delayed for some time , presumably by the Brexit 'storm'. The Regulations will apply to any term in a contract entered into on or after 31 December 2018.

The Regulations

The Regulations, which only apply in England, Wales and Northern Ireland, propose to facilitate access to invoice finance by invalidating contractual terms that prohibit the assignment of receivables.

Receivables are defined within the Regulations as "a right (whether or not earned by performance) to be paid any amount under a contract (other than a contract mentioned in regulation 4) for the supply of goods, services or intangible assets…".

The Regulations remove the effect of contractual terms that prohibit (or impose a condition or restriction on) the assignment of a receivable arising under that contract or any other contract.

This includes terms that prevent a person to whom a receivable is assigned from determining its validity or value or their ability to enforce the receivable. For example, the following will have no effect:

• a term preventing that person from obtaining the names and addresses of the parties to the contract; or
• any terms which prevent that person from obtaining a description sufficient to identify the goods.

Whilst the potential reach of these provisions may seem vast, the Regulations exclude a number of types of contracts. The more significant of these include:

• any assignment by a large enterprise (which is explored in more detail below);
• any assignment by a special purpose vehicle (pertaining to a liability of at least £10 million);
• contracts for prescribed financial services;
• operating leases;
• derivative contracts;
• commodities/project finance contracts;
• business/share sales;
• contracts concerning an interest in land; and
• contracts that concern national security interests.

One of the most notable criticisms of the 2017 Regulations was that they demonstrated no recognition of the fact that this legislation was intended to benefit SMEs and they treated SMEs and big business in the same way. The amended Regulations address this by excluding large enterprises. For these purposes, large enterprises exclude:

• sole traders;
• partnerships;
• unincorporated associations;
• companies/LLPs qualifying as small or medium-sized under the Companies Act 2006 and related legislation;
• companies/LLPs that have not filed accounts since incorporation; and
• bodies incorporated overseas which would so qualify if incorporated in the UK.

A key policy objective of the Government is to diversify finance markets and encourage competition. The Regulations aim to further this by making the asset finance market more accessible and enabling businesses to obtain finance more easily and cheaply.

Businesses are dependent on healthy cash flow, which is often achieved through external financing. Invoice finance, in particular, allows smaller businesses to obtain finance by assigning their receivables, or rights to future payments, to a finance provider. A finance provider of this type will typically lend an amount equal to 80% of the value of the receivables.

In recent years, it has become more and more common to see clauses in contracts which prohibit the assignment of invoices. Businesses that need to obtain finance using their receivables therefore have to find ways to bypass these provisions, such as using powers of attorney, which increases cost and time commitments.

It is currently estimated that only 10% of the businesses that could benefit from invoice finance are currently making use of it. Once in operation, the Regulations are expected to boost this number significantly.

The expected reduction in the cost of invoice finance and the increase in its accessibility is likely to have a positive impact on small businesses, charities and voluntary bodies. Whilst lenders in the invoice finance market may presently feel disadvantaged, if the volume of these financings expand in the way predicted by the Government, they will soon benefit from the increased demand and the expansion of the market.

It is important to note that this latest iteration of the Regulations has a much more restricted ambit than its precursor. Property investment companies, for example, for whom rental income is a significant receivable, will not be affected, as the new Regulations expressly exclude any contracts that relate to an interest in land. Indeed, the list of excluded contracts has been greatly expanded.

Most significantly, the Regulations now apply to only SMEs rather than across the board.

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The Business Contract Terms (Assignment of Receivables) Regulations 2018: still more to do?

The Business Contract Terms (Assignment of Receivables) Regulations 2018 (the " Regulations ") are now in force. The Regulations are intended to make it easier for small businesses to access receivables-based finance by making ineffective any prohibitions, conditions and restrictions on the assignment of receivables [1] arising under contracts for the supply of goods, services or intangible assets.

The Regulations have a somewhat chequered history. The Law Commission advocated legislation to limit the effectiveness of anti-assignment clauses in 2005, however, the proposal failed to gain momentum and lay dormant for more than a decade. Draft legislation finally appeared in 2017, but was withdrawn following criticism by the Loan Market Association and others. The final form of the Regulations addresses some of the criticisms, but adds complexity in what is already a complex area of the law.

The Effect of the Regulations

A term in a contract to which the Regulations apply is ineffective to the extent that it prohibits or imposes a condition or other restriction on the assignment of a receivable arising under that contract or another contract between the same parties. That does not necessarily mean that the term will be entirely void as a result: contractual prohibitions on assignment often do not distinguish between the right to performance of the contract and the right to be paid amounts arising under it. Prohibitions of this type will remain effective to prevent an assignment of the right to performance, even if they are ineffective to prevent the assignment of receivables arising under the contract.

The Regulations provide that a term which prevents an assignee from determining the validity or the value of the receivable or restricts its ability to enforce the receivable will be deemed to be a condition or other restriction on assignment. This, for example, includes provisions which prevent an assignee from obtaining particulars and evidence of any potential defence or set-off by a party to the contract. Therefore, the Regulations permit disclosure of matters which might otherwise be caught by confidentiality provisions in the underlying contract.

When do the Regulations apply?

Subject to specified exceptions, the Regulations apply to any contract entered into on or after 31 December 2018.

Certain types of contract are excluded from the Regulations. For example, the Regulations do not apply :

• to contracts for certain prescribed financial services or to other specific types of contract, including those in relation to real estate, certain derivatives, certain project finance and energy agreements and operating leases.
• to contracts entered into in connection with the acquisition, disposal or transfer of an ownership interest in all or part of a business, firm or undertaking, provided the relevant contract includes a statement to that effect. The need for such a statement applies even where the purpose of the contract is obvious on its face.
• where one or more of the parties is a consumer, or where none of the parties has entered into the contract in the course of carrying on a business in the UK.

The Regulations do not apply if the supplier is a "large enterprise" or a "special purpose vehicle" (the " SME Test ") at the time of the assignment. For this purpose, a special purpose vehicle is a firm that carries out a primary purpose in relation to the holding of assets (except trading stock) or financing commercial transactions, which in either case involves it incurring a liability of £10m or more.

The question of whether a limited company is a "large enterprise" depends in part on turnover, balance sheet total and number of employees assessed by reference the most recent annual accounts filed by the company or its parent prior to the assignment. Therefore, at the time the supplier and the debtor enter into a contract, they will not necessarily know whether a contractual prohibition on the assignment of receivables will be effective.

The definition of a "large enterprise" may be difficult to apply in some circumstances and to some entities. For example, the Regulations imply that limited partnerships are included in scope and some commentators argue that in this situation it would be the general partner entity which would be assessed under the SME Test, however, this is not expressly provided for by the Regulations.

If another governing law is imposed by a party wholly or mainly for the purpose of enabling it to evade the operation of the Regulations, the Regulations state that they will nevertheless have effect. Aside from the practical difficulty in determining whether the choice of law was imposed for this purpose, the effect of this provision is not entirely clear. Under Rome I, the law governing an assigned claim determines its assignability and the relationship between the assignee and the debtor [2] . Therefore, the fundamental question of whether the debtor should pay the supplier or the assignee remains determined by the governing law of the contract, but subject it seems (at least as far as the English courts are concerned) to the mandatory provisions of the Regulations.

The Regulations only affect prohibitions, restrictions and conditions on assignment contained in the contract under which the receivable arises or another contract between the same parties. For example, they would not restrict the effectiveness of a negative pledge or a restriction on the disposal of receivables contained in a financing document with a third party lender.

The term "assignment" is not defined in the Regulations and, assuming it has its normal legal meaning, does not include the creation of a charge or trust. Therefore, it appears that the Regulations do not apply to the creation of a charge or a trust.

What if the Regulations do not apply?

As a result of the SME Test and the exclusion of certain types of contracts, there will be many situations in which the Regulations are not relevant to the assignment of a receivable. Where the Regulations do not apply, the current law recognises the effectiveness of contractual prohibitions on the assignment of receivables [3] . However, case law suggests that a prohibition on assignment will not normally be construed as preventing the creation of a trust. Receivables purchase agreements will therefore often provide for the supplier to hold the receivable and/or its proceeds on trust for the assignee to the extent that the assignment is ineffective. In response, some debtors include specific prohibitions on the creation of trusts over receivables in their contracts. However, assignees will try to circumvent the practical effect of even the most widely drafted prohibition by taking a power of attorney enabling them to bring an action against the debtor in the name of the supplier.

The law is still developing in response to this escalating arms race between assignees and debtors. In part this is due to an inevitable tension between the interest of the assignee in having its proprietary interest in the receivable recognised and the interest of the debtor in choosing whether it deals with anyone other than its original contractual counterparty.

This has led some to argue that the common law should recognise all assignments of receivables notwithstanding prohibitions on assignment, at least as between the assignor and the assignee. [4] Arguably, this approach would balance the legitimate interests of all parties.

Still more to do?

Where they apply, the Regulations will make it easier for SMEs to assign their receivables and to raise finance. However, the Regulations do not mean that assignees can ignore the terms of the underlying contractual arrangements between suppliers and debtors; for one thing any existing rights of set-off will continue to bind the assignee [5] . Also, because the Regulations do not apply to contracts entered into before 31 December 2018, prohibitions on assignment will continue to apply to many receivables owed to SME suppliers for a while yet.

Assessing whether a supplier is an SME involves reviewing the most recent relevant annual accounts and the status of the supplier in this respect may change throughout the term of a contract. There are also various types of contract to which the Regulations do not apply and, in some cases, applying those exceptions is not straightforward. The Regulations add an additional layer of complexity to the law.

In practice, the question that assignees ask their lawyers is very simple: what action can they take to recover? The Regulations may enable the answer to be more positive, but they also make it more nuanced. There is more work for legislation or precedent to do to simplify the law in this area.

[1] "Receivable" is defined in broad terms as a right (whether or not earned by performance) to be paid any amount under a contract for the supply of goods, services or intangible assets.

[2] Regulation (EC) No 593/2008: Article 14(2), Rome I

[3] Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85

[4] See in particular Professor Roy Goode's article " Contractual Prohibitions Against Assignment " [2009] LMCLQ 300 cited by approval by Lady Justice Gloster in First Abu Dhabi Bank PJSC and BP Oil International Limited [2018] EWCA Civ 14

[5] In recovery situations, set-off and disputes in relation to liability are often more significant issues for the debtor from a commercial perspective than the question of whether a prohibition on assignment is legally effective.

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The business contract terms (assignment of receivables) regulations 2018, you are here:.

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Draft Legislation:

This is a draft item of legislation. This draft has since been made as a UK Statutory Instrument: The Business Contract Terms (Assignment of Receivables) Regulations 2018 No. 1254

Draft Regulations laid before Parliament under section 161(4) of the Small Business, Enterprise and Employment Act 2015, for approval by resolution of each House of Parliament.

Draft Statutory Instruments

Coming into force in accordance with regulation 1

The Secretary of State, in exercise of the powers conferred by sections 1 and 161(2) of the Small Business, Enterprise and Employment Act 2015( 1 ), makes the following Regulations:

In accordance with section 161(4) of the Small Business, Enterprise and Employment Act 2015, a draft of this instrument was laid before Parliament and approved by resolution of each House of Parliament.

Citation, commencement, interpretation and application

1. —(1) These Regulations may be cited as the Business Contract Terms (Assignment of Receivables) Regulations 2018 and shall come into force on the day after the day on which they are made.

(2) These Regulations apply to any term in a contract entered into on or after 31 December 2018.

(3) In these Regulations—

“firm” has the same meaning as in the Companies Act 2006( 2 );

“intangible assets” includes electricity and data which are produced and supplied in digital form;

“licensee”, in relation to a petroleum licence, means the person to whom a petroleum licence is granted, their personal representatives and any person to whom the rights conferred by that licence may lawfully be assigned;

“large group” means a group that is not a small group or a medium-sized group (within the meanings given by the Companies Act 2006( 3 ) or by that Act as applied with modifications by the Limited Liability Partnerships (Accounts and Audit) (Application of the Companies Act 2006) Regulations 2008( 4 ));

“LLP” means a limited liability partnership formed under the Limited Liability Partnerships Act 2000( 5 );

“petroleum licence” means a licence granted under section 2 of the Petroleum (Production) Act 1934( 6 ) or under section 3 of the Petroleum Act 1998( 7 );

“prescribed financial services” means a regulated agreement within the meaning of the Consumer Credit Act 1974( 8 ) or any financial service within the meaning of section 2 of the Small Business, Enterprise and Employment Act 2015; and

“receivable” is a right (whether or not earned by performance) to be paid any amount under a contract (other than a contract mentioned in regulation 4) for the supply of goods, services or intangible assets (and in relation to a receivable, “supplier” means the supplier of those goods, services or intangible assets to whom that amount is payable and “debtor” means the person liable to pay that amount).

(4) These Regulations have effect notwithstanding any contract term which applies or purports to apply the law of Scotland or some country outside the United Kingdom, where the term appears to the court or arbitrator or arbiter to have been imposed wholly or mainly for the purpose of enabling the party imposing it to evade the operation of these Regulations.

Effect of a non-assignment of receivables term

2. —(1) Subject to regulations 3 and 4, a term in a contract has no effect to the extent that it prohibits or imposes a condition, or other restriction, on the assignment of a receivable arising under that contract or any other contract between the same parties.

(2) A term in a contract which imposes a condition or other restriction on the assignment of a receivable includes a term which prevents a person to whom a receivable is assigned from determining the validity or value of the receivable or their ability to enforce the receivable.

(3) For the purposes of paragraph (2), a term prevents a person to whom a receivable is assigned from determining the validity or value of the receivable or their ability to enforce the receivable if the condition or other restriction prevents that person from obtaining—

(a) the names and addresses of the parties to the contract;

(b) the name and address of the person who on behalf of the debtor can confirm the validity and amount of the receivable;

(c) the VAT registration number of the debtor and of the supplier;

(d) the date on which the goods, services or intangible assets that give rise to the receivable are supplied;

(e) a description sufficient to identify the goods, services or intangible assets that give rise to the receivable (including the quantity of goods or intangible assets, or the extent of services, the unit price, the rate of VAT and the amount payable, excluding VAT);

(f) the date and number of the invoice for the goods, services or intangible assets that give rise to the receivable and any credit note related to the invoice (and the reason for issuing the credit note);

(g) the amount, basis or rate of any applicable discount;

(h) the total amount of VAT chargeable;

(i) the reason for any VAT zero-rating or VAT exemption;

(j) details of any term in the contract to which regulation 2(1) applies;

(k) the credit period for paying the receivable;

(l) evidence of the performance of that part of the contract (or other contract between the parties) which gives rise to the receivable; or

(m) particulars and evidence of any potential defence or set-off by a party to the contract.

Exception for suppliers who are large enterprises or special purpose vehicles

3. —(1) Regulation 2 does not apply and accordingly a term mentioned in that regulation does have effect in relation to the assignment of a receivable if at the time of the assignment the supplier is a large enterprise or a special purpose vehicle.

(2) A supplier is a large enterprise unless it satisfies one of the conditions in paragraph (3) and in paragraph (3) “relevant financial year” means the last financial year (before the date on which the receivable is assigned) in respect of which the supplier has filed accounts.

(3) The conditions in this paragraph are—

(a) the supplier is an individual, a partnership (other than an LLP or a limited partnership) or an unincorporated association;

(b) the supplier is a company to which the small companies regime (within the meaning given by sections 381 to 384 of the Companies Act 2006) applied in the relevant financial year and which was not a member of a large group in the relevant financial year;

(c) the supplier is a company which qualified as medium-sized (within the meaning given by sections 465 to 467 of the Companies Act 2006) in respect of the relevant financial year and which was not a member of a large group in the relevant financial year;

(d) the supplier is a company (other than an unlimited company exempt under section 448 of the Companies Act 2006 from the obligation to file accounts) that has not filed accounts since its incorporation and whose accounts are not overdue and which is not a member of a large group;

(e) the supplier is an unlimited company exempt under section 448 of the Companies Act 2006 from the obligation to file accounts, that has not filed accounts since its incorporation and whose accounts would not be overdue if the exemption under that section did not apply and which is not a member of a large group;

(f) the supplier is an LLP to which the small LLPs regime (within the meaning given by the Companies Act 2006, as applied with modifications by regulation 5 of the Limited Liability Partnerships (Accounts and Audit) (Application of the Companies Act 2006) Regulations 2008), applied in the relevant financial year and which was not a member of a large group in the relevant financial year;

(g) the supplier is an LLP which qualified as medium-sized (within the meaning given by the Companies Act 2006, as applied with modifications by regulation 26 of the Limited Liability Partnerships (Accounts and Audit) (Application of the Companies Act 2006) Regulations 2008) in respect of the relevant financial year and which was not a member of a large group in the relevant financial year;

(h) the supplier is an LLP that has not filed accounts since its incorporation and whose accounts are not overdue and which is not a member of a large group;

(i) the supplier is a body corporate incorporated outside the United Kingdom which, if it were a company formed and registered under the Companies Act 2006, would have been a company to which the small companies regime (within the meaning given by that Act) would have applied in the relevant financial year and which would not have been a member of a large group in the relevant financial year;

(j) the supplier is a body corporate incorporated outside the United Kingdom which, if it were a company formed and registered under the Companies Act 2006, would have qualified as medium-sized (within the meaning given by that Act) in respect of the relevant financial year and which would not have been a member of a large group in the relevant financial year; and

(k) the supplier is a body corporate incorporated outside the United Kingdom that has not filed accounts since its incorporation and whose accounts would not be overdue, and which would not be a member of a large group if it were a company formed and registered under the Companies Act 2006.

(4) A special purpose vehicle is a firm, wherever it is incorporated or established, that carries out a primary purpose in relation to—

(a) the holding of assets (other than trading stock within the meaning of the Income Tax (Trading and Other Income) Act 2005( 9 )); or

(b) the financing of commercial transactions,

which in either case involves it incurring a liability under an agreement of £10 million or more.

(5) For the purposes of paragraph (4)—

(a) where a liability is a contingent liability under or by virtue of a guarantee or an indemnity or security provided on behalf of another person, the amount of that liability is the full amount of the liability in relation to which the guarantee, indemnity or security is provided;

(b) where the amount of a liability is reduced or recourse in respect of it is limited by reference to the value of the special purpose vehicle’s assets at the time the liability is due, the amount of that liability is the full amount of the liability, ignoring that reduction or limit;

(c) the reference to a liability includes—

(i) a present or future liability whether, in either case, it is certain or contingent,

(ii) a reference to a liability to be paid wholly or partly in foreign currency (in which case the sterling equivalent shall be calculated as at the time when the liability was incurred).

Other exceptions

4.   Regulation 2 does not apply to a term in a contract which is—

(a) a contract for, or entered into in connection with, prescribed financial services;

(b) a contract which concerns any interest in land;

(c) a contract where one or more of the parties to the contract is acting for purposes which are outside a trade, business or profession;

(d) a contract where none of the parties to the contract has entered into it in the course of carrying on a business in the United Kingdom;

(e) a contract which concerns national security interests (and a certificate provided by the Secretary of State to the effect that a contract concerns national security interests shall be conclusive evidence of that fact);

(f) a contract where one or more parties to the contract is a person designated as a counterparty for a contract for difference under section 7 of the Energy Act 2013( 10 ) and who has entered into the contract by virtue of that Act;

(g) a petroleum licence;

(h) a contract where one or more parties to the contract is the licensee in respect of a petroleum licence whose terms would prohibit or restrict the assignment of receivables under that contract;

(i) a contract which is entered into for the purposes of, or in connection with, the acquisition, disposal or transfer of an ownership interest in a firm, wherever it is incorporated or established, or of a business or undertaking or part of a business or undertaking, and which includes a statement to that effect;

(j) an option, future, swap, forward, contract for differences or other derivatives contract, not falling within paragraph (a), which may be settled physically or in cash, relating to commodities, energy, emission allowances, climactic variables, freight rates or inflation rates or other official economic statistics that is either—

(i) traded on a regulated market, multilateral trading facility or organised trading facility, or

(ii) is not traded on a regulated market, multilateral trading facility or organised trading facility, but is entered into under a market agreement providing for close-out netting,

and “regulated market”, “multilateral trading facility” and “organised trading facility” have the same meaning as in Article 4(1) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on Markets in Financial Instruments (recast)( 11 );

(k) a contract entered into by the project company of a project which is—

(i) a public-private partnership project;

(ii) a utility project;

(iii) a financed project; or

(iv) designed wholly or mainly to develop land which at the commencement of the project is wholly or partly in a designated disadvantaged area outside Northern Ireland,

and expressions used in this sub-paragraph which are also used in Chapter 4 of Part 3 of the Insolvency Act 1986( 12 ) have the meaning given in that Chapter, except that “company” includes a firm, wherever it is incorporated or established;

(l) a contract entered into by a trust, fund or other entity, or an arrangement entered, created by or on behalf of a site operator (within the meaning in the Energy Act 2008( 13 )) to hold and accumulate assets under the terms of a funding arrangements plan that is part of a funded decommissioning programme submitted to the Secretary of State for approval under section 45 of that Act; or

(m) a contract, not falling within paragraph (a), entered into wholly or mainly for the purpose of granting by one person of a right to possession or control of an object to another person in return for a rental or other payment.

Parliamentary Under Secretary of State

Department for Business, Energy and Industrial Strategy

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations deal with terms in contracts to which the law of England and Wales or the law of Northern Ireland applies which prohibit or restrict the assignment of receivables. A receivable is a right to be paid under a contract for the supply of goods, services or intangible assets. Various types of contract are excluded from the scope of the Regulations.

The Regulations, which are made under section 1 of the Small Business, Enterprise and Employment Act 2015 do not cover financial services contracts: see section 1(3) and (4) of that Act. ‘Financial services’ are defined in section 2 of the Act. Some similar contracts that do not fall under this definition, such as operating leases and derivative contracts, are also excluded from the Regulations.

Regulation 2(1) provides that a term has no effect to the extent that it prohibits or imposes a condition, or other restriction, on the assignment of a receivable. Regulation 2(2) specifies a particular category of contractual terms which, by their impact on an assignee, would have the effect of imposing a condition or other restriction on the assignment. Regulation 2(3) sets out the information that the assignee must be able to obtain in order to determine the validity or value of the receivable or their ability to enforce it.

A contractual right of set-off which the debtor could have exercised against the assignor prior to the assignment or but for the assignment is not a term that imposes a condition or other restriction on the assignment of a receivable for the purposes of these Regulations.

The Regulations do not apply if the person to whom the receivable is owed is a large enterprise or a special purpose vehicle. These terms are both defined in regulation 3. For these purposes a large enterprise is an enterprise which is not a sole trader, partnership or unincorporated association or a company or LLP qualifying as small or medium-sized under the relevant legislation (including bodies incorporated overseas which would so qualify if incorporated in the U.K.).

Regulation 4 excludes various types of contract from the scope of the Regulations, such as where none of the parties has entered into the contract in the course of carrying on a business in the United Kingdom. A contract is also excluded if it has been entered into in connection with or for the purpose of the transfer of all or part of a business (including transitional services agreements, which are contracts to provide services in order to facilitate the transition). For the latter exclusion to apply, the contract must include a statement to that effect.

A full regulatory impact assessment of the effect of these Regulations on the costs of business and the voluntary sector is available from the Department for Business, Energy and Industrial Strategy, 1 Victoria Street, London, SW1H 0ET or from www.gov.uk/beis .

2015 c. 26 .

2006 c. 46 . See section 1173(1).

See sections 383 and 466 of that Act.

S.I. 2008/1911 , as amended by S.I. 2016/575 . See regulations 5 and 26.

2000 c. 12 .

1934 c. 36 .

1998 c. 17 .

1974 c. 39 . “Regulated agreement” is defined in section 189(1).

2005 c. 5 . “Trading stock” is defined in section 174.

2013 c. 32 .

OJ No. L173 12.06.2014, p. 349. The Directive was amended by Regulation (EU) No. 909/2014 of the European Parliament and of the Council of 23 July 2014 (OJ No. L257, 28.08.2014, p.1) and Directive 2016/1034/EU of the European Parliament and of the Council of 23 June 2016 (OJ No. L175 30.06.2016, p. 8).

1986 c. 45 . Chapter 4 of Part 3 was inserted by the Enterprise Act 2002 (c. 40) , section 250.

2008 c. 32 . See section 68.

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Tá an chuid seo den suíomh idirlín ar fáil i mBéarla amháin i láthair na huaire.

Consideration

Transfers of property.

• VAT-exclusive consideration
• Consideration in a foreign currency
• What if you do not know the consideration?

When you buy property, the consideration is the amount of money you pay for it, excluding any Value-Added Tax (VAT).

You buy a commercial premises for €200,000.

An instrument (usually called a Deed of Transfer) is executed (signed, sealed or both) to transfer the premises to you.

You pay Stamp Duty on €200,000.

You buy shares for €10,000.

An instrument (usually called a Stock Transfer Form) is executed to transfer them to you.

You pay Stamp Duty on €10,000.

However, the consideration may not always be entirely money. You may take responsibility for repaying a debt owed by the seller or transferor of the property (usually called assumption of a debt). You may have a property transferred to you to pay off a debt owed to you (usually called satisfaction of a debt). You may transfer shares to the seller.

You pay Stamp Duty on the value of the debt or the shares.

Assumption of a debt

When you take responsibility for repaying a debt, Stamp Duty is chargeable on the higher of:

• the amount of the debt assumed (including a mortgage) plus any other consideration paid
• the equity of redemption. The equity of redemption is the difference between the market value of the property and the debt assumed. In other words, the equity of redemption is the net value of the property.

Mary sells a non-residential property, valued at €80,000 for €65,000 to you.

You also agree to pay off a debt of €15,000 which she owes to John.

You pay Stamp Duty on the purchase price of the property (€65,000) plus the debt you assumed (€15,000). You pay Stamp Duty on €80,000.

Declan bought a house in 2011. He got a loan from his bank to help him finance the purchase.

Declan sells the house to you in 2019. The value of the house is €335,000 but Declan sells it to you for €220,000 plus the outstanding loan amount.

The amount outstanding of the loan is €115,000.

The value of the loan plus the consideration paid is €335,000 (€115,000 + €220,000).

The equity of redemption is €220,000 (€335,000 - €115,000).

You pay Stamp Duty on €335,000 as that is the higher amount.

Ronan transfers non-residential property, value €50,000, to you as a gift.

There is a debt of €15,000 charged on the property.

You agree to take responsibility for repaying that debt.

The equity of redemption is €35,000 (€50,000 - €15,000).

You pay Stamp Duty on €35,000 as that is the higher amount.

If the debt assumed was €42,000, you would pay Stamp Duty on €42,000 as it is higher than the equity of redemption. The equity of redemption is €8,000 (€50,000 - €42,000).

Ken transfers property valued at €100,000 to you.

You agree to take responsibility for repaying a debt of €40,000 which Ken owes to Tom. You also pay cash of €5,000 to Ken.

The total consideration is €45,000 (€40,000 + €5,000).

The equity of redemption is €60,000 (€100,000 - €40,000).

You pay Stamp Duty on €60,000 as that is the higher amount.

Jane transfers property valued at €50,000 to you.

You assume a debt of €30,000 that Jane owes to her bank.

You also pay cash of €5,000.

The total consideration is €35,000 (€30,000 + €5,000).

The equity of redemption is €20,000 (€50,000 - €30,000).

Peter and Donal have a joint mortgage on a house.

Peter sells his half share in the house to Donal for €160,000.

In addition, Donal takes over payment of the outstanding mortgage.

The outstanding mortgage (or mortgage redemption figure) is €120,000.

The debt assumed by Donal is €60,000 (€120,000 ÷ 2).

Donal, therefore, pays Peter €220,000 (€160,000 + €60,000) for Peter's half share of the house.

The market value of the house is €500,000.

The equity of redemption is €380,000 (€500,000 - €120,000). However, this is divided by 2 to give a figure of €190,000 as the property was jointly owned with a joint mortgage.

Donal pays Stamp Duty on €220,000 as that is the higher amount.

If the property is in negative equity, Revenue accept Stamp Duty paid on the market value of the property. This applies whether the mortgage relates to residential or non-residential property. Negative equity means that the current value of your property is less than the amount outstanding on your mortgage. In other words, you owe the bank more money than what you would get for the sale of your property.

Satisfaction of a debt

In the case of the satisfaction of a debt, Stamp Duty is chargeable on the higher of:

• the amount of the debt plus any other consideration paid
• market value.

Tom owns a farm.

Tom owes you €50,000.

To pay off that debt, Tom transfers land valued at €50,000 to you in February 2019.

You also pay €5,000 to Tom as part of the agreement.

You pay Stamp Duty on the value of the land plus the cash you paid to Tom, that is, €55,000.

Transfer of Shares

You pay Stamp Duty on the value of the shares transferred.

Irene sells you a house valued at €250,000 in February 2019.

You pay her €200,000 cash plus €50,000 worth of shares you own in Uptown Ltd.

You pay Stamp Duty on the instrument transferring the house.

You pay Stamp Duty on €250,000 which is the combined value of the cash payment and shares.

An instrument will be needed to transfer the shares to Irene so she will pay Stamp Duty on €50,000.

Peter grants you a right of way over his property for €6,000 in March 2019.

Instead of paying cash you transfer 100 shares in XYZ Ltd worth €6,000 to Peter.

You pay Stamp Duty on the instrument creating the right of way.

You pay Stamp Duty on €6,000

An instrument will be needed to transfer the shares to Peter.

Peter will pay Stamp Duty on €6,000.

Distributions in specie

You may be a shareholder in a company. The company may own assets, for example, office buildings, residential properties, plant and machinery.

If the company goes into liquidation or is wound-up those assets are held for the benefit of the creditors of the company.

Once the creditors are paid, any remaining assets become the property of the shareholders. Those assets may be sold, and the cash given to the shareholder.

Alternatively, the assets could be transferred to the shareholders in the proportion of their shareholding.

The transfer of assets, rather than cash, is called a ‘distribution in specie’. Stamp Duty is not chargeable on an instrument that transfers assets in this way. You do not file a Stamp Duty return.

However, Stamp Duty is chargeable if:

• the assets are the subject of a charge (mortgage) and they are transferred subject to that charge
• the company owes a debt to a third party and the shareholders agree to assume liability for the debt
• the company owes a debt to the shareholders and the shareholders agree to forgive the debt.

Next: VAT-exclusive consideration

Published: 07 July 2023 Please rate how useful this page was to you Print this page

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