Amid the talk of election results, coalition talks and missing manifesto pledges surrounding this year’s Queen’s Speech, one would be forgiven for not taking note of a bill of some significance to the world of receivables finance.
The introduction of the Goods Mortgages Bill follows the Law Commission’s September 2016 report which proposed the repeal of the “archaic” Bills of Sale Act and the implementation of a new Goods Mortgage Act. While, the headline proposals of the report related to logbook loans provided to consumers, the report also made key proposals for modernising the system of registering general assignments of book debts.
Given the inclusion of the Goods Mortgages Bill in this parliament’s legislative programme, the Law Commission proposals warrant re-visiting.
The assignment of book debts is a popular way for businesses to raise working capital. The process involves the sale of trade debts to a finance company for immediate cash. It is also sometimes called factoring, sales finance, invoice finance or cash flow finance.
Under the Bills of Sale Act 1878, general assignments of book debts by unincorporated businesses (i.e. individuals or unlimited liability partnerships) need to be registered with the High Court, failing which they will be void on the bankruptcy of the assignee.
The current registration process has a number of formalities and requires three sets of solicitors: one to register the invoice financier’s paperwork, a second to advise the unincorporated business and a third to administer an affidavit from the business’s owners. The report noted that this can cost between £480 and £1,735 per registration.
The report also noted that the process takes between three to five working days, even when carried out promptly. During this time the provision of finance is often delayed. The entire assignment document must be submitted for registration within seven days of execution and the assignment must be re-registered every five years.
The Law Commission proposed that registration should require only a short, simple document submitted by email. The document would contain the parties’ basic details, a statement that debts have been assigned and the date and duration of the assignment. Registration would be valid immediately upon submission of the document.
It was further proposed that there should no longer be a requirement for an affidavit to be administered, and that while assignment documents should continue to be witnessed, witnesses need not be solicitors.
Further recommendations are that the seven day time limit to register should be abolished and that the period between each re-registration should be extended to ten years.
The report also set out the long term aim of setting up an electronic register for the assignment of book debts.
These proposals would significantly simplify the current registration regime. Time will tell if the proposals are included in the Goods Mortgages Bill and eventually the Goods Mortgages Act in order to reduce the burden of registration on invoice financiers and their customers. However, seeing that the current regime has been in use since 1878 it is probably due a little modernising.