In our spring 2020 Briefing just as the global pandemic was taking hold we analysed some high-level issues likely to affect contractual relationships on the one hand between invoice financiers and their clients, and on the other hand between invoice financiers and debtors.
One of the effects of the pandemic has been to slow down (some might say even further!) the litigation process in the UK courts, and despite one or two high-profile decisions relating primarily to business interruption insurance there have been few reported cases dealing with the effects of the pandemic relevant to invoice financiers.
In our last Briefing we explained certain temporary changes to the insolvency regime arising from the pandemic and set out the relevant dates of those provisions.
On 26 March 2021, the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2021 (SI 2021/375) extended various temporary provisions in the Corporate Insolvency and Governance Act 2020 (“CIGA 2020”) that had otherwise been due to expire in March and April 2021.
There are somewhat conflicting reports as to the current level of deliberate fraud in the invoice finance industry, but it is worth keeping a watch on some of the cases relating to director qualifications.
In this regard it is noteworthy that three directors were recently banned for a total of 29 years for an invoice finance fraud.
Bermans, commercial law firm in Liverpool and Manchester, is delighted to announce that it has promoted 6 individuals to more senior roles at the firm.
Andrew Henderson (left) joined Bermans in 1985 and has developed an expertise in asset finance litigation. He has been made a Partner and joins Alex Chapman, David Gledhill and Jonathan Berkson as partners in the specialist Asset Based Lending team that is ranked in the Legal 500 London Asset Finance Lending rankings.
He deals with matters such as fraud, freezing orders, title claims, delivery up claims, guarantee/indemnity claims, shortfalls and general debt recovery for a wide range of asset based lenders.
The Corporate Insolvency and Governance Act 2020 (CIGA) came into force on 26 June 2020 and introduced some permanent reforms to corporate insolvency law together with some temporary provisions required as a result of COVID-19.
The reforms have been described as “the most significant change in English insolvency laws for commercial lawyers in a generation”.
We will focus on the impact of the new legislation on invoice financiers both in terms of their relationships with clients and in enforcing debts against clients’ debtors.
We will firstly examine the permanent changes before reviewing the temporary changes and ending with some thoughts on the overall effect of the reforms on the invoice finance sector.
Back in 2004, Porter Capital Corporation (“Porter”), a US finance Company based in Birmingham, Alabama, financed a US corporation (“Corporation”) via an invoice finance facility. To secure the finance, they took guarantees from three guarantors, one of whom lived in London and was a co-owner of a valuable Knightsbridge apartment on Hyde Park in London and shares in a family company. The finance documentation was expressed to be under Connecticut law.
By 2008, things were going wrong for the Corporation and by March 2010 just prior to the Corporation’s Chapter 7 Bankruptcy in the US, Porter wrote making its demand for the account shortfall against the finance agreement’s three guarantors.
As with everything else about the pandemic, the legal position remains both fluid and uncertain; the best we can do at present is to highlight some of the issues which are likely to arise both in terms of:
(1) the relationship between invoice financiers and their clients; and
(2) supply contracts between suppliers using invoice finance and their debtors.
Before considering some issues which may arise in each of these situations, it may be helpful to set out some general high level comments on various parts of contract law which may be relevant in these circumstances, and which include terminology which may be misunderstood and is likely to be discussed amongst financiers and clients in the coming months.
On 1 April 2019 the jurisdiction of the Financial Ombudsman Service (“FOS”) was extended to include additional categories of eligible complainants such as more SMEs and individual guarantors of loans. The FCA has also indicated that it intends to increase the limit of an award which can be made by the FOS under its compulsory jurisdiction scheme from £150,000 to £350,000, probably sometime later in 2019.
The Credit hire and credit repair industries and ancillary services provided to claimants in “no fault” accidents have traditionally been regarded as challenging sources of business for invoice financiers, but there are signs that financiers are becoming more comfortable with the risks involved.
It is fair to say that these industries have over recent years been subject to a number of measures by the Government in attempts to reduce overall insurance premiums, but they continue to display a sense of innovation.
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