Bills of Sale escape extinction

The Government recently announced that it does not intend to legislate to implement the September 2016 Law Commission proposals to modernise the archaic Bills of Sale regime:

“Given the concerns that were raised in the consultation, the small and reducing market and the wider work on high-cost credit, the government will not introduce legislation at this point in time. The government will continue to work with the FCA as they carry out their high-cost credit review, and then further consider government action on alternatives to high-cost credit in light of the FCA’s review”.

This reflected the fact that the focus of the proposals was on the use of Bills of Sale in respect of log-book loans in the consumer vehicle finance market, but invoice finance agreements on a whole turnover basis with sole trader and partnership clients have also traditionally been registered as Bills of Sale by some invoice financiers.

However, as we have explained previously on numerous occasions (see for example our November 2016 Briefing) in our view the need for registration of sole trader and partnership whole turnover invoice finance agreements as Bills of Sale can easily be overcome by the simple device of ensuring that invoice notifications contain the language of specific assignments.

The point was tested as a result of an attack by insolvency practitioners in case we defended some years ago, Hill (As Trustee in Bankruptcy of Burfoot and Haynes) v Alex Lawrie Factors Limited[1], in which a trustee in bankruptcy sought a declaration that the assignment effected by the whole turnover factoring agreement was void for want of registration under the 1878 Bills of Sale Act.

In his judgment Jacob J ruled comprehensively in favour of Alex Lawrie:

“So the system as actually operated works on the basis of specific assignments rather than the general assignment. Only notice of the specific assignments is given to the debtor. Moreover the payments to the client are for value and are specifically related to each assigned debt. There is no question of payment at an undervalue or the like-the sort of thing that might be concealed by a general assignment. Under the scheme, the payments made or to be made by the factor go to the client’s estate, either before or after the bankruptcy Of course the value of the payments is reduced by the factor’s turn, but no-one suggests this turn is extortionate or otherwise improper…

So I think the specific assignments have legal effect and can be relied upon by Alex Lawrie against the trustee. I am gratified to reach this result because it also accords with common justice. Alex Lawrie paid (or committed to pay) for the specific debts. If they were deprived of their benefit they would have lost their money completely even though their clients had had the money.”

In this day and age it is a very straightforward matter for an invoice financier to ensure that the language of specific assignment is used during the notification process. Therefore, provided that the invoice finance agreement requires notification and that the notifications contain language of assignment which is sufficiently clear, it is difficult to see how an insolvency practitioner or anyone else could successfully challenge a whole turnover agreement with a sole trader or partnership on the grounds that it was not registered as a Bill of Sale.

[1] The Times, August 17, 2000