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.
Although invoice finance remains by and large unregulated by Government, there is little doubt that the pace of regulation marches on and recently concerns have been expressed by some in the invoice finance industry that invoice financiers may be at risk of committing offences under the Criminal Finances Act 2017, for example where clients are suspected of building up substantial VAT/PAYE/Corporation Tax arrears.
In our Briefing 12 months ago we reported on the August 2018 Consultation paper issued by the Law Commission on the law relating to the electronic execution of documents, which suggested that the Law Commission was sympathetic to moves to allow all contracts and other documents to be completed electronically, particularly in the commercial context.
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.
The recent decision by one of the main bank owned invoice financiers to withdraw from the provision of credit protection has highlighted a continuing debate within the industry on issues arising from the interface between bad debt protection on the one hand and the provision of insurance on the other hand.
It is now widely understood within the industry that the provision of insurance is a regulated activity under the Financial Services and Markets Act 2000 (“FSMA”) which requires providers to be authorised and regulated by the Financial Conduct Authority.
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”.
The Law Commission is reviewing the difficult subject of the electronic execution of documents, and in particular deeds.
In principle all legal documents should be capable of electronic execution, but some doubt remains about the position regarding deeds in view of the statutory requirement for deeds to be witnessed.
It has been almost 6 months since the GDPR regime came into effect, and early signs would suggest that the invoice finance industry has adapted well to the new requirements.
As expected there was something of a last-minute rush to ensure compliance, but fears were perhaps eased by helpful comments from the Information Commissioner such as she made on BBC Radio 4’s Today programme on 25 May 2018:
“We are not looking for perfection. We do not have thousands of inspectors going out and checking people’s homework. What we do have are millions of people that have new rights and they can make a complaint against a company to our office”.
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