Useful clauses for litigation Declan Gilroy on getting your formalities sorted


and delivered or services rendered and the debt due there under assigned to the factor. In such cases the evidence needed will be terms of the contract between the assignor and the debtor, evidence of the order by the debtor, the assignor’s invoice bearing notice of assignment in favour of the factor, evidence that either the goods have been delivered or the services rendered together with any other information or documentation that refutes any allegation raised by the debtor. The debtor is entitled to request a copy of the factoring agreement which should be disclosed. However, rarely is the factoring agreement in dispute.


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If the debtor claims to have paid the assignor direct then it is important that the factor is able to prove receipt of notice of assignment by the debtor in respect of the debt claimed before the debtor paid the assignor. Evidence of such could be the factor’s take on letter as regards debts in existence at the start of the factoring agreement, notice of assignment on the invoices or the monthly statements of account issued by the factor to the debtor. However, even though the foregoing may each contain notice of assignment in favour of the factor it has to be proved that the debtor received such notice of assignment before it paid the assignor, and this can be difficult. Accordingly if there is any correspondence with the debtor it would be prudent to keep copies of it. If notice of assignment has to be sent to the debtor then I advise that it is also sent by fax and the transmission document showing successful transmission is retained.


52 November/December 2010


hen suing a debtor the claim is usually straightforward in that it is either for goods sold


Turning now to actions where the factor sues an assignor client then different considerations come in to play. Firstly the factoring documentation must be in order and properly executed. Surprising though it may seem I have seen copies of documents that either have not been signed by the parties or where the assignor’s identity is merely referred to by way of a company registration number and the company registration number quoted in the factoring agreement was wrong. Factoring agreements usually state that the monthly client statements issued by the factor to the assignor are to be conclusive and binding evidence of the assignor’s indebtedness to the factor save for manifest error.


What is more most if not all factoring


agreements state that a certificate of indebtedness signed by a director or officer of the factor will be conclusive and binding evidence of the assignor’s indebtedness. These two provisions are helpful when dealing with the quantum of the factor’s claim. The factoring agreement should contain a clause stating that the assignor agrees to pay the factor on demand the debit balance on the assignor’s account with the factor. The warranties and undertakings provisions in factoring agreements invariably contain a provision that the assignor warrants and undertakes that the debts assigned are bona fide valid debts and that the debtor has no set off, defence or counter claim to the debt. This is useful when there is a substantial outstanding sales ledger since by producing an aged debt analysis identifying the unpaid debts and referring this back to the relevant warranties and undertakings in the factoring agreement this can be used as evidence of the breach of the factoring agreement by the assignor.


Business Money


As for grounds for terminating a factoring


agreement there should be a provision stipulating that if the assignor fails to submit an assignment schedule to the factor for a specified period – I suggest 28 days, then this constitutes a ground entitling the factor to terminate the factoring agreement.


I advise that wherever possible the factor chooses the simplest grounds when pursuing an assignor, for example if the assignor is in some form of insolvency. If the assignor is a limited company and is in creditors voluntary liquidation then all that needs to be produced in the first instance is simply a company search evidencing this. My advice is to keep it simple and short. As for guarantees it is surprising how frequently factors take guarantees from persons without evaluating whether or not that person has the financial resources with which to satisfy any demand that may be made pursuant to her or his guarantee.


In respect of individual guarantors, even before entering into the guarantee, I advise that searches are made at the Land Registry to see whether the proposed guarantor owns any property, and if so, enquiries should be made to establish what equity, if any, there is in the property. Further I suggest that IVA/Bankruptcy searches are carried out in respect of any proposed guarantor. The factor may also wish to consider carrying out a search at the Registry of Judgments – see my article on page 42 in the September 2006 edition of Business Money. Frequently properties are now registered in the names of two persons whether it be husband and wife or social partners. Wherever possible the guarantee should be obtained from both owners.


Continued on page 54


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