Factoring agreement and restructuring proceedings

Factoring agreement and restructuring proceedings

One of the ways of indirect financing, available on the market next to classical instruments such as credit and loan, is factoring. Factoring financing leads to the release of funds due from contractors, which allows to improve financial liquidity.

CHARACTERISTICS OF THE FACTORING AGREEMENT

The factoring agreement is considered to be an unnamed agreement of a consensual, reciprocal and remunerative nature. Factoring is the purchase by a factor of certain receivables due to a factoring company (due to its business activity) in exchange for a specific amount corresponding to the receivables (less the factor’s commission). The factoring structure itself is usually based on a framework agreement (containing general provisions) and many specific agreements setting out the rights and obligations of the parties with regard to a specific claim.

Among the many divisions of factoring, the most important is the division due to the extent of the factor’s liability for the solvency of the factor’s debtors – we can distinguish:

1. proper (full) factoring in which the factor acquires receivables due to the factor and assumes the risk of not receiving payment,

2. improper (incomplete) factoring in which the factor acquires receivables due to the factor but does not accept the risk of not receiving payment.

In practice, inappropriate factoring is much more frequent (further consideration will be given only to this type of contracts). Due to the lack of regulation of the factoring agreement as a named agreement, the Restructuring Law (p.r.) does not refer directly to factoring. However, its provisions have a direct impact on the legal relationship between the factor and the factor.

IMPACT OF RESTRUCTURING PROCEEDINGS ON FACTORING

The procedure for approving the arrangement does not introduce any changes in the legal relationship between the factor and the factor. The opening of other restructuring proceedings does not, in principle, affect the further implementation of the factoring agreement either – its continuation depends on the parties and the adopted provisions. Unsecured receivables due to the factor are covered by the arrangement by law (art. 150 p.r.). However, the factoring agreement is most often secured due to potential recourse claims in the event of the insolvency of the factor’s contractors.

One of the ways of securing a claim is to establish a collateral in kind, as well as the assignment of receivables (including future receivables). In the case of a security in kind, the factor’s receivables may be covered by the arrangement only with the factor’s consent (Article 151(2) of the Restructuring Law ).

Coverage of factoring receivables by arrangement

Opening of accelerated composition proceedings, composition proceedings and recovery proceedings involves certain modifications in the case of securing the factor’s receivables by assignment of future receivables. The agreement on the assignment of future receivables will be invalid to the extent applicable to receivables arising after the opening of the proceedings. It results from the content of Article 249 in conjunction with Article 246 paragraph 1 of the Restructuring Law (a condition for an effective assignment of a claim is its existence). The transferred receivable first arises in the seller’s assets and only then passes to the buyer – a different view would violate the prohibition to encumber the debtor’s assets (Article 246(1) of the Restructuring Law).

DEDUCTION OF RECEIVABLES BY THE FACTOR

Set-off of counterclaims that arose before the opening of proceedings is possible only with claims that also existed before that date. There are no restrictions on the set-off of claims arising after the opening of proceedings. In the context of the recovery proceedings, the question of the admissibility of a possible withdrawal from the factoring agreement which was not in accordance with Article 298(1) of the Restructuring Law) should also be considered. It seems that this provision will apply both to the wrong factoring agreement (the framework agreement, which is a mutual and equivalent agreement) and to specific agreements (also meeting the equivalence requirement).

Although factoring has not been codified in the Polish legal system, it has been clearly shaped by economic turnover. Due to the popularity of factoring, lawyers more and more often encounter practical problems with its application, also, as results from this article, in the face of restructuring proceedings.

 

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