Economy
PwC Alert - Hungary’s new Civil Code regulates factoring as well
The new regulations remove the legal uncertainty surrounding factoring: agreements between the factor and the seller (the one who sells the receivable; the assignor) can only be made in writing. It is of key importance that any agreement that bars the assignment of receivables to the factor will be regarded as null and void.
Anyone may act as a factor; however, it is likely that factoring will continue to be interpreted as a lending operation, which, under the Act on Credit Institutions and Financial Enterprises, may only be carried out by financial institutions.
Factoring is a special kind of assignment to which different rules apply in respect of the assignor’s liability as guarantor, the notification of the debtor (obligor), and the agreement’s termination. These rules are described below.
In a factoring transaction, the seller transfers its receivables to the factor, who provides financing for all or part of the assigned receivables or assume the risk of non-payment by the debtor.
In return, the factor will be entitled to receive a factoring fee. The possibility of concluding a framework factoring agreement will also be codified in law. Accordingly, the factor will provide factoring services in respect of the assigned receivables up to an amount specified in the agreement.
In principle, the seller will be liable as guarantor for the debtor’s payment obligations to the factor, except in cases where the seller has transferred the receivables as insecure claims or where the factor has assumed the risk of non-payment by the debtor for an additional fee.
When there is a factoring agreement in place, notice of the assignment of the receivables must be given to the debtor. Such notices will be valid without the seller’s signature, which means that they may also be sent by the factor.
Notices must include the following information: a description of the sender or the assignor, the receivables assigned, and the factor’s details, including the factor’s bank account to which the collected receivables must be transferred.
Either party may terminate the agreement at 30 days’ notice. Factoring agreements may also be terminated with immediate effect. In such cases, the rules will be the same as for the immediate termination of loan agreements by creditors (e.g. if the assignor has deceived the factor and the factoring agreement is therefore based on false information, or if there is a risk that the assignor may not be able to pay the factor’s fees). In the case of framework factoring agreements, the factor will also have the right to terminate parts of the agreement that relate to specific debtors and claims, while the rest of the framework agreement will not be affected.
Anyone may act as a factor; however, it is likely that factoring will continue to be interpreted as a lending operation, which, under the Act on Credit Institutions and Financial Enterprises, may only be carried out by financial institutions.
Factoring is a special kind of assignment to which different rules apply in respect of the assignor’s liability as guarantor, the notification of the debtor (obligor), and the agreement’s termination. These rules are described below.
In a factoring transaction, the seller transfers its receivables to the factor, who provides financing for all or part of the assigned receivables or assume the risk of non-payment by the debtor.
In return, the factor will be entitled to receive a factoring fee. The possibility of concluding a framework factoring agreement will also be codified in law. Accordingly, the factor will provide factoring services in respect of the assigned receivables up to an amount specified in the agreement.
In principle, the seller will be liable as guarantor for the debtor’s payment obligations to the factor, except in cases where the seller has transferred the receivables as insecure claims or where the factor has assumed the risk of non-payment by the debtor for an additional fee.
When there is a factoring agreement in place, notice of the assignment of the receivables must be given to the debtor. Such notices will be valid without the seller’s signature, which means that they may also be sent by the factor.
Notices must include the following information: a description of the sender or the assignor, the receivables assigned, and the factor’s details, including the factor’s bank account to which the collected receivables must be transferred.
Either party may terminate the agreement at 30 days’ notice. Factoring agreements may also be terminated with immediate effect. In such cases, the rules will be the same as for the immediate termination of loan agreements by creditors (e.g. if the assignor has deceived the factor and the factoring agreement is therefore based on false information, or if there is a risk that the assignor may not be able to pay the factor’s fees). In the case of framework factoring agreements, the factor will also have the right to terminate parts of the agreement that relate to specific debtors and claims, while the rest of the framework agreement will not be affected.
