un convention on the assignment of receivables in...
TRANSCRIPT
UN Convention on the
Assignment of
Receivables in
International Trade
March 17, 2007
Neil Cohen
Ed Smith
Steve Weise
2
Topics
Status of the Convention
Purpose of Convention
Scope of the Convention
Internationality
Location rules
Meaning of receivable
Exclusions
Substantive rules
3
Introduction
U.S. is moving towards ratification
of UN Convention on the
Assignment of Receivables in
International Trade
Want to understand the benefits
and as well as any possible
drawbacks
4
Broad effect of Convention
The Convention would affect
broad range of transactions:
Asset-based lending + factoring
Securitization
Loan trading
Project finance
5
Purpose and benefits of Convention
Bring certainty to choice-of-law
rules for covered transactions
Promote transparency in
transactions
Reduce transaction costs
6
Status of Convention
Convention promulgated by the UN in December 2001
Adopted by Liberia
Signed by Luxembourg, Madagascar, + U.S.
Ability of a State to make declarations
U.S. now moving towards ratification
7
Scope of Convention
Applies to:
Assignments of international
receivables
International assignments of
receivables
In all cases, assignor must be
located in Contracting State
8
Basic rule of Convention
Law of the State in which the
assignor is located governs the
priority of the right of an assignee
in the assigned receivable over
the right of a competing claimant
9
Definition of parties
‘Assignor’
Article 9 ‘debtor’
‘Assignee’
Article 9 ‘secured party’
‘Debtor’
Article 9 ‘account debtor’
10
Definition of ‘receivable’
Contractual right to payment of a monetary sum from a third person
Includes (using Article 9 terminology):
Accounts
Chattel paper
Promissory notes
Payment intangibles
Real estate rents (unless assignee has an interest (e.g., a mortgage) in the real property and that interest conveys with it an interest in the real property rents)
11
Definition of ‘assignment’
Transfer by agreement from one
person another person of all or
part of or an undivided interest in
a receivable
Includes:
Sales of receivables
Security interests in
receivables
12
Definition of location
Assignor and assignee
Place where central administration
is exercised
Debtor
Place of closest relationship to the
original contract
Individual without place of business
Habitual residence
13
Definition of ‘law’
Means local law, without choice-of-law
rules (referred to as ‘private
international law’ in Convention)
Probable U.S. declaration
Once U.S. law applicable per
Convention, Article 9 choice-of-law
rules apply if result in U.S. location
for assignor (Article 9 debtor)
14
Exclusions
Does not apply to assignments of receivables arising under or from:
Transactions on a regulated exchangeFinancial contracts governed by netting agreements, except a receivable owed on the termination of all outstanding transactionsForeign exchange transactionsInter-bank payment systems or payment agreementsClearance and settlement systems relating to securities or other financial assets or instruments
15
Exclusions
Does not apply to assignments of receivables arising under or from:
The transfer of security rights in, sale, loan or holding of or agreement to repurchase securities or other financial assets or instruments held with an intermediary
Bank deposits
Letter of credit or independent guarantee
16
International assignment – Ex. 1
Assignee
(Secured party)
Not US
Assign
receivables
(Accounts)
Assignor
(Debtor)
located in
Contracting
State
US
Debtor
(Account debtor)
Receivables
(Accounts)
Assignor located in
U.S.
Must be located
contracting state
Assignee not located
in U.S.
Does not matter
where debtor is
located
17
International assignment – Ex. 2
Assignor not located
in U.S.
Must be
contracting state
Assignee located in
U.S.
Does not matter
where debtor is
located
Assignee
(Secured party )
US
Assign
receivables
(Accounts)
Assignor
(Debtor)
located in
Contracting
State
Not US
Debtor
(Account debtor)
Receivables
(Accounts)
18
International receivable – Ex.
Assignor located in
U.S.
Must be
contracting state
Assignee located in
U.S.
Debtor in different
state
Does not matter if
contracting state
19
Comparison of results with UCC
results
Perfection in promissory notes and
chattel paper by possession
Law of location of assignor
provides the rule
Not the law of the location of
the promissory note or the
chattel paper
20
Asset-based lending example -
facts
Assignor located in state in the U.S.
Revolving line of credit from a syndicate of lenders
Security interest granted to agent, as collateral agent for the lenders
Agent located in the U.S.
Some lenders located outside U.S.
Security interest in all of assignor’s existing and after-acquired receivables
Some obligors located outside U.S.
21
Asset-based lending example -
questions
Convention applies to foreign lenders’
rights with respect to the security
interest in the receivables owed by the
U.S. obligors?
Convention applies to agent’s security
interest in the receivables owed by the
foreign obligors?
Convention help concerning
commercial risks in including
receivables owed by non-U.S. obligors?
22
Securitization example - facts
Assignor (originator) located in the
U.S.
Assignor purports to sell
receivables to SPE located outside
of the U.S.
SPE issues interests in to investors
23
Securitization example – questions
Convention applies to sale of the
receivables to SPE?
Convention applies to sale of interests
issued by SPE to investors?
What law governs whether the sale of
receivables to SPE is a ‘true sale’?
Assignor acts as servicer to collect
receivables for SPE - does Convention
protect the SPE’s ownership interest in
the collections?
24
Debt trading example - facts
Assignor, who is located in the
U.S., has made a loan to
borrower, who is also located in
the U.S.
Assignor sells the loan to assignee,
who is located in a foreign country
25
Debt trading example – questions
Convention applies?
What if assignee purchases loan through its U.S. subsidiary?
What if assignee purchases loan through its U.S. branch?
What if assignor is a U.S. branch of a foreign person?
What law determines assignor’s ownership rights in the loan?
26
Intellectual property example –
additional definitions and rules
‘Original contract’ means contract between the assignor and the debtor from which the assigned receivable arisesAssignment effective notwithstanding agreement in contract between assignor and its debtor not to assign
Applies only to original contract out of which assigned receivable aroseDoes not prevent damages claim against assignorDoes not allow interference with contract claim against assignee based solely on knowledge of restriction
27
Intellectual property example - facts
Assignee
(‘Secured
party’)
Assign
royalties from
sublicense
(‘Receivables’)
Assignor
(‘Debtor’)
Licensee/
Sublicensor
Sublicensee
(‘Debtor’/
account
debtor)
Royalties under
Sublicense
(‘Original Contract’)
(‘Receivables’)
Licensor
Royalties under
Master
License
Assume Convention
applies
Master license prohibits
licensee from assigning
royalties under
sublicense
Sublicense does not
prohibit assignment of
royalties under
sublicense
28
Intellectual property example -
questions
Do Convention rules on anti-
assignment clauses apply to limit
effect of transfer restriction in
master license?
If sublicense prohibited
assignment, would assignment by
sublicensor be effective?
UN Convention on the
Assignment of
Receivables in
International Trade
March 17, 2007
Neil Cohen
Ed Smith
Steve Weise