Law on factoring enters into force: what it provides.

On July 30, Law No. 4466-IX, which sets out the general legal framework for factoring in Ukraine, came into force.

The law was officially published in the Holos Ukrainy newspaper on July 29.

According to the law, it will be implemented one year after its entry into force, but not earlier than the enactment of the law amending the Civil Code regarding the regulation of factoring relations. However, subparagraph 1 of paragraph 3, as well as paragraphs 8 and 9 of Section V, enter into force and become effective the day after publication.

The law regulates relations between factors, clients, and debtors in the provision of factoring services.

The provisions of the law do not apply to assignments of monetary claims:

1. if the assigned claim arises from financial services agreements other than factoring agreements;
2. that do not provide for any remuneration, including commissions or discounts from the value of the monetary claim (obligation), to the new creditor in the obligation;
3. made by persons who do not meet the requirements of this law;
4. if the term for fulfilling the assigned monetary claim has expired at the time of the transaction;
5. made in cases provided for by the Law “On the Deposit Guarantee System.”

The subject of a factoring agreement is a monetary claim.

A factoring agreement defines the relationship between the parties arising from the assignment of monetary claims under one or more underlying agreements based on one or more transactions for the assignment of such claims.

Under a factoring agreement, the factor transfers or undertakes to transfer funds to the client by paying the price of the monetary claim for a fee (remuneration) (in any manner provided for in the agreement), and the client assigns or undertakes to assign to the factor their monetary claim against the debtor.

The right to a future monetary claim is considered transferred to the factor from the moment the right to claim against the debtor arises. If the transfer of a monetary claim is conditional upon a specific event or other conditions defined in the factoring agreement or the assignment transaction within a master factoring agreement, it is deemed transferred upon the occurrence of such event or fulfillment of such conditions. In such cases, no additional documentation (amendments to the factoring agreement or the assignment transaction, or the conclusion of an additional factoring agreement or assignment transaction) is required.

A factoring agreement cannot involve:

1. a monetary claim whose term for fulfillment has expired at the time of concluding the factoring agreement or the assignment transaction within a master factoring agreement;
2. a monetary claim relating to the debtor’s obligation to pay penalties (fines, late payment interest) separately from the monetary obligation secured by such penalty.