3.4 Management of Working Capital 55As regards transaction finality, one of the most important questions for the fac-
tor is whether the assignment of receivables can be enforced against original debt-
ors (the client firm’s customers) and the client firm’s creditors in the event of the
client firm’s insolvency (see Volume II). In continental European laws, the basic
distinction would be that between contract law issues and proprietary rights issues
(“Sachenrecht”). Insolvency laws would also play a role. In England, the factor
would ask whether the assignment is “legal” or “equitable”. In England, a sale of
receivables even with recourse is not a loan secured on the receivables (a loan se-
cured on the receivables would require registration as a charge) and can thus be
regarded as a legal assignment.^126
This is how The Law Commission described the difference between legal and equitable as-
signments: “An assignment may be either legal or equitable and the relevant interest may
also be legal or equitable. Once there has been a legal assignment, the factor acquires the
legal right to the debt (subject to equities having priority), all legal and other remedies for
the debt and the power to give a good discharge for the debt without the concurrence of the
assignor. However a legal assignment requires a writing under the hand of the debtor and
express notice in writing to the debtor, and it cannot be effective until the debt comes into
existence. An equitable assignment, in contrast, can be of future debts and may be purely
informal without even notice to the debtor. However a debtor who pays the assignor before
learning of the assignment will be discharged. For this and other reasons a factor may still
want to give notice of an equitable assignment to the debtor. In contrast to an assignment at
law, any form of notice is sufficient, provided the fact of the assignment is definitely
brought to the mind of the debtor. It is sufficient to show that the debtor has had knowledge
of the assignment, regardless of the mode or source of that knowledge.”^127
International factoring. The firm may have even more reason to use factoring in
export trade, because the firm typically has less connection to a foreign market
with its foreign laws than the firm’s home market with its local laws. The basic
principles of international factoring are the same as those of domestic factoring.
International factoring is nevertheless more complicated. Typically, the firm sells
receivables located in a certain foreign country first to a domestic factor. The do-
mestic factor sells the receivables to a second factor located in that foreign country
(correspondence factor or import factor).
In the Member States of the EU, the governing law is determined by the Rome
I Regulation:^128 the relationship between the factor and the debtor (the client
firm’s customer) is governed by the law that governs the contract between the cli-
ent firm and the debtor;^129 the relationship between the factor and the client firm is
governed, in the absence of choice, by the law of the country where the factor has
its place of business;^130 the relationship between the import factor and the export
(^126) See The Law Commission, Registration of Security Interests, paragraph 6.35.
(^127) The Law Commission, Registration of Security Interests, paragraph 6.27.
(^128) Article 24(1) of Regulation 593/2008 (Rome I): “This Regulation shall replace the
Rome Convention in the Member States ...”, Article 28: “This Regulation shall apply to
contracts concluded after 17 December 2009.”
(^129) Article 14(2) of Regulation 593/2008 (Rome I).
(^130) Articles 4(1)(b), 4(2) and 14(1) of Regulation 593/2008 (Rome I).