64 3 Reduction of External Funding Needs
In the light of continental European laws, the question would again be whether
the requirements as to form have been fulfilled. There are more requirements as to
form where the transaction is regarded as a provision of security interests in the
receivables. Recharacterisation would therefore be an issue also under continental
European laws.
Achieving a true sale and thus avoiding recharacterisation is not only a matter
of ensuring that the basic requirements as to form have been complied with. It
may involve even other aspects of the transaction such as recourse to the
originator, representations and warranties given by the originator to the SPV, and
the parties’ intent.^150 It is particularly difficult to mitigate the recharacterisation
risk and similar risks when the assets to be securitised consist of future receivables
that have not been earned yet (for the assignment of future receivables, see
Volume II).^151 The assignments are typically supported by categorical opinions
from the lawyers responsible for their design and implementation to the effect that
they constitute “true sales” rather than assignments by way of security.^152
Priority. A particular problem for some forms of securitisation relates to the
way in which priority can depend upon the date on which notice was given to the
debtor. For legal reasons, the debtors should be given notice of the sale of their
debts.^153
In practice, however, notice is not normally given to debtors because of
administrative burdens and because the originator may wish to maintain a
commercial relationship with the debtors and to continue to collect the
receivables.
If no notice is given to debtors of the assignment to the SPV, the SPV might not
be able to enforce it against third parties in the bankruptcy of the originator. The
SPV might not be able to enforce it against third parties in the event that the
originator sells the receivables (or grants competing security interests) to a third
party who does not know of the earlier securitisation assignment and the third
party gives notice to the debtor before the SPV does.^154 In addition, debtors
without notice can continue to acquire set-off rights and defences that can be
exercised against the assignee.^155
Balance sheet. According to IFRS, the purpose of securitisation may be
frustrated if the originator continues to control the SPV. This is because the IFRS
(^150) The Law Commission, Registration of Security Interests, paragraph 6.34.
(^151) Generally, see Raines M, Wong G, Aspects of Securitization of Future Cash Flows un-
der English and New York Law, Duke J Comp Int L 12 (2002) p 453.
(^152) See, for example, MBNA Europe Bank Ltd v HM Revenue & Customs [2006] EWHC
2326 (Ch).
(^153) See The Law Commission, Registration of Security Interests, paragraph 6.36. See also
§ 409 BGB (Abtretungsanzeige).
(^154) See, for example, § 407 BGB (Rechtshandlungen gegenüber dem bisherigen Gläubiger)
and § 408 BGB (mehrfache Abtretung). See also Ambery R, Bowmer S, Why Don King
Needs a Haircut - Transfer and Assignment of Contracts: How to Sell Trade Receivables
under English Law, JIBL 15(9) (2000) pp 216–220.
(^155) See, for example, § 406 BGB (Aufrechnung gegenüber dem neuen Gläubiger).