GUIDELINES FOR INTER-MEMBER TRANSFERS

2017Edition

INTRODUCTION

The Executive Committee of the Asset Based Finance Association (“the ABFA”) considered it desirable to standardise and rationalise the process and documentation in connection with and promote best practice in relation to the transfer from one Member of the ABFA to another Member of the ABFA (each a “Member”) of a Client[1] (“a Transfer”).

As a consequence the ABFA has agreed to promulgate these Guidelines, the terms of which are recommended for adoption between Members in their dealings with each other in connection with a Transfer. If in any particular case either an Incoming Member or an Outgoing Member is unwilling to adopt these procedures then a written refusal must be given to the other Member in accordance with clause 1.2 below. These Guidelines may be amended from time to time whereupon a new Edition will be distributed by the ABFA to all Members of the ABFA at that time.

In addition to these Guidelines, the ABFA, via its website, has published a set of commitments, together with an example of timescales that should be adhered towherever possible, during and immediately aftera Transfer. These commitments have been publishedto enable Clients and former Clients to understand the Transfer process, and to ensure that Members work together to ensure a smooth Transfer. These commitments are also attached hereto at Appendix I.

FORMS

Annexed to these Guidelines are certain proposed precedent letters, which are referred to as “Forms”. Certain of the Forms must be used if these Guidelines are adopted by the relevant Members to govern their dealings in relation to a transfer. Others are annexed to these Guidelines as optional suggested wording for correspondence in connection with a Transfer but Members are able to use alternative wording should they so desire.

1

DEFINITIONS

In these guidelines and in the Forms the following words have the meanings given to them below. Some definitions are required to take account of the fact that the terminology used within the industry is not consistent.

Client / The person, partnership or other trading organisation which is a party to a Debt Purchase Agreement with the Outgoing Member and is the intended subject of a Transfer to the Incoming Member.
Credit Balances / Those amounts shown on the records of the Outgoing Member as credit balances on the accounts of Customers of the Client however such amounts arise.
Customers / Those persons, partnerships or other trading organisations who have had goods delivered from or services rendered by the Client.
Debts / The amounts due at the time of the Transfer from Customers of the Client.
Debt Purchase Agreement / Any agreement by way of security or by way of purchase under which a Member generally provides facilities to its Clients.
Funds in use / The aggregate of all advances, prepayments, initial payments, discount charge, service charge, commission and other fees and sums payable by the Client to the Outgoing Member or which would be payable by the Client to the Outgoing Member in the event of immediate termination of the Debt Purchase Agreement by the Outgoing Member.
Incoming Member / The Member to whom the Client wishes to transfer.
Negotiable Instrument / Cheque, bill of exchange or other such instrument or payment.
Outgoing Member / The Member from whom the Client wishes to transfer.
Target Transfer Date / The proposed date upon which a Transfer is intended to be effected.
  1. Adoption of these Guidelines by the Incoming and Outgoing Member

1.1The Incoming Member may propose to the Outgoing Member in connection with any Transfer that each of them adopts these Guidelines in relation to such Transfer. Form A shall be used for this purpose with such additions as the Incoming Member and the Outgoing Member may determine. Form A envisages that preliminary discussions have taken place between the Incoming Member and the Outgoing Member in respect of the proposed Transfer.

1.2Form A shall be prepared by the Incoming Member in relation to the relevant Client and sent to the Outgoing Member who shall complete and return it to the Incoming Member within two working days of receipt, or advise the Incoming Member within the same period as to why this cannot be achieved. If in any particular case either an Incoming Member or an Outgoing Member is unwilling to adopt these procedures then a written refusal from that Member’s Managing Director or Head of Operations must be given to the other Member stating the full grounds for such refusal.

1.3Following the adoption of these Guidelines by the Incoming Member and the Outgoing Member in connection with a Transfer the Incoming Member and the Outgoing Member shall advise each other promptly of any fact or circumstances coming to their attention which could lead to the Target Transfer Date not being met.

  1. References and other information requested.

2.1The Incoming Member may desire to take a reference from the Outgoing Member in respect of the Client. Whilst the Outgoing Member is not obliged to give any such reference, whether verbally or in writing, such reference should not be unreasonably withheld solely for commercial advantage. Where the Outgoing Member is willing to provide a reference the referee should be a suitably authorised and competent individual who is aware of their responsibilities and acts within the spirit of these Guidelines. If the Outgoing Member does give a reference to the Incoming Member such reference must be treated as being given entirely without responsibility on the part of the Outgoing Member. Form B is a suggested form of request for reference.

2.2It is the responsibility of the Incoming Member to ensure that they exercise due diligence when making reference enquiries of the Outgoing Member. In the course of prudent enquiries likely to be made by the Incoming Member in preparation for the proposed Transfer it is likely that the Incoming Member will make certain enquiries of the Outgoing Member concerning the Client and/or its account with Outgoing Member. Where such enquires are made and the Outgoing Member answers such enquiries the answers given shall be given in good faith after due consideration of relevant facts or matters available to the Outgoing Member. To promote best practice and the good standing and reputation of the ABFA and its Members the Outgoing Member shall use its reasonable endeavours to answer all reasonable enquiries of the Incoming Member in relation to the Client promptly, (subject to any legal or other restriction binding upon the Outgoing Member which may restrict the Outgoing Members ability to answer such enquiries). However, all answers given in respect of the matters referred to in this section 2.2 must be treated as being given entirely without responsibility on the part of the Outgoing Member.

2.3It is the responsibility of the Incoming Member to obtain any consent that is required from the Client of the Outgoing Member for the taking of a reference or the giving of information and the Outgoing Member may require that such consent has been obtained when responding to a request for a reference or information from the Incoming Member. The Outgoing Member should ensure that it has the necessary consent and authority from the Client authorising the Outgoing Member to disclose details concerning the Client to third parties. Notwithstanding anything in these guidelines it remains the obligation of each of the Outgoing and Incoming Members to comply with the relevant Data Protection Legislation.

  1. Credit Balances, Negotiable Instruments and indemnities

3.1In connection with a Transfer which is completed in accordance with these Guidelines the Incoming Member and the Outgoing Member will be deemed to have agreed with each other that:-

3.1.1The Outgoing Member shall transfer to the Client upon completion of the Transfer (i) all Credit Balances or (ii) credit items within debit balancesthen outstanding so that the Client may transfer them to the Incoming Member.

3.1.2The Incoming Member shall indemnify and hold the Outgoing Member harmless against all losses, costs, damages, fees and/or other expenses which the Outgoing Member may suffer or incur as a consequence of such transfer (save that such indemnity shall be limited in respect of each claim made against the Outgoing Member to the value of the Credit balance or credit item within a debit balance transferred to the Incoming Member in respect of such claim), and

3.1.3The Outgoing Member shall make no provision in its calculation of Funds in Use on completion of the Transfer for uncleared Negotiable Instruments received by the Outgoing Member in respect of Debts, and

3.1.4The Incoming Member shall indemnify and hold harmless the Outgoing Member against all loss, costs, damages, fees and/or expenses which the Outgoing Member may suffer or incur in consequence only of the Outgoing Members failure to collect such Negotiable Instruments (save that this indemnity shall not apply to the extent that any such Negotiable Instrument is received by the Outgoing Member prior to the termination of the Outgoing Member’s agreement with the Client and such Negotiable Instrument is appropriated to a Debt for which the Outgoing Member has or had no recourse to the Client), and

3.1.5For the period of 3 calendar months from completion of the Transfer the Outgoing Member shall,within three working days of the Outgoing Member being aware thereof, advise and account to the Incoming Member in respect of:

(i) all and any cleared monies or Negotiable Instruments received by the Outgoing Member in such period in respect of Debts reassigned by the Outgoing Member to the Client and assigned to the Incoming Member by the Client as a consequence of the Transfer, and

(ii) any other cleared monies and/or Negotiable Instruments which the Outgoing Member may notify to the Incoming Member as having been received in respect of the Client and which the Incoming Member requests are transmitted to it by the Outgoing Member, and

3.1.6The Incoming Member shall indemnify and hold harmless the Outgoing Member against all loss, costs, damages, fees and/or expenses which the Outgoing Member may suffer as a consequence of accounting to the Incoming Member for the monies and Negotiable Instruments referred to in 3.1.5 above (save that this indemnity shall be limited in each case to the amount of the monies and/or the Negotiable Instrument in respect of which such claim is made), and

3.1.7During the period referred to in 3.1.5 above the Outgoing Member shall use all reasonable endeavours to (i) identify whether monies and Negotiable Instruments received by the Outgoing Member during such period are in respect of the Debts created by the Client, and (ii) to provide timely visibility of these transactions to the Client. The Outgoing Member shall have no commitment, liability or obligation to the Incoming Member in respect of monies and Negotiable Instruments received by the Outgoing Member after the expiry of such period.

  1. Additional correspondence from the Client, the Outgoing Member and the Incoming Member

4.1To facilitate the Transfer the Outgoing Member and/or the Incoming Member shall (or may as the case may be) procure the following correspondence to be exchanged:-

4.1.1The Incoming Member shall, by 5pm on the working day prior to the Transfer, confirm the date of Transfer. The Outgoing Member shall complete and despatch to the Incoming Member separate letters in the form of Forms C and E to arrive no later than midday on the date of transfer.

4.1.2The Incoming Member shall hold the letter in the form of E to the order of the Outgoing Member until completion of the Transfer. The Incoming Member shall, for the purpose of confirming intended completion of the Transfer and after receipt of a duly completed letter in the form of C, duly complete and deliver to the Outgoing Member a letter in the form of Form F.

4.1.3In connection with a Transfer the Incoming Member shall require and obtain from the Client a letter in the form of Form D. The Incoming Member may also require the Client to deliver to it a letter in the form of Form G, which is a suggested wording to confirm the authority of the Client to the Incoming Member to make payment to the Outgoing Member.

4.1.4In connection with a transfer the Outgoing Member may require the Client to deliver to it a letter in the form of Form H giving the Outgoing Member authority to deliver to the Incoming Member certain remittances received by the Outgoing Member in respect of Debts reassigned.

4.1.5Where required, within four working days following completion of the transfer, the Incoming Member shall procure the despatch to each Customer of the Client of a copy of the letter in the form of Form D, with a copy of the letter in the form of Form E attached.

5Accounts in credit

5.1In cases where the Funds in Use shows monies due to the Client the Outgoing Member will account to the Client for such monies whilst still providing the Incoming Member with all the paperwork required under these Guidelines.

6Invoices subject to bad debt protection

6.1In cases where Debts are covered by an existing bad debt protection arrangement (including a non-recourse facility) that may not be available under the new arrangement it is good practise for both the Outgoing Member and Incoming Member to make the Client aware of the possible consequences of the transfer of such Debts. It may be agreed between the appropriate parties that the Outgoing Member will retain Debts which are subject to such protection arrangement and collect them in the normal course of business or make payment under the bad debt protection arrangement, if so obliged.

7Release of Security

7.1The Outgoing Member shall,within four working days following completion of the Transfer, release any form of security, over Debts that is no longer applicable. The Incoming Member is also entitled to assume that, in relation to the Outgoing Member, all debts advised as part of an inter-member transfer are free and clear of any security.

7.2The transfer of the Client, from the Outgoing Member to the Incoming Member, may be related to the acquisition of the Client by a new owner. In such circumstance, it may be proposed that the payment to be made to the Outgoing Member in respect of the repurchase price of Debts is made from a solicitor's client account, rather than by a direct payment from the Incoming Member to the Outgoing Member. Generally this would be following the transfer of funds to the solicitor's client account by the Incoming Member.

The Outgoing Member will co-operate with such arrangements and agree to accept an undertaking from the relevant solicitor to remit funds to them following completion of the acquisition transaction. Such undertaking will be in place of the letter F that is normally issued by the Incoming Member.

7.3In some other cases the legal entity entering in to the agreement with the Incoming Member may be different from that currently party to a Debt Purchase Agreement with the Outgoing Member. For example, a limited company may be formed in succession to a partnership or the client entering in to the agreement with the Incoming Member may be making an asset purchase from the business currently party to a Debt Purchase Agreement with the Outgoing Member.

In such circumstance the "transfer" will be done in accordance with the Guidelines, subject to the appropriate revisions being made to letters A, B, D & E. Examples of revised forms of such letters are attached and marked as “Alternate form for Asset Purchase” but each may need to be revised depending upon the specific transaction that is taking place.

8General
8.1Where the context so permits, in these Guidelines the singular shall include the plural and vice versa.
8.2In dealing with each other in accordance with these Guidelines the Incoming Member and the Outgoing Member may rely upon correspondence received from any purported authorised signatory for either of them without further enquiry.
8.3For the avoidance of any doubt this is not a Code of Conduct referred to in Article 82 and elsewhere in the Articles of Association of the ABFA.
8.4In the event of any dispute arising between the Incoming Member and the Outgoing Member in relation to a Transfer undertaken in accordance with these Guidelines or any matter connected therewith, without prejudice to any other remedy available to either of them, they may agree to submit the matter for determination by the Membership Committee from time to time of the ABFA who shall act as experts and not as arbitrators and whose determination of the matter in dispute shall not be binding unless the Incoming Member and the Outgoing Member agree after such determination to be bound by such determination. Where any matter is referred to the Membership Committee for determination both the Incoming Member and the Outgoing Member shall promptly give all reasonable assistance and further information requested by the Membership Committee for the purpose of enabling him to make his determination of the matter in dispute.

8.5 It is the responsibility of the Incoming Member to obtain any consent that is required from the Client to the taking of a reference and the Outgoing Member may assume that such consent has been obtained when responding to a request for a reference from the Incoming Member. The Outgoing Member should ensure that it has the necessary consent and authority from the Client authorising the Outgoing Member to disclose details concerning the Client to third parties. Notwithstanding anything in these guidelines it remains the obligation of each of the Outgoing and Incoming Members to comply with the relevant Data Protection Legislation.