Factoring

Non notification, non disclosed, confidential factoring

 

In a typical factoring arrangement, the debtor is notified of the factoring arrangement. However, client may request for non notified factoring arrangement due to the following reasons:

1. They do not want their debtor to be notified of the factoring arrangement

2. Debtor is not agreeable to factoring

When the debtor is not notified of the factoring arrangement, it is known as non notified, non disclosed or confidential factoring.

While such arrangement is preferred by client and debtor, it creates the following risks to the factor:

1. Client may not refund the payment to the factor

2. Unable to verify the invoices with the debtor

3. Fraud

4. Payment to client constitute a valid discharge of debt

5. Debt may be factored to another factor or third parties laying claim to the debt

Floating Charge

One way of preventing third parties from having priority over the debt is to take a floating charge. However, as the debt has already been purchased by the factor, they cannot take a charge on the debt factored. These could be overcome by taking a charge over:

1. Unfactored debts

2. Other debts

3. Debts created but not vested with the factor

4. Debts reassigned

Whilst the floating charge does not give the factor right over the debt factored, it provides a constructive notice to the third parties that there is an existing factoring arrangement with the factor. Under the law of assignment in Singapore, an assignee will not have  priority over the debt if he is aware prior equitable assignment of the debt. 

A notice of a charge  in ACRA is a constructive notice to the world at large that there is a prior equitable assignment.

Constructive notice in the legal fiction signifies that a person or entity should have known, as a reasonable person would have even if they have no actual knowledge. ( wikepedia- constructive notice).