The issue of notice in relation to factored debts was considered recently in Tony Tay & Associates v Commercial Factors. Under a conventional factoring agreement, the finance company agrees to provide a factoring serviceunder which a dealer assigns its commercial debts to the finance company in return for immediate payment of a percentage of their value.
Commercial Factors Limited (CFL) entered into an agreement with Homespace 2000 Limited (Homespace) to provide a factoring service. Notice of this was given to the customers of Homespace. However, a subsequent invoice was issued to a customer by Homespace directly, contrary to the factoring agreement, and did not contain CFL's standard "red stamp" indicating that payment should be made to CFL. The outstanding amount was paid to Homespace. CFL issued a statutory demand against the customer for failure to remit funds direct to it.
The customer alleged that the debt was discharged by its payment to Homespace. It argued that there was no notice of assignment of that particular invoice and that an earlier general notice of assignment was only effective in relation to debts in existence at the time of receipt of that notice.
However, the Court concluded that:
the factoring agreement comprised an absolute assignment the agreement was of the "whole turnover" type, therefore the assignment was effected automatically on the debt coming into existence and covered present and future debts the letter sent by CFL to the customer advising them of the factoring agreement gave clear notice of absolute assignment of all invoices and statements (present and future) issued by Homespace, and regardless of being misled by the absence of the "red stamp", the customer already had notice of the assignment.The application to set aside the statutory demand was dismissed.
This is a general summary only and should not be taken as a substitute for specific advice.
For further information please contact Rochelle Hume:
rochelle.hume@phillipsfox.com
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Phillips Fox