I invite you to read the fourth factoring case law review - this time for the second half of 2019. I found only 4 judgments of the Courts worthy of elaboration, of which as many as 2 in criminal cases (which is somewhat new).
- Verdict on funding commissions in % daily
The case, which ended with a judgment of the District Court in Rybnik on July 8, 2019, recognized a claim by the factor for payment to the factor of the amount due for one-time financing of an invoice (contract concluded online by form) -. silent factoring with recourse. The factor's claim included the return of the advance + accrued commissions. The court considered the contract to be a mixed factoring agreement (a mix of factoring and a loan) being a contract for the provision of services (the provisions on commission applied under Article 734 § 1 of the Civil Code in conjunction with Article 735 § 1 of the Civil Code and Article 750 of the Civil Code).
Fee in the form of "commission for overdue service" was set at 1.5 % for each of the first 4 commenced weeks of overdue service and at 2 % for each subsequent week of overdue service.
The court found the provisions on overage commissions to be invalid under Article 58 § 1 of the Civil Code as contrary to the law. In the Court's opinion, this fee was grossly excessive: it amounted to 100 % per annum, while at the same time constituting, in the specific case, 69 % of the advance paid to the factor, and as such was aimed at circumventing the provisions governing the amount of maximum interest (i.e., twice the amount of statutory interest per annum). In the Court's opinion, the commission for overdue service actually constituted a source of additional profit for the factor, allowing it to circumvent the regulations on the amount of maximum interest and the inadmissibility of a contractual penalty for non-fulfillment of monetary consideration (Article 483 § 1 of the Civil Code). Thus, in the end, the defendant was obliged to pay back the amount of the advance paid to him treated by the Court as a loan granted (with interest for late payment and compensation for recovery costs).
The verdict should be taken into account by fintechs and other companies offering micro factoring, including single invoice factoring as a guideline when formulating the content of contracts and TFCs (semantics and nomenclature are of no small importance here).
- Judgment on transfer of future receivables
The case that ended with the judgment of the District Court for Lodz-Vidzew in Lodz on July 31, 2019. (Ref.: VIII C 21/19) is a dispute "about parsley" because the claims amounted to... PLN 308.95. However, the judgment provides an extremely valuable overview of the courts' case law on the transfer of future claims. The court was also tempted to provide guidelines for the effectiveness of the transfer of future receivables:
- Adequate designation of a future claim - assuming that it can pass to the purchaser only at the time of its emergence - undoubtedly requires the determination of data making it possible to establish at the time of the emergence of a specific claim that it was the claim covered by the previously concluded assignment agreement. At a minimum, future claims must be determinable at the time the assignment agreement is entered into. As consistently indicated in the doctrine and case law, the minimum way to designate a future claim is to indicate the title of the claim - the legal relationship from which the claim arises, the person of the debtor and the creditor.
- The subject matter of a contract for assignment of a future claim is not the claim itself, but only its prospective claim. Therefore, with the assignment of a future claim, the claim is not transferred to the assignee as the claim does not yet exist at the time of the assignment. A designated claim arising from such a contract is transferred to the assignee only upon its creation.
- Other future claims from non-existent legal relationships that cannot be sufficiently identified at the time of their inception (in particular, "hope claims") may be the subject of purely binding contracts or preliminary agreements, but it should be emphasized that a separate dispositive agreement will then be necessary to make the assignment.
To the best of my knowledge, factoring companies' documentation overwhelmingly follows these guidelines. In particular:
- Factoring companies identify future receivables by accurately identifying the counterparty and the factoring company's legal relationship with the counterparty in the form of either a specific contract (group of contracts) or all receivables from the sale of goods / services (global assignment);
- Most factoring companies use a provision of the terms and conditions / T&Cs according to which, on the date of entry into force of the factoring agreement, all future receivables with respect to the counterparties are acquired, which occurs at the time when the receivables arise (= date of issuance of the invoice confirming such receivables or date of fulfillment of non-monetary performance by the Factor, which is the most popular provision. Personally, I consider the legally most accurate provision according to which the dispositive effect of the global assignment of future receivables will occur each time on the date of the creation of a given receivable (e.g., the performance of a service/sale or delivery of goods) - but never later than the date of issuance of the FV, without the need to make additional statements in this regard.
- Fraud "old-style" factoring recipient in the fuel industry
Finally, a verdict has been published in the case of the District Court in Wroclaw, which I have been following, which ended in the first instance with the verdict of July 9, 2019, in which the Court recognized the fraud of the factoring recipient committed to the detriment of the factor. The case interestingly demonstrates the construction of "old style" scams and the multitude of alerts occurring along the way Which have been ignored / trivialized. There are an unusual number of "flowers" and curiosities in the case, including a shareholder-servant from Panama, an appraiser banned from the profession, unreliable reports, articles about the businessman in the press, the spouse and son acting as servants, the lack of assets of the businessman (officially he owned only a scooter), more than 3000 times (!) overestimated value of movables, fictitious claims in the bankruptcy estate for tens of millions of zlotys, dummy fuel tanks (!), Business Club certificates, 2 bankrupt companies - You name it!
The factor was a sole proprietor operating since 1985, licensed since 2014 and engaged in the wholesale of fuel and related products.
In the case, a businessman established 2 limited liability companies that traded fuel between them, but one of them later acted as a factoring recipient. In the first of them (let's call it X) he removed himself from the KRS - selling shares to a Panamanian citizen. He himself entered into a management contract receiving a very broad power of attorney to act on behalf of the company corresponding almost to the scope of the Board of Directors. That is, according to a frequently used scheme, without disclosure in the KRS, the actual perpetrator became the person actually managing the company. Company X was in the fuel trade, and its sole customer was company Y whose main shareholder was the same businessman. The diesel fuel was sold from X to Y as soon as it was purchased from other contractors (including the factor). Company Y was not profitable and has no fixed assets. Both companies operated at the same address. The companies did not pay taxes, and the few scrupulously paid receivables were the businessman's salary on which even PIT-4R was scrupulously paid. The businessman established partnerships with fuel suppliers (including a factor) by responding to offers sent electronically and through industry websites.
According to witness testimony:
- inspired confidence with his knowledge, concreteness, behavior and material status manifested by the use of a luxury M. car with a market value oscillating between PLN 400,000- 500,000 and displaying an impressive-looking company headquarters. (...) Faced with such a portrayal of the entrepreneur, the factor decided to have the first five transactions between the companies carried out despite not being covered by the factoring agreement.;
- lent credibility by submitting numerous accounting and tax documents and an appraisal of the fuel depot for an appraisal amount of PLN 20,000,000, claiming that it also owned the railroad tracks leading to it and was fit for use. The fuel base gave the impression of being prosperous...;
- (...) portrayed himself as having extensive contacts in the business world and being very wealthy...;
- He inspired confidence with his appearance, his car, his vast knowledge of the fuel trading industry, and his certifications, including membership in the Business Club for Entrepreneurs.
- played theater, so to speak, arriving at the meeting in a luxury car, talking about contacts with big companies in the industry and citing legal solutions, while being fully aware of existing debts.
The scammer's scheme was to make contact, build an image and inspire trust, make a few dozen orders paid on time or with little delay and then defraud the goods on trade credit. Modus operandi businessman The court described it this way: The defendant misrepresented his financial situation, soliciting cooperation and extending the payment period, by which he obtained goods despite non-payment for previous deliveries. (...) First, he presented himself as a reliable businessman who cannot afford poor quality fuel, being an expert in the fuel industry and having a thriving fuel base worth PLN 20,000,000, then, when cooperation was established, he inspired trust by making timely payments, after which he stopped paying his dues and deluded his contractors with temporary problems, establishing cooperation with other companies (...)..
The factoring company also fell victim to such a scheme. The businessman made contact with the factor. The factor reported the recipient company for factoring - a factoring limit of PLN 300,000 was granted. The factoring company had a recommendation from the head of the company " to stop deliveries after the factoring limit was exceeded until the receivables were settled." "The first sixteen invoices were paid, with minor delays, in view of which, at the defendant's request, the payment deadline was extended." Bankruptcy was declared for both companies X and Y. The assets of company X included a fuel base and nickel wire." On the basis of the appraisal report prepared in the bankruptcy proceedings, the value of the real estate was set at PLN 2,149,000 and the value of the nickel wire was set at PLN 18,000, although its value was supposed to be 14,000,000 euros (!!) from the certificate.
I think the case will join my base of factoring fraud training, especially since it is already worked out in full and the material is extremely colorful and illustrative.
- Judgment in a fraud case (direct payments + FV filing with 2 factories)
The case heard by the District Court in Lodz (judgment of 17/12/2018, ref. no. V Ka 1143/18) and earlier by the District Court in Zgierz (judgment of April 10, 2018, ref. no. II K 905/15) concerned fraud committed by a representative of a factor. The Code meaning of "fraud" differs significantly from its colloquial understanding. Indeed, proving the crime of fraud requires proving the existence of a intent to commit it at the time of the act (fraud is a so-called intentional directional crime), which is the biggest problem from an evidentiary perspective. Interestingly, in this case the victim was the recipient, not the 2 factoring companies.
In the judgment in question, the factor despite receipt of so-called direct payments kept the consignee in the mistaken belief that it was correct to pay the factor directly and collected these receivables without transferring them to the factor. Thus, the consignee unknowingly defaulted and the factor initiated enforcement.
The court found that even relatively simple techniques, as long as they have the effect desired by the perpetrator, qualify as fraud within the meaning of the above provision. The jurisprudence indicates, among other things, that we are dealing with the crime of Article 286 § 1 of the Criminal Code "already when it is demonstrated that the victim would not have entered into a contract with the perpetrator if he had known about the relevant circumstances concerning the contract, which were presented by the perpetrator unreliably or even deceitfully" (judgment of the Court of Appeals in Gdansk of June 21, 2017, II AKa 126/17).
Despite the fact that the factoring recipient did not exercise due diligence in evaluating the documentation and was persuaded to make repayments directly to the factor, the court found that it was the convict who took advantage of the recipient's lack of due diligence in the realities of working with financiers, while assuring him that the funds can be safely entrusted to him.
In addition, the factor not getting financing from the first factor (the receivable was probably covered by the global assignment but unfunded) reassigned it to another factor which he was obviously not authorized to do, and as a result, two different factoring companies directed execution to one recipient who paid the factor directly. Such action was also considered by the court to be fraudulent.
