The last 2 years have seen a massive legislative offensive for the factoring industry. The current summer has, at least in theory, been somewhat quieter. This has allowed some of the minor legal problems facing the factoring industry to surface. Below we subjectively outline only some of them, as their solution on a general level is not possible without knowledge of the modus operandi of a particular factor. Most of the problems involve MPP and litigation.
- Conclusion of factoring agreements at a distance
The period of the last few months has led to an intensification of factoring companies' efforts to securely conclude factoring agreements and provide collateral remotely. Some have reached for electronic signatures, qualified signatures, or other solutions. There are many possibilities - time will tell which ones work, and the real test will be only the recognition of the first court cases based on such documentation.
- Central Register of Actual Beneficiaries
The Central Register of Beneficial Beneficiaries (CRBR) has been operational since October 13, 2019 and the deadline for final filings passed a week ago. The lack of beneficiary disclosure for a company applying for factoring at this stage is a problem that the respective AML / Compliance units of each factoring company must face.
- Problems with MPP (Split Payment)
- 'Stuffing' VAT in payments
It is still problematic to deal with debtors who make payments in MPP, especially in such a way that they try to stuff all the VAT in one transfer (especially the first one). This reprehensible behavior is due to payment congestion and sometimes even calculating handling of VAT account funds which are, after all, free from bailiff seizure.
- Mandatory MPP on invoices
The catching of mandatory MPP on invoices can also continue to cause many problems, as can the problematic combining by invoice issuers of multiple items on a single invoice, including for goods covered and not covered by mandatory MPP.
- Implementation of bailiff attachment under MPP (Split Payment)
Another interesting problem is the rules of execution of debt seizures in terms of the type of transfer. The situation here is different when the execution is carried out for a VAT debt (in which case the debtor's VAT account will be seized by the Authority anyway), and different when it is for another debt, especially when it is carried out by a bailiff. Some help is provided by the MF's clarification of the IRP, as well as several individual interpretations, which indicate that a transfer to a bailiff does not constitute payment for goods or services purchased, as we are dealing here with a new title of payment, i.e. the execution of a seized debt. Despite these indications, the problem still does not and has not been clearly resolved in a binding manner.
- VAT White List
We have written about the VAT White List on several occasions, including. here i here. While many of the problems signaled so far have been resolved, some problems remain, notably such as the lack of disclosure of all accounts on the list, occasional problems with assignment accounts, as well as problems of escrow accounts in relation to MPP. Sometimes this entails direct payments.
- Judicial (litigation) problems
- No reimbursement of the fee for a lawsuit by writ of summons
Have any of you noticed that the Courts have stopped returning ¾ of the suit fee to the factories after the order for payment by writ of payment becomes final? This is due to an amendment to the CCP that came into effect in August 2019. The change is noticeable and painful for the industry, as it shifts the risk of claiming this amount to the factor by making it dependent on the solvency of the debtor being sued. For example - with a fee of PLN 10,000, so far the factor, after the payment order became final, would get a refund of PLN 7,500 from the court and the remaining PLN 2,500 would be claimed from the debtor. Now he will not receive any refund at all, but will have to claim the entire PLN 10,000 from the debtor (who may be insolvent). With massive cases against factoring recipients, this disadvantageous difference for the factor will be felt.
- Problems with delivering mail to sued parties
Another unfavorable, and already noticeable, change for lawsuits is the restriction of the fiction of service and the application of Article 139'1 of the CCP sometimes requiring service of a lawsuit through a bailiff.
- The problem with the court's jurisdiction when suing a recipient
Legal departments are watching with concern the changes in the existing practice of suing recipients. Previously, the provision on alternate jurisdiction (Article 34 of the CCP) constituted the rendering nature of the monetary debt also in the assignment of receivables, which is supported by court case law. Its change was motivated by the legislator, among other things, indicating that: With the current rules for determining court jurisdiction, this leads to a disproportionate burden on "metropolitan" courts compared to "provincial" courts. The consequence is a significantly (sometimes several times) longer waiting time for the same case to be resolved in a "metropolitan" court than in a "provincial" court. The effects of this change in practice are strongly felt. This situation has made it necessary to quickly adapt the contractual templates in use (including, among others, the ZoC) to the new reality, and to reach for some forgotten but still relevant court rulings.
I encourage representatives of the industry's legal departments to develop common standards and solutions in this regard, interested parties please contact me.
- Warrant proceedings on scans
In 2019, the grounds for issuing orders for payment in injunctive proceedings have been expanded - a favorable change for business here is the addition as a basis for issuing an order of the fact of proof of delivery of an invoice to the debtor if the plaintiff is claiming payment of a monetary benefit (Article 485§2'1 CCP). As is well known, the factoring industry operates mainly on scans and balances when financing. Therefore, the courts take different approaches to issuing injunctive relief in this regard. With the prevalence of unsigned invoices, there is no rationale for not issuing a payment order from such documents.
- Injunction proceedings against board members
It is difficult to understand the current reluctance of the Courts to settle cases based on Article 299 of the Code of Commercial Companies by injunction. The current regulations make the set of documents necessary in this regard (writ of execution + decision on ineffectiveness of execution + extract from the National Court Register) as a set of official documents allowing the issuance of an order for payment by injunction.
I encourage representatives of the legal departments of the industry to create a database of court rulings in this area (often these are unpublished judgments), those interested please contact me.
- Disappearing Board
Still problematic is the issue of "disappearing management," i.e., submitting formal resignations correctly in order to obstruct court and bailiff proceedings.
- Other
The lapse of several months since the onset of the coronavirus pandemic has also created a number of other legally problematic issues such as contract performance, force majeure, insurance limit shear, subsidy contracts, WIBOR settlements, etc. Some of these I already signaled in late March and early April . Happily, the situation is slowly stabilizing.
In principle, for most of the above legal problems, some solutions have already been created, but many of them are still cumbersome in daily operations.
Do you see any other current legal issues on a daily basis that I haven't included here? I encourage you to discuss them in the comments here and/or on LinkedIN.
