United Nations Convention on the Assignment
of Receivables in International Trade

 

Article 4. Exclusions and other limitations

. . .

2.   This Convention does not apply to assignments of receivables arising under or from:

. . .

(e)  The transfer of security rights in, sale, loan or holding of or agreement to repurchase securities or other financial assets or instruments held with an intermediary;

[[Understanding: The United States understands that paragraph (2) of article 4 (with respect to clause (e)) (i) excludes from the scope of the Convention the assignment of the assignor’s rights as against the intermediary, to the extent that the rights are receivables, with respect to the following, when such property is held by the assignor with an intermediary: securities, other financial assets, and instruments, (ii) does not exclude from the scope of the Convention the assignment of the following rights, to the extent that the rights are receivables, when held by the assignor other than with an intermediary: securities, other financial assets, and instruments, and (iii) except as described in clause (i), does not exclude from the scope of the Convention the assignment of a receivable owing to the assignor and arising out of the transfer by the assignor of a security, other financial asset, or an instrument, even if the security, other financial asset, or instrument is held with an intermediary.]] [Note to drafting group: I have left in the understanding for the moment, in case we change our collective minds again]

[The Senate Report will explain that the Convention does not apply to the assignment of a receivable if (i) it is a security, (ii) it is a financial asset or instrument that is not a security, if the financial asset or instrument is held with an intermediary, and (iii) it arises from the assignment of (a) a security, or (ii) a financial asset or instrument held with an intermediary.  The exclusion of securities that are receivables applies to securities (i) held with an intermediary, and (ii) not held with an intermediary.]

Article 5. Definitions and rules of interpretation

 

For the purposes of this Convention:

. . .

(h)  A person is located in the State in which it has its place of business.  If the assignor or the assignee has a place of business in more than one State, the place of business is that place where the central administration of the assignor or the assignee is exercised. If the debtor has a place of business in more than one State, the place of business is that which has the closest relationship to the original contract. If a person does not have a place of business, reference is to be made to the habitual residence of that person;

. . .

[Understanding: The United States understands that the phrase “that place where the central administration of the assignor or the assignee is exercised” as used in paragraph (h) of article 5 has a meaning equivalent to the phrase “the chief executive office of the assignor or assignee”.]

[Note in Senate explanation: (i) the phrase in paragraph (h) of article 5 does not mean the “principal place of business”, “chief place of business”, “registered seat”, “place of organization”, or “centre of main interests” of the assignor or the assignee, and (ii) the phrase “chief executive office” is used in Article 9 of the Uniform Commercial Code and there is substantial case law and commentary explaining its meaning. ]

Article 9. Contractual limitations on assignments

1. An assignment of a receivable is effective notwithstanding any agreement between the initial or any subsequent assignor and the debtor or any subsequent assignee limiting in any way the assignor’s right to assign its receivables.

2.         Nothing in this article affects any obligation or liability of the assignor for breach of such an agreement, but the other party to such agree­ment may not avoid the original contract or the assignment contract on the sole ground of that breach. A person who is not party to such an agreement is not liable on the sole ground that it had knowledge of the agreement.

3.         This article applies only to assignments of receivables:

(a)      Arising from an original contract that is a contract for the supply or lease of goods or services other than financial services, a construction contract or a contract for the sale or lease of real property;

(b)      Arising from an original contract for the sale, lease or licence of industrial or other intellectual property or of proprietary information;

(c)      Representing the payment obligation for a credit card transaction; or

(d)      Owed to the assignor upon net settlement of payments due pursuant to a netting agreement involving more than two parties.

Article 10. Transfer of security rights

1. A personal or property right securing payment of the assigned receivable is transferred to the assignee without a new act of transfer. If such a right, under the law governing it, is transferable only with a new act of transfer, the assignor is obliged to transfer such right and any proceeds to the assignee.

2. A right securing payment of the assigned receivable is transferred under paragraph 1 of this article notwithstanding any agreement between the assignor and the debtor or other person granting that right, limiting in any way the assignor’s right to assign the receivable or the right securing payment of the assigned receivable.

3. Nothing in this article affects any obligation or liability of the assignor for breach of any agreement under paragraph 2 of this article, but the other party to that agreement may not avoid the original contract or the assignment contract on the sole ground of that breach. A person who is not a party to such an agreement is not liable on the sole ground that it had knowledge of the agreement.

4. Paragraphs 2 and 3 of this article apply only to assignments of receivables:

(a) Arising from an original contract that is a contract for the supply or lease of goods or services other than financial services, a construction contract or a contract for the sale or lease of real property;

(b) Arising from an original contract for the sale, lease or licence of industrial or other intellectual property or of proprietary information;

(c) Representing the payment obligation for a credit card transaction; or

(d) Owed to the assignor upon net settlement of payments due pursuant to a netting agreement involving more than two parties.

5. The transfer of a possessory property right under paragraph 1 of this article does not affect any obligations of the assignor to the debtor or the person granting the property right with respect to the property transferred existing under the law governing that property right.

6. Paragraph 1 of this article does not affect any requirement under rules of law other than this Convention relating to the form or registration of the transfer of any rights securing payment of the assigned receivable.

[Note in Senate explanation in connection with definition of “receivable”: The rights of a licensee of intellectual property (e.g. copyrights, patents, and trademarks) are not a “receivable” as defined in the Convention. However, a contractual right to the payment of a monetary sum arising from a license, assignment, or other transfer of intellectual property is a “receivable” as defined in the Convention.]

Article 23. Public policy and mandatory rules

1.  The application of a provision of the law of the State in which the assignor is located may be refused only if the application of that provision is manifestly contrary to the public policy of the forum State.

2.  The rules of the law of either the forum State or any other State that are mandatory irrespective of the law otherwise applicable may not prevent the application of a provision of the law of the State in which the assignor is located.

3.  Notwithstanding paragraph 2 of this article, in an insolvency proceeding commenced in a State other than the State in which the assignor is located, any preferential right that arises, by operation of law, under the law of the forum State and is given priority over the rights of an assignee in insolvency proceedings under the law of that State may be given priority notwithstanding article 22. A State may deposit at any time a declaration identifying any such preferential right.

[Declaration: Pursuant to article 23, the United States declares that rights that arise by operation of law under the following provisions of the United States Bankruptcy Code, 11 U.S.C.A. §§ 101 et seq., may be given priority over the rights of an assignee in an insolvency proceeding in which the assignor is a “debtor” under and as defined in the Bankruptcy Code: Bankruptcy Code §§ 364(d) and 506(c).  This declaration is not a complete list of all rights that arise by operation of law that might be given priority over the rights of an assignee in an insolvency proceeding.]

[Note in Senate explanation: (i) this article does not contemplate that a State would list avoidance powers arising in insolvency proceedings, such as the power to avoid a preference or a fraudulent transfer,, and (ii) there may be other priority rights arising by operation of law that might be given priority over the rights of an assignee in proceedings under the Bankruptcy Code or under other insolvency proceedings under the law of the United States or a territorial unit of the United States.]

Article 24. Special rules on proceeds

1.   If proceeds are received by the assignee, the assignee is entitled to retain those proceeds to the extent that the assignee’s right in the assigned receivable had priority over the right of a competing claimant in the assigned receivable.

2.   If proceeds are received by the assignor, the right of the assignee in those proceeds has priority over the  right of a competing claimant in those proceeds to the same extent as the assignee’s right had priority over the right in the assigned receivable of that claimant if:

(a)  The assignor has received the proceeds under instructions from the assignee to hold the proceeds for the benefit of the assignee; and

(b)  The proceeds are held by the assignor for the benefit of the assignee separately and are reasonably identifiable from the assets of the assignor, such as in the case of a separate deposit or securities account containing only proceeds consisting of cash or securities.

3.   Nothing in paragraph 2 of this article affects the priority of a person having against the proceeds a right of set-off or a right created by agreement and not derived from a right in the receivable.

[Understanding: The United States understands that article 24 provides minimum rights and benefits to an assignee with respect to proceeds and does not derogate from any additional rights or benefits that an assignee may have with respect to proceeds under law other than the Convention.]

[Note in Senate explanation: The Senate explanation will note that articles 9 (Contractual limitations on assignments) and 10 (Transfer of security rights) invalidate certain restrictions on or requirements concerning assignments that would otherwise be valid and do not limit any similar rules of invalidation that an assignee may have under law other than the Convention.  The Senate explanation will note that similarly article 13 (Right to notify the debtor) provides minimum rights and benefits to an assignee and does not derogate from any additional rights or benefits that an assignee may have under law other than the Convention.] 

CHAPTER VI. FINAL PROVISIONS
Article 33. Depositary

The Secretary-General of the United Nations is the depositary of this Convention.

Article 34. Signature, ratification, acceptance,
approval, accession

1.         This Convention is open for signature by all States at the Headquar­ters of the United Nations in New York until 31 December 2003.

2.         This Convention is subject to ratification, acceptance or approval by the signatory States.

3.         This Convention is open to accession by all States that are not signatory States as from the date it is open for signature.

4.         Instruments of ratification, acceptance, approval and accession are to be deposited with the Secretary-General of the United Nations.

Article 35. Application to territorial units

1.         If a State has two or more territorial units in which different sys­tems of law are applicable in relation to the matters dealt with in this Con­vention, it may at any time declare that this Convention is to extend to all its territorial units or only one or more of them, and may at any time sub­stitute another declaration for its earlier declaration.

2.         Such declarations are to state expressly the territorial units to which this Convention extends.

3.         If, by virtue of a declaration under this article, this Convention does not extend to all territorial units of a State and the assignor or the debtor is located in a territorial unit to which this Convention does not extend, this location is considered not to be in a Contracting State.

4.         If, by virtue of a declaration under this article, this Convention does not extend to all territorial units of a State and the law governing the original contract is the law in force in a territorial unit to which this Convention does not extend, the law governing the original contract is considered not to be the law of a Contracting State.

5. If a State makes no declaration under paragraph 1 of this article, the Convention is to extend to all territorial units of that State.

[No declaration]

Article 36. Location in a territorial unit

If a person is located in a State which has two or more territorial units, that person is located in the territorial unit in which it has its place of business. If the assignor or the assignee has a place of business in more than one territorial unit, the place of business is that place where the central administration of the assignor or the assignee is exercised. If the debtor has a place of business in more than one territorial unit, the place of business is that which has the closest relationship to the original contract. If a person does not have a place of business, reference is to be made to the habitual residence of that person. A State with two or more territorial units may specify by declaration at any time other rules for determining the location of a person within that State.

[Declaration: Pursuant to article 36, the United States declares that for purposes of the Convention an assignor that is located of the United States under article 5 is located in the territorial unit determined under article 36 without regard to this declaration.  However, if, under the law as provided under Article 9 of the Uniform Commercial Code in force in that territorial unit, the assignor is located in a different territorial unit of the United States, then for purposes of the Convention and with respect to transactions governed by Article 9 of the Uniform Commercial Code in force in the relevant territorial unit, the assignor is located in the different territorial unit.]

Article 37. Applicable law in territorial units

Any reference in this Convention to the law of a State means, in the case of a State which has two or more territorial units, the law in force in the territorial unit. Such a State may specify by declaration at any time other rules for determining the applicable law, including rules that render applica­ble the law of another territorial unit of that State.

[Declaration: Pursuant to article 37, the United States declares that for purposes of the Convention the law of the United States means the law in force in the territorial unit determined under article 36 without regard to the declaration of the United States made pursuant to article 36.  However, to the extent that, under the choice-of-law rules in force in that territorial unit as provided under Article 9 of the Uniform Commercial Code in force in that territorial unit, the law of a different territorial unit of the United States would govern as to the relevant matter, then for purposes of the Convention and with respect to transactions governed by Article 9 of the Uniform Commercial Code in force in the relevant territorial unit, the law in force in the different territorial unit shall apply.]

[Note to drafting group: Article 5(i) refers to “rules of PIL” for choice-of-law issues and refers to “law” when referring to substantive law.  The comments to 9-301 refer to ”choice-of-law rules” for choice-of-law issues and “law” for substantive law.  So it seems that the Declaration should refer to “rules” when referring to choice-of-law issues and “law” when referring to substantive law.  It would seem that there’s no need to refer to “substantive” law (or the equivalent) having just expressly referred to choice-of-law rules. ]

Article 38. Conflicts with other international agreements

1. This Convention does not prevail over any international agreement that has already been or may be entered into and that specifically governs a transaction otherwise governed by this Convention.

2. Notwithstanding paragraph 1 of this article, this Convention pre­vails over the Unidroit Convention on International Factoring (“the Ottawa Convention”). To the extent that this Convention does not apply to the rights and obligations of a debtor, it does not preclude the application of the Ottawa Convention with respect to the rights and obligations of that debtor.

Article 39. Declaration on application of chapter V

A State may declare at any time that it will not be bound by chapter V.

[Pursuant to article 39, the United States declares that it will not be bound by chapter V.]

Article 40. Limitations relating to Governments
and other public entities

A State may declare at any time that it will not be bound or the extent to which it will not be bound by articles 9 and 10 if the debtor or any person granting a personal or property right securing payment of the assigned re­ceivable is located in that State at the time of conclusion of the original contract and is a Government, central or local, any subdivision thereof, or an entity constituted for a public purpose. If a State has made such a declaration, articles 9 and 10 do not affect the rights and obligations of that debtor or person. A State may list in a declaration the types of entity that are the subject of a declaration.

[No declaration.]

Article 41. Other exclusions

1.         A State may declare at any time that it will not apply this Conven­tion to specific types of assignment or to the assignment of specific catego­ries of receivables clearly described in a declaration.

2.         After a declaration under paragraph 1 of this article takes effect:

(a)      This Convention does not apply to such types of assignment or to the assignment of such categories of receivables if the assignor is located at the time of conclusion of the contract of assignment in such a State; and

(b)      The provisions of this Convention that affect the rights and obliga­tions of the debtor do not apply if, at the time of conclusion of the original contract, the debtor is located in such a State or the law governing the original contract is the law of such a State.

3. This article does not apply to assignments of receivables listed in article 9, paragraph 3.

[Declaration: Pursuant to article 41, the United States declares that it will not apply this Conven­tion to the assignment of receivables so as to affect the rights and obligations of a debtor if the debtor is located in the United States at the time of conclusion of the original contract and the debtor is a Government, central or local, any subdivision thereof, or an entity constituted for a public purpose.]

[Note to drafting group: the “government” list is taken from article 40, which provides for a declaration declaring that articles 9 and 10 do not apply to the debtor.  A declaration under that article does not seem sufficient to protect the government debtor from notices given under articles 16 and 17.  We have to consider further (including getting input from Sandy Rocks) how much we need this declaration, given (i) the exclusion of securities held with an intermediary, and (ii) 9 and 10 only override contractual anti-assignment clauses (and not those in a law).  In addition, one may question the usefulness of this declaration because it cannot apply to assignments of receivables listed in article 9(3).]

Article 42. Application of the annex

1. A State may at any time declare that it will be bound by:

(a)      The priority rules set forth in section I of the annex and will par­ticipate in the international registration system established pursuant to sec­tion II of the annex;

(b)      The priority rules set forth in section I of the annex and will effec­tuate such rules by use of a registration system that fulfils the purposes of such rules, in which case, for the purposes of section I of the annex, regis­tration pursuant to such a system has the same effect as registration pursuant to section II of the annex;

(c)      The priority rules set forth in section III of the annex;

(d)      The priority rules set forth in section IV of the annex; or (e) The priority rules set forth in articles 7 and 9 of the annex.

2. For the purposes of article 22:

(a)      The law of a State that has made a declaration pursuant to para­graph 1 (a) or (b) of this article is the set of rules set forth in section I of the annex, as affected by any declaration made pursuant to paragraph 5 of this article;

(b)      The law of a State that has made a declaration pursuant to para­graph 1 (c) of this article is the set of rules set forth in section III of the annex, as affected by any declaration made pursuant to paragraph 5 of this article;

(c)      The law of a State that has made a declaration pursuant to para­graph 1 (d) of this article is the set of rules set forth in section IV of the annex, as affected by any declaration made pursuant to paragraph 5 of this article; and

(d)      The law of a State that has made a declaration pursuant to para­graph 1 (e) of this article is the set of rules set forth in articles 7 and 9 of the annex, as affected by any declaration made pursuant to paragraph 5 of this article.

3.         A State that has made a declaration pursuant to paragraph 1 of this article may establish rules pursuant to which contracts of assignment con­cluded before the declaration takes effect become subject to those rules within a reasonable time.

4.         A State that has not made a declaration pursuant to paragraph 1 of this article may, in accordance with priority rules in force in that State, utilize the registration system established pursuant to section II of the annex.

5. At the time a State makes a declaration pursuant to paragraph 1 of this article or thereafter, it may declare that:

(a)      It will not apply the priority rules chosen under paragraph 1 of this article to certain types of assignment or to the assignment of certain catego­ries of receivables; or

(b)      It will apply those priority rules with modifications specified in that declaration.

6. At the request of Contracting or Signatory States to this Convention comprising not less than one third of the Contracting and Signatory States, the depositary shall convene a conference of the Contracting and Signatory States to designate the supervising authority and the first registrar and to prepare or revise the regulations referred to in section II of the annex.

[Declaration: The United States declares that, for assignments of receivables within the scope of Article 9 of the Uniform Commercial Code in force in a territorial unit of the United States, the territorial unit has substantially implemented the principles of the priority rules set forth in section I of the annex and the registration system set forth in section II of the annex through the adoption by the territorial unit of the United States of Article 9 of the Uniform Commercial Code as in force in the territorial unit, except to the extent that Article 9 sets forth different priority rules for assignments of "chattel paper", "instruments", "payment intangibles", or other particular categories or types of receivables.]

[Note for Senate report: the report will (i) generally indicate that the Convention is highly comparable and consistent with Article 9, (ii) the Convention differs in only a limited way with Article 9, primarily with respect to certain conflict of laws rules, (iii) discuss, on a section-by-section basis, how the rules of the Convention are similar (where they are) with Article 9, and (iv) explain how the Convention works.  In addition, the Senate report can give many examples (with full explanations), such as the chart that Steve W. did, of where the Convention yields the same or different results than would Article 9 under the Convention’s conflict of laws rules.]

Article 43. Effect of declaration

1.         Declarations made under articles 35, paragraph 1, 36, 37 or 39 to 42 at the time of signature are subject to confirmation upon ratification, acceptance or approval.

2.         Declarations and confirmations of declarations are to be in writing and to be formally notified to the depositary.

3.         A declaration takes effect simultaneously with the entry into force of this Convention in respect of the State concerned. However, a declaration of which the depositary receives formal notification after such entry into force takes effect on the first day of the month following the expiration of six months after the date of its receipt by the depositary.

4.         A State that makes a declaration under articles 35, paragraph 1, 36, 37 or 39 to 42 may withdraw it at any time by a formal notification in writing addressed to the depositary. Such withdrawal takes effect on the first day of the month following the expiration of six months after the date of the receipt of the notification by the depositary.

5. In the case of a declaration under articles 35, paragraph 1, 36, 37 or 39 to 42 that takes effect after the entry into force of this Convention in respect of the State concerned or in the case of a withdrawal of any such declaration, the effect of which in either case is to cause a rule in this Convention, including any annex, to become applicable:

(a) Except as provided in paragraph 5 (b) of this article, that rule is applicable only to assignments for which the contract of assignment is concluded on or after the date when the declaration or withdrawal takes effect in respect of the Contracting State referred to in article 1, paragraph 1 (a);

(b) A rule that deals with the rights and obligations of the debtor applies only in respect of original contracts concluded on or after the date when the declaration or withdrawal takes effect in respect of the Contracting State referred to in article 1, paragraph 3.

6. In the case of a declaration under articles 35, paragraph 1, 36, 37 or 39 to 42 that takes effect after the entry into force of this Convention in respect of the State concerned or in the case of a withdrawal of any such declaration, the effect of which in either case is to cause a rule in this Convention, including any annex, to become inapplicable:

(a)      Except as provided in paragraph 6 (b) of this article, that rule is inapplicable to assignments for which the contract of assignment is con­cluded on or after the date when the declaration or withdrawal takes effect in respect of the Contracting State referred to in article 1, paragraph 1 (a);

(b)      A rule that deals with the rights and obligations of the debtor is inapplicable in respect of original contracts concluded on or after the date when the declaration or withdrawal takes effect in respect of the Contracting State referred to in article 1, paragraph 3.

7. If a rule rendered applicable or inapplicable as a result of a decla­ration or withdrawal referred to in paragraph 5 or 6 of this article is relevant to the determination of priority with respect to a receivable for which the contract of assignment is concluded before such declaration or withdrawal takes effect or with respect to its proceeds, the right of the assignee has priority over the right of a competing claimant to the extent that, under the law that would determine priority before such declaration or withdrawal takes effect, the right of the assignee would have priority.

Article 44. Reservations

No reservations are permitted except those expressly authorized in this Convention.

Preliminary list of UCC Article 9 sections where there would be a Comment that refers to the Convention and/or explains how the Convention interacts with Article 9:

9-109(c)(1)

9-301

9-307

9-313

9-404 – 9-408

Ideally there would be either one lengthy Comment (or set of Comments) that discusses in one place the effect of the Convention on Article 9, with cross references in the Comments to the affected sections.  A similar approach would be a PEB Commentary that explains how the Convention affects Article 9, with references in the appropriate Comments to the PEB Commentary.