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)) excludes from the scope of the Convention the assignment of a receivable (i) that is a security, regardless of whether the security is with an intermediary, and (ii) that is not a security and is a financial asset or instrument, if the financial asset or instrument is held with an intermediary.]

[The Senate Report will explain that the understanding does not address whether the Convention applies to the assignment of a receivable if it arises from the assignment of (a) a security, or (ii) a financial asset or instrument 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 validate restrictions on assignment that are invalidated under applicable law (e.g. under Uniform Commercial Code §§ 9-406 – 9-408).  The Senate explanation will also note that 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.  However, if, 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.  The determination under article 36 is made 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 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.]

[The Senate Report will explain that article 5(i) refers to “law” when referring to substantive law.  Thus references in the declarations and understandings to “law” also mean the substantive law of a State or a territorial unit, unless otherwise stated.  The Senate Report will also explain that the second sentence of the declaration to article 37 is intended to have the application of article 37 in the U.S. conform as closely as possible to the text of the Convention, except in the circumstance where Article 9 of the Uniform Commercial Code provides for the application of the law of another territorial unit.]

[Note to drafting group: as written the declaration may result in the Convention coming to a different result that would the UCC (per the choice-of-law rules of Article 1) or Article 9.  At least between the parties, Article 1 will often provide for the enforcement of a choice-of-law agreement as to the applicable law for matters other than the mandatory choice-of-law rules for perfection in Article 9.  Thus, for example, the parties might include an assignor organized under Delaware law that has its office of central administration in New York.  Under the Article 1 choice-of-law rules, the assignor and assignee might be able validly to choose Delaware law for their true sale analysis as between them.  But the declaration, as presently written, disregards the effect of the Declaration to article 36.  Thus article 37 would apply New York law to the true sale question (see article 5(g)).  Thus there might be a lack of transparency between the Convention and the UCC.  Then again there might not be, as it is not clear that a court would honor the Delaware choice-of-law term to the extent a third party (such as a trustee in bankruptcy), not a party to the assignment, challenges the assignment as something other than a true sale.  See generally, UCC § 9-401, Comment 3 (“However, it might be inappropriate for a designation of applicable law by a debtor and secured party under Section 1-105 to control the law applicable to an independent transaction or relationship between the debtor and an account debtor.”).]

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.

[Alternative 1] [Declaration: Pursuant to article 41, the United States declares that it will not apply this Conven­tion to the assignment of a receivable if the debtor (i) is a Government, central or local, any subdivision thereof, or an entity constituted for a public purpose, and (ii) is located in the United States at the time of conclusion of the original contract.]

[Alternative 2] [Declaration: Pursuant to article 41, the United States declares that it will not apply this Conven­tion to the assignment of a receivable so as to affect the rights and obligations of the debtor if the debtor (i) is a Government, central or local, any subdivision thereof, or an entity constituted for a public purpose, and (ii) is located in the United States at the time of conclusion of the original contract.]

[Note to drafting group: This declaration contains alternative formulations.  The first excludes Government receivables (to varying degrees) when the debtor is located in the U.S.  This alternative would have the two effects specified in article 41: (i) The Convention would not apply to an assignment of a Government receivable if the assignor is located in the U.S. at the time of the conclusion of the contract of assignment (see article 41(a)), and (ii) the provision of the Convention that affect the rights and obligations of the Government debtor (account debtor) would not apply to the receivable, even if the assignor is not located in the U.S. at the time of the conclusion of the contract of assignment (see article 41(b)).

The second alternative excludes only the Convention’s debtor (account debtor) provisions that otherwise would apply to Government receivables (if the Government is located in the U.S.), regardless of the location of the assignor.  Under the second alternative, the other provisions of the Convention, e.g. those concerning the rights of the assignor and the assignee inter se, would apply to the assignment of a Government receivable (unless, the receivable is excluded as a “security” or is an other financial asset or an instrument held with an intermediary).

There is some doubt whether the Convention contemplates a declaration like alternative 2, which would have only one of the two specified effects of article 41.  Assuming that alternative 2 is permissible, the choice between the alternatives will depend in part on the views of (i) the securities industry on the exclusion under article 4 of (a) securities and (b) other financial asset or an instrument, in each case held with an intermediary, and (ii) Government debtors.

The two alternatives do not include the last phrase of article 41(b) (“the law governing the original contract is the law of such a State”).  If they did, then a Government not located in the U.S. could opt in to the exclusion by having the original contract governed by the law of the U.S.  or a territorial unit of the U.S.  Presumably the U.S. does not have an interest in excluding non-U.S. governments from the Convention if those other States have not chosen to exclude them from the Convention.  As noted in the previous paragraph, it is not clear that the Convention allows a State to pick and choose in this manner when making a declaration.]

[The Senate report will explain that a declaration declaring that articles 9 and 10 do not apply to the debtor would not be sufficient because articles 9 and 10 override only contractual anti-assignment clauses (and not those in a law) and it is desired also to override articles 16 and 17, concerning the effect of a notice to the debtor when the debtor is a Government.  This declaration will not apply to assignments of receivables listed in article 9(3), such as receivables arising when a Government purchases goods (sometimes referred to as “trade receivables”).  The Senate report will also explain that most Government receivables will be excluded from the scope of the Convention by paragraph (2) of article 4 (with respect to clause (e)), concerning (i) “securities”, and (ii) other financial assets and instruments held with an intermediary.]

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.