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Ukraine’s Supreme Court Distinguishes Between Assignment and Factoring Agreements

On 3 June 2020, Ukraine’s Supreme Court issued a resolution in case 916/1410/19, where it further clarified how to distinguish agreements on assignment of claims from factoring agreements.

In this case, the claimant filed a court action against the parties to an assignment agreement, seeking the agreement’s invalidation. The claimant argued that the disputed agreement essentially constituted a factoring agreement, which in turn was allegedly invalid, because none of the defendants was a financial institution.

While dealing with the invalidation claim, the Supreme Court set out several features which in its view distinguished an assignment of claims from factoring agreements. The Supreme Court distinguished these agreements based on three criteria: parties, subject matter and purpose.

In terms of party composition, the Supreme Court noted that an assignment agreement can be made between any individual person and legal entities, while a factoring agreement must involve a financial institution as one of the parties. Further, the Supreme Court noted that an assignment agreement concerns both monetary and non-monetary claims, while a factoring agreement essentially relates to monetary claims. Finally, the court stressed that a factoring agreement can be made only for a fee, while assignment agreements may not necessarily include the payment of a fee.

Having outlined the above criteria for both types of agreements, the Supreme Court did not find grounds to invalidate the disputed agreement. In particular, the Supreme Court rejected the claimant’s arguments regarding the invalidity of the agreement, concluding that the agreement between the defendants was not a factoring agreement but an assignment agreement.

This case underscores the importance of the proper legal qualification of agreements that envisage the transfer of monetary claims from one party to another, which is a common business instrument, in order to identify key risks concerning possible challenges against such transfer.

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