As discussed during our recent Annual Meeting, the UNIDROIT is coming close to the end of the drafting process regarding the Factoring Model Law (FML). The purpose of the Model Law is to provide an instrument for States that want to introduce a new factoring law or update their existing laws. You will find here the draft Factoring Model Law. We would like to have our members together with the support from your internal or external legal counsel review it in order to provide feedback. We ask that all submissions be received here by us no later than Friday 21 October. Please send all submissions to the Secretariat. Upon receipt of your feedback, the FCI Legal Committee will review all submissions to better understand any and all concerns that you have raised, which will be discussed with the UNIDROIT during its next Working Group meeting scheduled for the 28-30 November.
About the Factoring Model Law Project
The Factoring Model Law was first initiated in 2018 by the World Bank representatives who recognized the importance of a standalone Model Law on Factoring, especially for those emerging markets who are considering to introduce factoring in their countries. FCI sent a letter that same year to the UNIDROIT Secretary General, Mr. Ignacio Tirado to offer FCI’s full support and backing. We were very pleased to see it launched and the FCI Legal Committee members and FCI Secretary General have been involved in the project since day one.
This model law has its origins dating back to when FCI was created. The very first attempt at developing a global legal framework on cross border factoring was initiated in 1964 with the founding of Factors Chain, which named the first agreement after our founding member, Shield Factors, UK (hence the Shield Agreement was introduced and Freddy Salinger, a significant architect in the earlier projects at the UNIDROIT and UNCITRAL was employed there). Shield Factors (later to be acquired by HSBC) together with five others in Northern Europe and the US would create FCI in 1968, and the association would a few years later develop the Code of International Factoring. The Code in part inspired the UNIDROIT to develop the Ottawa Convention on International Factoring in 1988 (to which my predecessor, Mr. Jeroen Kohnstamm was quite involved) and later the UNCITRAL Receivables Convention released in 2001 (to which Freddy Salinger from the FCI Legal Committee played an instrumental role in its development) and of course most recently the creation of the UNCITRAL Model Law on Secured Transactions. All of these many historical initiatives were for the purpose in great part to support the growth of factoring around the world. However, the absence of a global model law on factoring was a detriment to the long-term health and success of our industry, hence we are pleased to have reached this milestone.
About the UNIDROIT
Established in 1926 as an auxiliary organ of the League of Nations, the UNIDROIT is an intergovernmental organization whose objective is to harmonize international private law across countries through uniform rules, international conventions, the production of model laws, sets of principles, guides and guidelines. In 1988 the UNIDROIT Convention on International Factoring was adopted in Ottawa, Canada. The Factoring Convention entered into force in 1995 and has been ratified by 9 States. However, international factoring represents less than 20% of global factoring volume, whereas domestic factoring accounts for 80%. Despite the growing importance of factoring globally, no intergovernmental organisation had adopted a factoring model law to assist States in undertaking reforms to improve their domestic legal frameworks, that is until today!
About the Factoring Model Law Project
In December 2018, the World Bank suggested that the UNIDROIT develop a Model Law on Factoring as part of a proposal for the UNIDROIT 2020-2022 Work Programme. Their proposal highlighted three reasons why a UNIDROIT Model Law on Factoring should be developed:
i. The use of factoring as an important form of financing increasing access to credit;
ii. Ongoing constraints in access to credit as a limit on economic growth, particularly in developing countries and emerging markets; and
iii. The gap that currently exists in international rules and standards regarding factoring.
The proposal noted that existing instruments largely focus on international or cross-border transactions and do not provide sufficient guidance to States to develop functional domestic factoring frameworks. At its 98th session in May 2019, the UNIDROIT Governing Council approved the project for the 2020-2022 Triennial Work Programme as a high priority project.
The Factoring Model Law Working Group
As consistent with the Institute’s established working methodology, the Factoring Model Law is being developed by a Working Group composed of international legal experts. The Working Group is chaired by the Member of the Governing Council Professor Henry Gabriel (who spoke in person during the 54th FCI Annual Meeting in June about the FML project) and is composed of the following experts:
- Henry Gabriel (Chair) (United States)
- iGiuliano Castellano (Italy)
- Neil Cohen (United States)
- Michel Deschamps (Canada)
- Alejandro Garro (Argentina)
- Louise Gullifer (United Kingdom)
- Megumi Hara (Japan)
- Cathy Walsh (Canada)
- Bruce Whittaker (Australia)
FCI was initially invited as an observer and was represented at every meeting by three members of the FCI Legal Committee including Ulrich Brink (Germany), Edward Wilde (UK) Jin Saibo (China) including Peter Mulroy. We are very close to the finish line and the UNIDROIT would like the members to use this time to provide important feedback to the Working Group in order to perfect the document. Once it has been edited and updated based on your feedback, it will be presented to the members of the UNIDROIT Governing Council in their May 2023 meeting for final approval. We look forward to hearing from all of you on this very important project.
Please find the Draft Factoring Model Law here