Issue in relation to Assignment of Claim and Protection of Debtor in Factoring

Abstract

Factoring is a short-term loan by which a seller of account receivable agrees to assign its claim for repayment of money debts to an account payable, or in other words, a factor company which will make payment in an agreed proportion and demand for repayment form the debtor upon the maturity of the debts, as well as provide other financial services to sellers of the account receivables. However, as Thai law does not have specific provisions with regard to factoring, the principles in assignment of claim stipulated in the Civil and Commercial Code, thus, applies in the case of occurrence of legal disputes in respect of factoring, and, consequently, limitations and obstructions are found in several aspects. This article emphasizes on the service of notice of assignment of claim to the debtor which cause legal impacts on both the debtor and the third persons. This article, however, will present only the legal effect on the debtor.

As the nature of factoring is an assignment of claims under several contracts which involves several debtors, a factor company has a responsibility for service of notice of assignment of claims to each debtors which is one of causes of capital increase in factoring as well as an opportunity that a notice is incorrectly served, or certain debtors many not receive a notice. Accordingly, an issue for consideration is should a specific law be prescribed in order that an assignment of claim in factoring has an immediate effect against the debtor, irrespective of whether or not any notice is sent to the debtors.

It is shown from the study that despite the fact that specific law, for example French law, on factoring is enacted in accepting that, unlike a German law, a subrogation by means of a contract can be claimed against a debtor without giving any notice of the assignment of claim to such debtor. Nevertheless, if the debtor proves that he/she has repaid the account receivable in good faith, the said debtor shall be discharged from indebtedness, and the factor company is not entitled to demand repayment from such debtor. Hence, the factor cannot avoid the necessary to give a notice to the debtor to prevent any possible risk.