country that has adopted the UN Convention, the lender knows that it is the
laws of the jurisdiction of the “assignor”,
that is, the borrower, that will govern
the lender’s rights with respect to those
So, for example, if a borrower is shipping goods from the U.S. to France and
France and the U.S. have both adopted
the Convention, the rights of the secured
lender with respect to the receivable will
be governed by U.S. law, not French law
under the UN Convention.
The goal is to get countries where
the laws are not as clear or favorable to
secured lenders to adopt this convention, and thereby enhance the ability
of U.S. lenders to make loans based on
COOPER: In addition to providing a
choice of law pointer, the Convention
provides some other very helpful
and practical provisions that should
promote cross-border receivable
finance. For example, anti-assignment
clauses commonly found in sales
contracts currently are a significant
obstacle to conducting cross-border
receivable finance. In most countries
(unlike the U.S.), anti-assignment
clauses are enforceable and may
prohibit a lender from obtaining a lien
on the receivables without the consent
of the account debtor. The Convention
clearly provides that a lender may
obtain a lien on receivables regardless
of any anti-assignment provisions.
Additionally, the Convention provides
for a floating lien on receivables in
bulk, including future receivables,
which is currently not available under
the laws of many countries. As a result,
lenders will no longer need to update
their collateral documents each time
a new pool of receivables is generated
when conducting cross-border
receivable finance in countries that
adopt the Convention.
CRUMBAUGH: I echo everything that’s
been said, but I do want to point out
that we’ve got a long ways to go to get
other countries onboard and only the
broad adoption of this is really going to
make it effective.
I think one other caveat is that, as
it’s adopted in various jurisdictions, it
doesn’t necessarily mean that foreign
receivables are going to get full credit
in borrowing bases because we are still
going to have concerns in some jurisdictions about whether the courts are
going to help us collect an account receivable against a local account debtor
who basically has homeboy status.
MORSE: That is, of course, one of the
concerns among others in looking at a
receivable due from a customer located in
a foreign jurisdiction.
If a country has adopted the convention, then the courts of that country
should look to the laws of the jurisdiction of the borrower.
CRUMBAUGH: I don’t think it’s going to be
a problem in western Europe, but in some
jurisdictions where the rule of law is not
firmly embedded, it will be an issue.
MORSE: As you say, it is one thing to
get the laws in place and we see this
particularly in Eastern Europe where, in
the mid-to-late ‘90s as communist rule
ended in such countries and the EBRD
pursued an initiative to get well-crafted
commercial laws in place, there is still a
need for a judicial infrastructure.
CRUMBAUGH: That is going to, in fact,
enforce the laws.
MORSE: That’s a great point.
COOPER: But the Convention is a very
good first step. The Convention provides
important reforms and should promote
cross-border receivable finance in
countries that have reliable courts. And to
the point about account debtor defenses,
there are some fairly helpful provisions
in the Convention that provide the lender
with significant rights against account
debtors. For example, the Convention
provides that once the lender notifies
the account debtor of the assignment,
the account debtor must make payments
directly to the lender and certain account
debtor defenses are cut off.
MORSE: The Convention substantially
mirrors U.S. law, so for the US to adopt it
does not have any real impact on us. But
it builds the momentum and puts us in
a position to turn to other countries and
encourage them to do the same. That is
where the real benefits will surface.
CRUMBAUGH: If we could get all of
Western Europe to adopt this, it could
substantially strengthen our lending
capacity for foreign receivables from those
MORSE: Absolutely. And the point is that
it really cannot happen until the US adopts
the UN Convention, which is why this
is such a key step. Of course, it is only a
beginning, but a necessary step to achieve
that ultimate goal.
COVE: What impact has the credit crisis
had on the cross-border ABL market?
COOPER: With the credit crisis,
lenders understandably recoiled from
transactions that they perceived as being
risky, including cross-border transactions.
At the beginning of the credit crisis,
lenders seemed to lose all interest in
cross-border transactions other than
wanting to understand how to workout
of their existing deals, and many lenders
predicted that cross-border lending
would not return for years.
That prediction has not come true.
We are seeing many more cross-border