**The Role Of Factoring In the New EU Member States**

# **Box 3. Legal Frameworks for Factoring in the EU 8**

## _Czech Republic and Slovak Republic_

The civil codes of the Czech and Slovak republics contain similar provisions on the assignment of receivables. Receivables may be transferred, pursuant to a contract of assignment (as defined by the civil code), to a special purpose vehicle. The vehicle need not be a particular form of business entity and does not require authorization to purchase receivables. The validity of any assignment depends on its notification to the underlying debtor. There is no legally prescribed system for making the assignment valid against third parties through a public register. Thus a third party could seek to ignore the assignment in such circumstances. Czechoslovakia signed the Convention on International Factoring, sponsored by the International Institute for the Unification of Private Law (UNIDROIT), in 1990.

## _Estonia_

Estonia’s Credit Institutions Act enables credit and financial institutions to offer a wide array of financial services, including lending, leasing, and money market instruments. Moreover, institutions can provide services other than those specified as long as they are directly ancillary or supplementary to their principal activity, and they may found or acquire an ancillary undertaking order to provide such services. Although the act does not explicitly use the term _factoring_ , it is sufficiently universal to encompass factoring among the financial services listed. Companies that engage in leasing and factoring are often subsidiaries of credit institutions. In addition, a number of financial leasing firms offer factoring services. Factoring transactions may be with or without recourse. Under recourse the factor is entitled to resell the claims to the seller in full or in part. General rules for claims valuation also apply to factoring claims.

## _Hungary_

Only financial institutions can purchase receivables, subject to the authorization of the Hungarian Financial Supervisory Agency. Receivables are transferred to a special purpose vehicle by way of an assignment (as defined by the civil code). The UNIDROIT Convention on International Factoring entered into force in Hungary in 1996.

## _Latvia_

Latvia’s Law on Banks allows banks to perform leasing and factoring operations. In addition, the UNIDROIT Convention on International Factoring entered into force in Latvia in 1998.

## _Lithuania_

In 1999, to widen the range of banking operations, the Bank of Lithuania approved additional operations for commercial banks— namely, factoring, financial intermediation, and cash management. In addition, in 2001 a new civil code harmonized with international law the treatment of many aspects of various contracts, including for factoring.

## _Poland_

The 1997 Banking Act lists activities that banks can engage in, laying the ground for banks to offer factoring services. But the activities listed were not restricted to banks, so other institutions can provide factoring as well.

## _Slovenia_

The 1999 Banking Law says that banks can provide factoring services, defined as the “assumption of claims through installment payments, with or without recourse.” Credits and guarantees between residents and non-residents are regulated by the Foreign Exchange Act. The law differentiates between commercial and financial credits, classifying factoring agreements as commercial credits as long as the underlying contracts are also commercial credits.

Source: World Bank

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**THE WORLD BANK**