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Asset finance: the assignment of receivablesClaro y Cia, Santiago

One of the main problems related to the assignment of receivables in international trade is determining the extent of the rights that are being assigned (also those rights that relate to the validation of the assignment of future receivables and anti-assignment clauses). Every legal system, therefore, aims to enact rules that provide certainty to the parties involved.

In the event of a conflict of laws, and in the absence of a governing law provision, the formal and substantive requirements of a purchase and assignment agreement are governed by the laws of the place where the agreement is executed. However, all the effects of the agreement (ie the rights and obligations arising from it) that take place in Chile must be controlled by Chilean law.

Under general contractual principles, the name that parties give to a specific transaction, as well as the technical and literal terms in which it may be framed or structured, are irrelevant when it comes to determining its precise nature and substance. Consequently, they are also irrelevant for the purpose of deciding the legal and regulatory provisions that will govern the transaction. General contractual principles require the lawyer to look into the substance of a transaction, and into the intention of the parties involved.

The Civil Code and the Commercial Code provide that an assignment of credit or receivable is perfected between the assignor and the assignee by means of the delivery of the title for the credits or receivables.

Under the same legal provisions, the purchaser and assignee is considered the true holder of the credit, as far as the obligor and all other third parties are concerned (including the obligor's creditors). This is the case after due notice has been given to the obligor that the sale and assignment of the relevant credit has taken place.

Notice must be given by a ministro de fe (usually a notary public), by showing the obligor the title to the assigned credits or receivables. A statement signed by the assignor evidencing the assignment must also be shown.

The assignee may also be considered the true holder of the credit as far as the obligor and all other third parties are concerned, by way of express or implied acceptance of the assignment by the obligor. An implied acceptance would consist of the payment of any sum owed under the receivables or any action taken by the obligors from which their acceptance may be inferred.

If the assignment is completed with the obligors and third parties by serving notice, the obligors may reserve any personal rights (eg rights of set-off and compensation) they would have been able to exercise against the assignor. This is provided that the reserve of rights is made when the notice of the assignment is served on the assignor or within three days from the date the notice is served. If, however, the obligors have accepted the assignment unconditionally, then they are not entitled to claim against the assignee any personal rights they may have against the assignor.

Prior to the assignment notice being served on the obligors, or the acceptance of assignment by them, title to the credit or receivable is deemed to be held for all purposes by the assignor. Consequently: (i) any payment that the obligors may make on account of the credit or receivable must fully discharge the obligors; and (ii) any credit or receivable may be validly attached or seized by the creditors of the assignor.

Cristián Eyzaguirre

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