Operating Conditions - Part X: Debtor Protection Conditions
1. DEFINITIONS AND INTERPRETATION
1.1 In this Part, unless the context otherwise requires, the following expressions have the following meanings:
"Aggregate First Loss” in relation to each year ending on an Anniversary, the total Losses which you agree are to be borne by you in place of the Minimum Retention;
“Anniversary” each anniversary of the date on which the Debtor Protection is first provided to you.
“Customer Failure” occurs when a Protected Customer:
(i) becomes Irreversibly Insolvent; or
(ii) is in circumstances which in our opinion are equivalent to Irreversible Insolvency; or
(iii) fails to pay a Protected Invoice within the Protracted Default Period.
“Due Date” the original due date for payment of an Invoice.
“E-Bonded” our internet based debtor protection management facility available at www.e-bonded.com or any replacement or successor debtor protection management facility.
“Excluded Customer” any Customer:
(i) controlled by or under common control with you;
(ii) at the time you apply for or we set a Protected Limit:
(a) one or more of whose Invoices is Impaired;
(b) for whom you have rescheduled or extended a Due Date by more than the Maximum Extension Period; or
(iii) for whom we have given a nil Protected Limit; or
(iv) which is a public authority as defined under section 3 Freedom of Information Act 2000 or any Scottish public authority as defined under section 3 Freedom of Information (Scotland) Act 2002, each as amended, updated or replaced from time to time;
(v) excluded from Debtor Protection and notified by us in writing to you.
“Extended Due Date” any revised due date for payment of a Protected Invoice falling within the Maximum Extension Period agreed by you in accordance with condition 5.3.
“Impaired” in relation to any Protected Invoice, that:
(i) the Protected Customer by whom it is owed is Irreversibly Insolvent; or
(ii) it is overdue by more than the Maximum Extension Period unless it is disputed by the Protected Customer and, together with any other Invoices owed by that Customer, represents the lesser of 10% of that Customer’s Protected Limit or £10,000.
“Irreversibly Insolvent” and in relation to a Protected Customer:
“Irreversible Insolvency”
(i) the appointment of:
(a) a liquidator;
(b) an administrator pursuant to Schedule B1 Insolvency Act 1986;
(c) an administrative receiver pursuant to Part III Insolvency Act 1986;
(d) a receiver (other than an LPA receiver);
(e) a supervisor of a Company Voluntary Arrangement under Part I Insolvency Act 1986;
(f) a trustee in bankruptcy;
(g) a supervisor of an Individual Voluntary Arrangement under Part VIII Insolvency Act 1986;
(h) the Official Receiver; or
(ii) the making of a debt relief order pursuant to Part 7A Insolvency Act 1986; or
(iii) a court approves a compromise or other arrangement between it and its creditors; or
(iv) circumstances which, in our opinion, are equivalent to any of the above in any jurisdiction.
“Loss” subject to condition 4, Protected Payment Obligations unpaid by a Protected Customer due to Customer Failure less:
(i) any interest accrued on balances unpaid after the Due Date and any late payment penalty;
(ii) any amount which prior to the time of settlement of a claim we have received from any source in or towards payment of Invoice(s) owing by that Customer;
(iii) any sales, value-added, or other similar taxes recoverable due to
non-payment of Invoice(s) owing by that Customer;
(iv) the value of any goods not delivered to or accepted by that Customer.
“Maximum Extension Period” 60 days after the original Due Date
“Maximum Terms of Payment” the longest period which you may allow a Protected Customer to pay an Invoice as set out in the Commercial Terms.
“Minimum Retention” the amount of each Loss within a Protected Limit for which you are responsible being the greater of:
a) £1,000; or
b) 10% of all Protected Invoices within a Protected Limit
“Non Qualifying Loss” in relation to a Protected Customer, any Loss which you agree is to be borne by you in place of the Minimum Retention but which shall not be applied to the Aggregate First Loss;
“Payment Obligation” the net amount due from a Customer calculated as the Notified Value of all Invoices less:
(i) contractual discounts, rebates or other similar allowances;
(ii) any amount which the Customer is entitled to deduct by way of credit, set- off or counterclaim.
“Protected Customer” a Customer for which you hold a Protected Limit and which is not an Excluded Customer.
“Protected Invoice” any and all Invoices assigned and Notified to us during the Protected Period which:
(i) represent a Payment Obligation of a Protected Customer for goods and/or services:
(a) Delivered by you during the Protected Period; and
(b) sold on payment terms that are not more advantageous to the Customer than the Maximum Terms of Payment; and
(c) delivered in accordance with the relevant Contract of Sale; and
(d) invoiced within thirty (30) days
from the date of Delivery and evidenced by a debt instrument
or open account documents (written purchase order, invoice, shipping documents or time sheets); and
(ii) are a valid and legally enforceable obligation of a Protected Customer; and
(iii) are not Impaired at the time of assignment or Notification to us;
(iv) are assigned and Notified to us at a time when no other Invoices owing by that Protected Customer are Impaired; and
(v) are within the Protected Limit for the Customer.
“Protected Limit” for each Protected Customer, the maximum value of Protected Payment Obligations in the amount posted on E-Bonded or otherwise notified to you by us from time to time. This is distinct from any Approval Limit we may set for a Customer.
“Protected Payment Obligations” Payment Obligations payable in respect of Protected Invoices.
“Protected Percentage” subject to the Minimum Retention, 90% of Protected Invoices within a Protected Limit.
“Protected Period” subject to you applying for Protected Limits within the timeframe we require, the first day of the month in which the Start Date occurs or, if you are not a Payroll Finance Client, any later date on which you take out the Debtor Protection until the Debtor Protection is terminated in accordance with this Part X
“Protracted Default Period” 6 months from the later of:
(i) the Due Date; or
(ii) any Extended Due Date up to the Maximum Extension Period.
2. DEBTOR PROTECTION
2.1 During the Protected Period, we will provide Debtor Protection for Protected Invoices owing by Protected Customers similar to the protection that we have obtained from our insurer. The conditions which follow closely mirror those of our credit insurance. We are not providing insurance.
2.2 The Debtor Protection covers Loss of up to the Protected Percentage of a Protected Limit arising from Customer Failure. To obtain and maintain the Debtor Protection you must comply with the conditions in this Part and the procedures specified by us from time to time. You are responsible for proving a Loss and evidencing that all conditions and obligations in this Part have been complied with.
2.3 You are responsible for the Minimum Retention or any Aggregate First Loss or Non Qualifying Loss we agree with you.
2.4 We may Disapprove all or part of a Protected Invoice.
2.5 The Debtor Protection will apply to Protected Invoices raised on or after the first day of the month in which the Start Date occurs or, if later and you are not a Payroll Finance Client, the first day of the month in which you agree to take out the Debtor Protection, provided that you apply and pay for Protected Limits for all of your Customers within 15 days of that Start Date (or later date on which you take out Debtor Protection). If you exceed this time frame then the Debtor Protection will commence from the date each individual Protected Limit is agreed.
3. CHARGES
3.1 You will pay us the Debtor Protection Fee monthly in arrears. We will calculate this fee on the Payment Obligations arising from all Invoices notified to us in each month during the Protected Period irrespective of whether such Invoices are Protected Invoices within a Protected Limit.
3.2 You will pay us the Protected Limit Charge annually in advance on the date we first issue Protected Limits for your Protected Customers and thereafter on each Anniversary (or whenever you request (or request a quotation for) an additional Protected Limit) for Customer(s) for whom you apply for or renew a Protected Limit. The Protected Limit Charge will be charged for blocks of Customers incorporated in the UK and on a Customer by Customer basis for those incorporated outside the UK.
3.3 We will notify you in writing of any change to the Debtor Protection Fee or Protected Limit Charge or any other change in the terms of the Debtor Protection within 30 days before each Anniversary.
3.4 We will debit all fees and charges to your Current Account on their due date for payment and may require you to settle them in cash if there is insufficient Availability.
3.5 Payroll Finance Clients are not responsible for these fees, which are incorporated in their Service Fee.
4. EXCLUSIONS
4.1 Loss caused by or resulting from the following are not covered by the Debtor Protection:
4.1.1 Protected Invoices in respect of goods or services delivered at any time when Impaired Invoices were owing by that Protected Customer;
4.1.2 wrongful or dishonest acts or omissions of you or your agents;
4.1.3 your failure to perform or to fulfil any obligation owed to or agreement with us or any material inaccuracy in any representation made by you;
4.1.4 Protected Invoices which are disputed by a Customer, unless and until any such dispute is finally resolved whether by agreement, litigation or any form of alternative dispute resolution;
4.1.5 Customers who are incorrectly named or identified by you;
4.1.6 Excluded Customers;
4.1.7 unless we agree otherwise, any legal or other professional costs or expenses incurred in recovering any Invoice;
4.1.8 nuclear reaction or nuclear radiation or radioactive contamination;
4.1.9 war between any two of the People’s Republic of China, France, the United Kingdom, the Russian Federation and/or the United States of America.
5. CREDIT POLICY
5.1 You agree that you will not:
5.1.1 grant a Protected Customer initial payment terms longer than the Maximum Terms of Payment, without our prior written consent;
5.1.2 provide goods or services to a Protected Customer:
5.1.2.1 if we ask you not to; or
5.1.2.2 after you are aware of any event that may reasonably be expected to result in a Loss; or
5.1.2.3 whilst any of its Invoices (whether within the Protected Limit or not) is Impaired.
5.1.3 vary the minimum credit procedures set out in condition 5.5 in this Part in any way without our prior written consent; and
5.1.4 save as permitted by condition 5.2 in this Part, reschedule, extend, postpone or change any Due Date in respect of any Invoice owing by a Protected Customer, without our written prior consent.
5.2 If, prior to the original Due Date, a Protected Customer is unable to settle an Invoice on that date, you may, unless condition 5.4 applies and provided you comply with condition 5.3, agree to one extension of the Due Date for a period not exceeding the Maximum Extension Period.
5.3 Before extending the Due Date for a period not exceeding the Maximum Extension Period, you must make a positive assessment of the Protected Customer’s continued creditworthiness and the reasons for the extension must be noted on the file.
5.4 You must not extend the Due Date:
5.4.1 when an Invoice payable by a Protected Customer is due to be settled by any of the following: bill of exchange, promissory note, documentary sight draft, letter of credit or any other form of trade finance where the means of payment is independent of the Contract of Sale; or
5.4.2 if you are a Payroll Finance Client.
5.5 Unless we undertake credit control and collection procedures on your behalf you will, in relation to all Protected Customers:
5.5.1 raise the invoices within thirty (30) days from date of delivery of the goods or services to which they relate and send a written reminder to the Customer of any outstanding undisputed Invoice within forty (40) days of the invoice date;
5.5.2 send at least one further reminder, either by telephone or post, within every forty (40) days of the previous reminder to any Customer whose Invoices remain outstanding;
5.5.3 monitor payment by all Protected Customers by preparing and reviewing, at least monthly, a statement of account for each Protected Customer;
5.5.4 record on file all actions taken;
5.5.5 inform us immediately any legal action is commenced to recover any unpaid Invoice owing by a Protected Customer; and
5.5.6 comply with any additional or alternative procedures as we may reasonably require from time to time.
6. PROTECTED LIMITS
6.1 You must apply for and obtain a Protected Limit for each Customer (other than an Excluded Customer) the value of whose orders and outstanding Invoices at any time are expected to exceed the Minimum Retention or any Non Qualifying Loss. When applying for Protected Limits you must provide us via E-Bonded with the following information:
6.1.1 each Customer’s full legal name (and not just any trading name) and its company registration number or registered office; and
6.1.2 the value of the Protected Limit you require.
6.2 Protected Limits will be automatically renewed at the same level annually on each Anniversary unless you notify us before an Anniversary that you do not require a Protected Limit to be renewed or you request renewal at a different limit.
6.3 We will issue a Protected Limit for each Customer (other than an Excluded Customer) either by E-Bonded or in writing. We may issue a nil Protected Limit.
6.4 We will not increase a Protected Limit when there are any outstanding Invoices for which the Due Date has been extended.
6.5 We may reduce or cancel any Protected Limit according to our commercial judgment. Any reduction or cancellation of a Protected Limit will be posted on E-Bonded and will take effect on the earlier of:
6.5.1 receipt by you of email notification from us; or
6.5.2 the fifth (5th) day after the date on which it is posted on E-Bonded.
We may from time to time advise you of a change in a Protected Limit other than through E-Bonded but we are not obliged to do so and it is your responsibility to check E-Bonded regularly to keep up to date with Protected Limits.
6.6 A Protected Customer can only have one Protected Limit at any time. If we vary the Protected Limit for a Customer the Protected Limit on the date on which the goods or services the subject of the Protected Invoice giving rise to the Loss are shipped or, in the case of services performed, is the applicable Protected Limit for calculation of Loss purposes.
6.7 Following any change to a Protected Limit, you will, if we request, provide us with a list of all outstanding Invoices owing by a Protected Customer.
6.8 If you are a Payroll Finance Client, then, unless you have access to E-Bonded, we will notify you by email of any changes to the Protected Limits.
7. CLAIMS
Reporting
7.1 You will:
7.1.1 notify us in writing within five (5) Workings Days of becoming aware of a Customer Failure or any circumstance which may reasonably be expected to result in a Loss;
7.1.2 unless you are a Payroll Finance Client, notify us by E-Bonded monthly, within twenty (20) Working Days of the end of each month in a format specified by us, of all Payment Obligations owing by a Protected Customer which at the end of that month were 60 or more days over due from the Due Date and report in each subsequent month all such amounts which continue to be unpaid. Invoices that are disputed by a Protected Customer in writing need not be reported, unless the total unpaid amount is more than the lesser of ten percent (10%) of that Customer’s Protected Limit or £10,000; and
7.1.3 on our request, provide a list of all Protected Invoices owing by a Protected Customer whose Protected Limit is cancelled or reduced promptly upon receiving notification of that cancellation or reduction.
Application of Funds
7.2 Until you make a claim, all funds (from whatever source) received from or in relation to a Protected Customer in or towards payment of an Invoice, when any Invoices remain outstanding after the Maximum Extension Period, will be applied in or towards settling that Customer’s outstanding Invoices in the chronological order of their Due Dates, thereby reducing the amount owing under the Protected Limit. Funds will be applied in this way regardless of any designation by the Protected Customer or any other person paying, unless specifically agreed in writing by us.
The allocation of funds received after the occurrence of a CUSTOMER FAILURE but prior to payment of a claim shall be shared between you and us in the proportion in which the LOSS is borne by each of us. When you make a claim, the application of funds set out in condition 7.9 in this Part will apply.
Making a Claim
7.3 Unless you are a Payroll Finance Client, you must submit a claim (in the form set out on E-Bonded) to us in writing within 6 months of a Customer Failure.
Settlement of Claims
7.4 We will settle each claim within forty (40) days of receiving a correctly completed claim form provided that:
7.4.1 the claim is accompanied by:
7.4.1.1 in the case of a Protected Customer’s Irreversible Insolvency, written confirmation of the Payment Obligation from the relevant insolvency practitioner or other person administering its estate acceptable to us; or
7.4.1.2 in the case of Protracted Default, a county court judgment in respect of the Protected Invoice in your favour; or
7.4.1.3 in either case, the equivalent in the Protected Customer’s jurisdiction of incorporation or operation, as applicable; and
7.4.2 you have complied with the terms and conditions of this Part X.
Calculation of a claim
7.5 Subject to the Minimum Retention or any Aggregate First Loss or Non Qualifying Loss, for which you are responsible, we will settle the Protected Percentage of Loss relating to Protected Invoices(s) which are unpaid by a Protected Customer at the date of the Customer Failure. If we have agreed both a Non Qualifying Loss and an Aggregate First Loss, any Non Qualifying Loss will not be taken into account in calculating your liability in respect of the Aggregate First Loss.
The amount of a claim will be reduced by any:
7.5.1 sums received from any source including, but not limited to, insurance, collateral, guarantees, deposits, rights of title retention, part-payments or dividends in respect of the Protected Customer’s Invoices;
7.5.2 discounts, rebates or other similar allowances provided by you to which a Protected Customer is entitled, expenses or value-added or similar taxes which are recoverable due to the Customer Failure, the invoice value of products not delivered to or not accepted by the Protected Customer or the invoice value of any goods returned by or recovered from the Protected Customer before payment of a claim by us; and
7.5.3 amounts which are disputed by the Protected Customer, until the dispute is finally resolved whether by agreement, litigation or any form of alternative dispute resolution.
7.6 Where we have Approved (and not subsequently Disapproved) a Protected Invoice which is the subject of a claim and made an Advance in respect of that Invoice:
7.6.1 if the settlement amount exceeds the Advance, we will credit the excess to your Current Account; or
7.6.2 if the settlement amount is less than the Advance, we will debit the shortfall to your Current Account.
Currency Protected Invoices
7.7 All claims will be settled in Sterling. Where a Protected Invoice is expressed in a currency other than Sterling, the amount of that Invoice will be calculated by us by applying the rate of exchange for conversion into Sterling offered by Lloyds Banking Group plc on the date of that Protected Invoice.
Value Added Tax
7.8 The Debtor Protection does not cover the VAT element of any Protected Invoice and claims are paid net of VAT. In determining whether an Invoice falls within a Protected Limit, the Minimum Retention or any Non Qualifying Loss or Aggregate First Loss, we will disregard any VAT on that Invoice.
Recoveries
7.9 Once a claim has been paid all funds received from a Protected Customer or from any other source whatsoever in or towards payment of that Customer’s Invoices must be immediately paid to us, regardless of any designation as to the application of the funds by the Customer or other person from whom the funds are received and will be applied by us towards settling Protected Invoices.
Legal Assignment
7.10 We will only settle a claim in respect of a Protected Invoice which, together with its Related Rights, has been assigned to us by way of legal assignment, so that the benefit of all rights of recovery and any similar rights relating to the Protected Invoice and its Related Rights vest in us and are directly enforceable by us against the Protected Customer.
7.11 We will not pay a Loss if the Protected Invoice is the subject of any Security Interest ranking ahead of us or other third party claim superior to ours.
Mitigation of Loss
7.12 If we settle any Loss, you will execute and deliver any instruments and documents and do whatever else is necessary to vest all of the relevant Protected Client’s Invoices and their Related Rights in us. We may direct the manner in which recovery of any Payment Obligation is pursued and Related Rights are exercised. You will not do anything to prejudice these rights.
False or Fraudulent Statements, Reports or Claims and Concealment
7.13 If you make any statement, report or claim under this Debtor Protection knowing it to be false or fraudulent, or if you knowingly conceal any material fact which could result in Loss, the Debtor Protection will become void with the result that any outstanding claim will lapse and we may reverse all previous claims settled by us. You will pay us interest at the statutory rate for overdue debts on the amount of such previously settled claims. In these circumstances you will not be entitled to a refund of any fees or charges paid by you.
Inspections
7.14 We may at any time, in connection with a Loss or claim, examine (or require to be produced):
7.14.1 copies of any corporate records or books, internal documents, time sheets, quality inspection reports, stock records, correspondence, letters, or other documentation or records, in whatever form and wherever situated in your possession or control and if such information is stored on computer you will provide us with access to it including all necessary passcodes;
7.14.2 stock and raw materials held in any warehouse; or
7.14.3 any transaction between you and a Customer.
You will, at our request, take all reasonable steps to obtain for us all such information or documentation in the possession of any other person.
Other Cover
7.15 The Debtor Protection applies to any Loss not covered by any other bond, insurance or indemnity. You will inform us of any other bond, insurance or indemnity in place at the beginning of the Protected Period or as they arise during the Protected Period.
Limit of Liability
7.16 Unless otherwise agreed in the Commercial Terms, our maximum liability in respect of the Debtor Protection will not exceed the aggregate of the Protected Limits.
8. TERMINATION AND CONSEQUENCES OF TERMINATION
8.1 Subject to our rights of immediate termination under condition 8.2, your rights under conditions 8.4 and 8.5 and to condition 8.3 below, the Debtor Protection shall begin on the first day of the Protected Period and shall continue until it is terminated either by:
8.1.1 you giving ninety (90) days (or such lesser period as we may agree) written notice to us; or
8.1.2 us giving at least 30 days written notice to you;
in either case in writing.
8.2 We may terminate the Debtor Protection immediately by notice in writing to you if you fail to pay the charges due under condition 3 in this Part by their due date for payment or breach any other condition in this Part or if we become entitled to terminate this Agreement.
8.3 The Debtor Protection will automatically terminate in respect of any Protected Invoice which is reassigned to you.
8.4 If you query any change to the Debtor Protection Fee, Protected Limits Charge or other terms of this Debtor Protection notified to you prior to any Anniversary and we are unable to agree revised fees or terms you may terminate the Debtor Protection within 30 days of first being notified of the revised terms.
8.5 If we are unable to provide 55% of the aggregate value of the Protected Limits requested by you within 30 days of the beginning of the first Protected Period, you may, on no more than five (5) Working Days notice to us, terminate the Debtor Protection and we will return any fees paid by you.
8.6 Upon termination of this Agreement and/or the Debtor Protection we will have no further obligation to you in respect of Protected Invoices and any charges paid by you or accrued due to us shall be retained by, or paid to, us as appropriate.
9. GENERAL CONDITIONS
Assignment
9.1 You may not assign this Debtor Protection to any person.
Change of Control
9.2 You will notify us immediately in writing if, during the Protected Period, you consolidate or merge with, or sell all or substantially all of your assets to any other person or entity or if another person or entity acquires ownership directly or indirectly of more than ten percent (10%) of your voting share capital or there is any material change in the nature or scope of your business. Upon receipt of such notice, we may cancel the Debtor Protection with effect from the date of such change in your composition, business or control.
Data Protection
9.3 You warrant that all Protected Customers trading as sole traders or in partnership have authorised the use of information about them by us.
Notices
9.4 Any notices required to be served in this Part X, other than those required to be sent by E-Bonded, shall be in writing and sent by post or email. Notices sent by us shall be sent to you at the address or email stated in the Commercial Terms and notices sent by you shall be sent to us at our debtor protection team at No 1 Brookhill Way, Banbury, Oxon, OX16 3EL debtorprotection@ltsbcf.co.uk or such other postal or email address as we may notify to you from time to time.