Receivables

Definition and Legal Classification of Receivables

Receivables (German: Forderungen) are monetary claims arising from the delivery of goods or services to third parties. They play a central role in commercial and legal transactions, as they are of significant importance in accounting, contracts, and insolvency law. The legal treatment of receivables is subject to numerous national and international regulations.

Nature and Origin of Receivables

Definition and Types of Receivables

Receivables cover the entirety of a company’s contractual monetary claims that arise in the course of proper business operations, in particular from deliveries of goods and services to customers (debtors).

Types of Receivables

• Trade receivables: arise directly from the performance of contractually agreed deliveries of goods or services.
• Other receivables: arise, for example, from ancillary services, claims for damages, tax claims, or other statutory claims.
• Future receivables: claims arising from services that are outstanding but already contractually agreed.

Legal Basis for the Emergence

Receivables generally arise from obligations under contracts (e.g., purchase contract, contract for work and services, service contract) pursuant to Sections 362 et seq. of the German Civil Code (BGB). A receivable exists as soon as a creditor is entitled to payment following the conclusion of a contract and the payment claim has become due.

Transferability and Security Rights in Receivables

Assignment of Claims (Cession)

Under German civil law, the assignment of claims governs the transfer of receivables to a third party pursuant to Sections 398 et seq. BGB. Cession is a key instrument for security and financing, for example in factoring, credit collateralization, or in the sale of receivables portfolios.

Requirements for Assignment

• Assignable Claim: The claim must not be excluded by a contractual prohibition of assignment (Section 399 BGB) or by statutory restrictions.
• Agreement (“assignment agreement”): A contract without specific form requirements between the previous creditor (assignor) and the new creditor (assignee).
• Notice of Transfer: Notification to the debtor is not mandatory but is legally relevant with regard to a discharge of debt by payment (Section 407 BGB).

Special Aspects of Security Assignment

To secure credit arrangements, receivables are frequently assigned to lenders as collateral (security assignment). The effectiveness depends on the principles of transparency and purpose limitation and requires clear stipulations in the security agreement.

Factoring and Receivables Financing

Factoring refers to the ongoing sale of receivables to a factor. The legal structure particularly concerns the risks of enforceability of claims, rights of recourse, and compliance with data protection and banking supervisory regulations.

Accounting and Tax Treatment of Receivables

Accounting Classification

According to the German Commercial Code (HGB) (Section 266 (2) B II), receivables must be recognized as trade accounts receivable . They are generally recorded at their nominal value, less necessary value adjustments under commercial law and, where applicable, IFRS.

VAT Aspects

Receivables in Germany generally include value-added tax (VAT). The legal treatment of assignment and its VAT implications is particularly significant, especially with regard to the assignment of gross or net receivables.

Tax Deductibility and Value Adjustment

Doubtful and uncollectible receivables are subject to tax regulations for partial write-downs and bad debt losses. The requirements and handling of default risks are governed by Section 6(1) No. 2 Income Tax Act (EStG) and established case law of the Federal Fiscal Court (BFH).

Protection of the Debtor and Restrictions on Assignment of Claims

Protective Provisions for the Debtor

Comprehensive transparency and information obligations exist for the debtor’s protection (Section 404 BGB). The debtor may assert all defenses and objections that he could have raised against the previous creditor also against the new creditor.

Statutory and Contractual Prohibitions on Assignment

Statutory prohibitions on assignment (Section 400 BGB) particularly involve highly personal claims or statutory salary and wage claims. Contractual prohibitions on assignment are primarily found in commercial transactions and can restrict the transferability of receivables.

Data Protection and Confidentiality

In the context of receivables transactions, the provisions of the General Data Protection Regulation (GDPR) and Sections 203, 204 of the German Penal Code (StGB) must be observed, especially when transferring personal data during the assignment of claims or in debt collection.

Insolvency Law Significance of Receivables

Position in Insolvency Proceedings

In the event of insolvency of the debtor or creditor, receivables are subject to specific rules. Claims may fall to the insolvency administrator under Sections 80 et seq. Insolvency Code (InsO) or be treated separately as rights of segregation.

Segregation and Separate Satisfaction Rights

Claims that have already been assigned may be considered as subject to separate satisfaction rights in insolvency proceedings if the security assignments have been effectively executed. This requires a clear contractual and factual separation of the assigned receivables.

International Aspects of Receivables Transfer

Conflicts in Cross-Border Assignment

The choice of law in international assignment of receivables is governed by the Rome I Regulation and the UNIDROIT Convention. The provisions determine which law governs the validity and effect of the transfer of claims.

Special Features in International Factoring and ABS

International receivables are often subject to special rules regarding collection, security interests, and insolvency protection. This is especially relevant in the context of Asset Backed Securities (ABS) and cross-border factoring.

Summary

Receivables refer to claims arising from the delivery of goods and services, the legal treatment of which forms a central aspect of commercial law. Their creation, transferability, security, accounting treatment, as well as insolvency and tax law aspects, are closely interconnected. National and international regulations create a complex legal landscape, the thorough understanding of which is essential for the legally compliant handling of receivables.

Frequently Asked Questions

What legal requirements apply to the assignment of claims (receivables) under German law?

Under German law, the assignment of claims (cession) is generally governed by the German Civil Code (BGB), particularly in Sections 398 et seq. BGB. There are no special form requirements; assignment may, in principle, also be effected orally unless the contract states otherwise. The claim must be defined or at least definable and no prohibition of assignment may exist (Section 399 BGB). Furthermore, no third-party rights may be infringed. It should be noted that in some contractual relationships (for example, rental or employment contracts) contractual or statutory prohibitions of assignment may apply. Once assigned, the new creditor is authorized to enforce the claim in their own name. For certain claims, such as rights arising from banking secrecy or those arising from public-law relationships, special conditions or even prohibitions of assignment may apply.

What are the consequences of an assignment for the debtor’s objections?

In the event of assignment of a claim (receivable), the debtor can, as a rule, assert against the new creditor (assignee) all objections and defenses he could assert against the original creditor (assignor) (Section 404 BGB). This includes defenses resulting from payment already made, limitation, set-off, or counterclaims. New agreements between assignor and assignee do not normally disadvantage the debtor. However, once the assignment has been notified, no new agreements between debtor and former creditor that would impair the new creditor can be concluded (Section 407 BGB). This protects the debtor from being placed at a disadvantage as a result of the creditor change.

What are the requirements for the effectiveness of assigning future claims?

Assignment of future claims is generally permitted under German law, provided that the claim is sufficiently defined or at least definable. This is typically the case when, for example, supply contracts have already been concluded from which claims will arise in the future. In the case of a global assignment, all present and future claims from a particular legal relationship are typically assigned. The exact scope must be clearly defined in advance; otherwise, the assignment may be invalid due to lack of specificity or for violating the transparency requirement (Section 307 BGB). Additionally, the assignor must be authorized to assign; the assignee acquires ownership of future claims only at the time they arise.

Are there any special legal requirements in connection with factoring?

Factoring frequently involves the sale of claims, in which a factor acquires receivables. In addition to the general requirements for assignment, the Payment Services Supervision Act (ZAG) imposes certain requirements, particularly if the factor provides extensive services. Under the Legal Services Act (RDG), factoring may be conducted in-house; the requirement for authorization under the Banking Act (KWG) may not apply, provided no banking transactions are conducted. In silent assignments, the debtors are unaware of the change of creditor, which affects data protection requirements (GDPR). In insolvency, the effectiveness of the assignment may be questioned, particularly in the case of global assignments and revolving security assignments, if these conflict with insolvency law provisions (Sections 129 et seq., 166 et seq. InsO).

What legal restrictions apply regarding prohibitions of assignment?

Prohibitions of assignment can arise either from law or from contract (Section 399 BGB). Statutory prohibitions include, for example, highly personal claims (such as maintenance claims or claims arising from moral rights). Contractual prohibitions are often included in supply and service contracts to maintain control over the enforcement of claims. Since the introduction of Section 354a of the German Commercial Code (HGB) (for commercial transactions), a prohibition of assignment for monetary claims is effectively overridden if the claim has been assigned—meaning that the debtor is discharged by payment to the original creditor. Nonetheless, the assignor may owe damages to the assignee if he breaches a contractually agreed prohibition of assignment.

What happens in the event of insolvency of the claim holder (assignor)?

In insolvency, the decisive factor is the effectiveness of the assignment. If the assignment of the claim occurred before the opening of insolvency proceedings, it does not generally form part of the insolvency estate—the assignee may claim payment directly from the debtor. If the assignment took place during the so-called crisis period or there is uncertainty (for example, due to insufficient specificity in a global assignment), the insolvency administrator may challenge the assignment under Sections 129 et seq. InsO. In certain cases, such as revolving security assignments in favor of credit institutions, the insolvency administrator may require that claims arising after commencement of insolvency proceedings form part of the estate. Here, clear contractual and chronological structuring of the assignment is essential.

What obligations must be met towards the debtor in the assignment of a claim?

Although the debtor does not generally need to be informed of the assignment (unless required by law or contract), the risk of double payment is borne by the assignee if the debtor, unaware of the assignment, pays the previous creditor (Section 407 BGB). In some contract scenarios, particularly involving consumers and in factoring, there may be a duty to inform under special laws or the principle of transparency. Furthermore, failure to notify the assignment can create uncertainties in legal transactions, such as regarding the existence of set-off or the assertion of limitation defenses. In some cases, there may also be data protection information obligations under the GDPR.