Agenda

NEW UKRAINIAN LAW ON FACTORING AS A TOOL FOR BUSINESS DEVELOPMENT

02/07/2025

 

On 3 June 2025, the Verkhovna Rada of Ukraine adopted Law No. 12306 “On Factoring” (initially introduced on 11 December 2024). The Law will come into effect the day following its official publication, with full enforcement commencing one year thereafter. This legislation consolidates the legal framework for factoring in Ukraine, enhancing legal predictability and introducing transparent mechanisms to safeguard market participants. It also aligns Ukraine’s legal environment with international best practices, notably through the implementation of the provisions of the UNIDROIT Model Law on Factoring. The harmonisation of Ukrainian legislation with global standards improves market accessibility for foreign investors and financial institutions and facilitates cross-border factoring operations. Ukraine has been a party to the UNIDROIT Convention on International Factoring (1988), and the adoption of this new Law strengthens the country’s commitment to fostering international trade and investment.

Key Provisions of Law No. 12306

1.Establishment of the Public Electronic Register of Assignments

Pursuant to Article 11, a Public Electronic Register of Assignments is created. Its administrator and data holder will be a state authority or public sector entity designated by the Cabinet of Ministers of Ukraine. The precise moment of registration, including date, hour, minute, and second, will determine the legal effect of the assignment of monetary claims. Entries in the Register will be subject to a statutory fee and retained for a period of five years from the date of registration.

2. Determination of Main Concepts: “factoring”, “factor” (defined as a financial service provider that has acquired the right to provide factoring services in accordance with the procedure established by law), “client” (a person who assigns a monetary claim to a factor), “debtor” (a person obliged to pay a monetary claim) and “monetary claim”.

3. Exceptions to the Scope of the Law:

The Law explicitly excludes the following transactions:

  • Assignments of monetary claims arising under financial services agreements other than factoring agreements, where regulated by separate legislation;
  • Transactions where no remuneration (commission, discount, etc.) is payable to the new creditor;
  • Transactions involving parties who do not meet the statutory requirements or where monetary claims are transferred to individuals (excluding sole traders);
  • Assignments of monetary claims that have expired at the time of the transaction.

4. Standartisation of the Factoring Agreements. The Law introduces minimum requirements for the content of factoring agreements, aiming to enhance legal certainty, reduce the risk of disputes, and facilitate uniformity in contractual practice.

5. Clarification of Parties’ Rights and Obligations. A detailed framework of the rights and responsibilities of all parties involved in factoring arrangements is set out, promoting dispute prevention, effective resolution mechanisms, and a fair balance of interests.

6. Regulation of the Validity and Effectiveness of the Assignment of the Right of Claim. The Public Electronic Register of Assignments is a key instrument for establishing priority and the enforceability of assigned claims against third parties. These provisions are essential for protecting the rights of factors and ensuring the integrity of factoring as a financing mechanism.

Expected Impact of the Law No. 12306

The development of Ukraine’s factoring market, supported by this legislative reform, is expected to stimulate business activity, facilitate trade, and enhance the overall commercial environment. Greater transparency in financial transactions, along with alignment to international standards, is anticipated to strengthen Ukraine’s attractiveness as an investment destination. Factoring offers small and medium-sized enterprises an effective, secure tool for managing cash flow, accelerating the receipt of payments for goods supplied or services rendered, and mitigating working capital shortfalls.

 

NAZALI TAX & LEGAL

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