Guidelines on the Conduct of Factoring Operations Involving the Purchase of Bills of Exchange

REPUBLIC OF CROATIA
CROATIAN FINANCIAL SERVICES SUPERVISORY AGENCY

Pursuant to Article 15, point 4 of the Act on the Croatian Financial Services Supervisory Agency ("Official Gazette" Nos. 140/05 and 12/12), the Croatian Financial Services Supervisory Agency (hereinafter: Hanfa) adopts at its Board of Directors meeting held on March 29, 2019

GUIDELINES RELATED TO THE CONDUCT OF FACTORING OPERATIONS INVOLVING THE PURCHASE OF BILLS OF EXCHANGE

1. Introductory Provisions and Purpose of the Guidelines

In accordance with the Factoring Act ("Official Gazette" No. 94/14, 41/16; hereinafter: the Act), one of the activities that factoring companies may conduct as a business activity on a continuous basis is the factoring operation involving the purchase of a bill of exchange under Article 12 of the Act.

With the aim of harmonizing the conduct of factoring companies in performing factoring operations and the correct interpretation of the provisions of the Act regulating factoring operations involving the purchase of bills of exchange, these guidelines elaborate and clarify in detail all elements necessarily linked to the performance of the aforementioned operations.

The purpose of the guidelines is:

• to create good and eliminate bad business practices,
• to ensure uniform conduct of factoring companies in the market and strengthen confidence in the factoring market.

The operation of factoring companies in accordance with these guidelines contributes to increasing legal certainty and transparency in factoring transactions, as well as generally reducing the riskiness of factoring companies' business.

2. Factoring Operations Involving the Purchase of Bills of Exchange

Article 12 of the Act stipulates that the provisions of the law governing bills of exchange apply to factoring operations involving the purchase of bills of exchange, unless otherwise provided by the Act. In addition, paragraph 2 of the same article stipulates that a factoring company may only purchase bills of exchange that were issued as a means of settling a claim arising from the delivery of goods and provision of services in the domestic or foreign market.

3. Bill of Exchange in a Factoring Operation Involving the Purchase of Bills of Exchange

In accordance with the provisions of the Act, the subject matter of factoring in factoring operations involving the purchase of bills of exchange is undoubtedly the bill of exchange. However, such a bill of exchange must be issued exclusively as a means of settling a claim arising from the delivery of goods and provision of services in the domestic or foreign market.

In view of the above, and taking into account that the provisions of the Act on Bills of Exchange ("Official Gazette" Nos. 74/94 and 92/10; hereinafter: the Act on Bills of Exchange) apply to factoring operations involving the purchase of bills of exchange, the bill of exchange that is the subject of purchase in a factoring operation involving the purchase of bills of exchange must be drawn up and endorsed in accordance with the provisions of the aforementioned Act.

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The purchased bill of exchange, in addition to the mandatory components prescribed by the Act on Bills of Exchange, must also contain the clause "value received" describing the underlying transaction on the basis of which the claim of the remitter (supplier) against the drawee (buyer) arose, as defined by Article 12, paragraph 2 of the Act.

In addition, since the bill of exchange is the subject of a factoring operation involving the purchase of bills of exchange, it must have a maturity date (on a specific day) of up to one year, as stipulated by Article 21, paragraph 4 of the Act.

4. Claims for Which Bills of Exchange Were Issued as a Means of Settlement

Paragraph 2 of Article 12 of the Act stipulates that a factoring company may only purchase bills of exchange that were issued as a means of settling a claim arising from the delivery of goods and provision of services in the domestic or foreign market.

The provisions of the Act do not explicitly define the characteristics for which bills of exchange were issued as a means of settlement at the time of their purchase by the factoring company.

However, taking into account that Article 12 of the Act names and defines a specific activity as "factoring operation involving the purchase of bills of exchange" and the definition of a factoring activity determined by Article 4 of the Act, Hanfa is of the opinion that the aforementioned claims must also be undiscounted at the time of the purchase of the bill of exchange.

The purchase of a bill of exchange as a means of payment exclusively for undiscounted claims "factoring operation involving the purchase of bills of exchange" represents one of the activities arising from the factoring activity for the performance of which the factoring company has received approval from Hanfa.

The existence of a claim for the settlement of which a bill of exchange, which is the subject of purchase, was issued, is proven by a certified extract of open accounts of the supplier towards the buyer and invoices (or other documents) which are an integral part of the aforementioned extract. If the factoring company does not possess the invoices (or other documents) listed in the extract of open accounts, it is obliged to obtain them upon request by Hanfa.

5. Content of the Factoring Agreement in Factoring Operations Involving the Purchase of Bills of Exchange

Pursuant to Article 14, paragraph 2 of the Act, Hanfa has specified in detail the content of the factoring agreement by rulebook, including the content of the agreement in a factoring operation involving the purchase of bills of exchange. Among other provisions, the factoring agreement must contain the determination of the factoring operation and the determination of the subject matter of factoring.

In accordance with the provision of Article 6, paragraph 2 of the Rulebook on the Content of Factoring Agreements ("Official Gazette" No. 16/15; hereinafter: the Rulebook), in factoring operations involving the purchase of bills of exchange, the data determining the factoring operation must be clearly specified in the title of the agreement.

Also, in accordance with the provision of Article 7, paragraph 5 of the Rulebook, the agreement arising from the factoring operation must also include data on the bill of exchange issued as a means of settling a monetary claim (drawer/issuer, drawee, remitter, bill amount, place and date of issue, maturity date, bill number) and data on the basis of the creation of the monetary claim (invoice or other document according to which the supplier of goods or provider of services calculates the delivered goods and performed services) with the indication of the date of creation, maturity date, and amount of the monetary claim.

From the aforementioned provisions, it follows that for the bill of exchange that is the subject of purchase, the claim (invoice or other document) for the settlement of which that bill was issued must be precisely specified in the agreement. If the bill was issued for the settlement of part of a specific invoice, this must be indicated in the agreement.

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6. Transitional and Final Provisions

These guidelines are published on Hanfa's website and enter into force on the day of publication.

CLASS: 011-02/19-06/01
FILE NUMBER: 326-01-50-52-19-1
Zagreb, March 29, 2019

CHAIRMAN OF THE BOARD OF DIRECTORS dr.sc. Ante Žigman