Regulation of Factoring Under the New Factoring Act

A major milestone in the legislative development of factoring in Ukraine is the adoption of the new Law of Ukraine “On Factoring” No. 4466-IX dated June 3, 2025 (hereinafter – “the Factoring Act”), which enhances and details the existing provisions on factoring contained in the Civil Code of Ukraine. The Factoring Act is set to become operational on July 31, 2026.

Importantly, financial companies holding factoring licenses will have to notify the National Bank of Ukraine (regulator) of their intention to continue the provision of factoring services within one month after the Factoring Act becomes operational; otherwise, they will forfeit their licenses.

The key novel provisions of the Factoring Act are the following:

1.  Factoring transactions and ordinary claim assignments are distinguished

A clear distinction is now drawn between a factoring transaction and an ordinary assignment of a (payment) claim. In a factoring transaction, the factor provides financing to a client, in return for which the client assigns to the factor its existing payment claims to a third party and is obliged to pay to the factor a valuable consideration, with the latter representing an essential distinctive element of factoring. As opposed to this, in an ordinary assignment transaction, a claim is assigned (sold) for its face value, and no consideration is paid to the new creditor.

For practical reasons, such a distinction is important since factoring, as a financial service, is subject to licensing, as well as due to the different tax treatment of both transactions.

2.  Specific types of factoring are introduced

The Factoring Act differentiates among the following types of factoring:

a) Non-recourse factoring, in which the factor alone bears the del credere risk of default by the debtor under payment claims assigned by the client.

b) Factoring with recourse, where the client bears the del credere risk, i.e., remains subsidiarily responsible towards the factor in case of the debtor’s default under assigned claims.

c) Confidential factoring as a sub-type of factoring with recourse in which the debtor is not notified on the assignment of a claim.

Basically, the Factoring Act develops the existing provisions of the Civil Code, under which both non-recourse and recourse factoring already existed but did not have distinct terminological designations.

3.  Non-resident factors will be able to operate in Ukraine

Non-resident factors, i.e. financial institutions authorised to provide factoring services pursuant to the laws of countries of their incorporation, will be able to act as factors and directly provide factoring services in Ukraine without setting up for this purpose a local subsidiary entity. However, the Factoring Act does not envisage a specific legal mechanism or procedure for their admission to factoring in Ukraine.

4.  A new digital factoring platform and competitive procedures for the conclusion of factoring contracts are created

In addition to the traditional way of execution, i.e., as a written document signed by the parties, a factoring contract will also be concluded through competitive procedures on a (to be created) national digital factoring platform. Such competitive procedures will be mandatory if the base contract (i.e., the contract between the client and debtor underlying the original payment claim assigned to the factor) was itself concluded through a public procurement procedure, i.e., where the debtor is a governmental institution or a state-owned company.

5.  An electronic factoring register and mandatory registration of assigned claims are introduced

The Factoring Act establishes a new public electronic register of payment claim assignments under factoring contracts (hereinafter – “the Factoring Register”), which shall also include an electronic factoring system. Information on clients, factors, and a short description of assigned claims (without indicating their value) contained in the Factoring Register shall be open to the general public.

All claim assignments under factoring contracts will be subject to mandatory registration in the Factoring Register, except for confidential factoring, with the factor being responsible for such registration.

The electronic factoring system shall, in turn, enable an electronic exchange of information and documents, including notifications, among participants of factoring transactions, i.e., registered factors, clients, and debtors, and ensure their access to a broader range of information contained in the Factoring Register.

6.  Registration of assigned claims will define their priority

Although failure to register a claim assignment in the Factoring Register shall not affect the validity of the underlying factoring contract, only a factor who registered an assignment will be considered the bona fide owner of such claim regarding any factor who failed to register such an assignment. Furthermore, registered assignments will have priority over non-registered ones and those registered later. A factor with a higher priority can claim amounts paid by the debtor to factors with lower priorities. The debtor, in its turn, may refuse to pay to a factor if the claim assignment is not registered, and instead pay to the client (original creditor).

7.  Detailed requirements for a factoring contract are provided

The Factoring Act stipulates detailed requirements, in particular, regarding the subject matter, form, and content of a factoring contract, rights and obligations of the factor, client, and debtor, and a procedure for giving a notification to the debtor on the assignment of an original payment claim. A factoring contract can also provide for a reverse assignment of a claim by the factor to the client.

8.  Other noteworthy novel provisions

The Factoring Act provides that expired payment claims, as well as claims regarding payment of fines (default interest), cannot be objects of factoring transactions. This provision reflects the general idea of factoring as covering the assignment of only valid payment claims arising under principal contractual obligations (as opposed to accessory ones).

Pursuant to the Factoring Act, any provisions of a base contract between the client and debtor establishing prohibitions or restrictions for the client to assign such claims to a factor under a factoring contract, as well as any fines imposed on the client for their breach, are considered null and void. This represents a stronger position compared to the Civil Code, pursuant to which a factoring contract shall be valid regardless of any prohibitions or restrictions on assigning claims established by the base contract.

The Factoring Act additionally protects the factor by providing that amendments to the base contract affecting the factor’s rights and made by the client and debtor after the debtor has received a notification on the assignment of the respective claim to the factor are null and void unless the factor has consented to such amendments.

Conclusion

Undoubtedly, the Factoring Act represents a progressive development of the national legislation on financial services intended to liberalise the area of factoring, create a solid legal foundation for conducting factoring transactions, and increase the level of trust among its participants. In particular, the new electronic factoring system and Factoring Register are meant to provide for increased transparency and additional legal security in the relations of parties to factoring transactions. It can thus be expected that the popularity of factoring as a legal instrument of business financing, as well as the volume of factoring transactions, will increase as a consequence of the new law.

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This publication is for informational purposes only. If you would like to learn more or seek legal advice, please contact one of the following or your usual Nobles contact:

Alexander Weigelt (Partner), Denis Vergeles (Counsel).