Invoice finance has grown enormously in the last decade after the banks had finally understood that they could not easily obtain a fixed charge over book debts. Rather than rely solely on a floating charge, banks realised that the safest way of financing the cashflow of a business is under a factoring or invoice discounting agreement. The increasing involvement of the banks has led to greater competition and reduced cost, which in turn has led to a shift towards discounting rather than factoring and a reduction in stigma attached to this form of asset-based finance. Due to the legal basis for this type of product, invoice financiers are particularly susceptible to fraud. Factors and discounters both rely on an assignment of the client’s debt, evidenced by an invoice sent to the factor or a notification sent to the discounter. To seek to reduce the risk to the financier’s interest in the proceeds of the debt, factoring and discounting agreements provide that all proceeds of debts paid by a debtor to the client are held on trust pending payment by the client to his factor, or payment by the client into a trust account maintained for the benefit of his discounter. Nonetheless, invoice financiers are frequently victims of various types of fraud perpetrated by their clients. These include the issue of ‘fresh air’ invoices to a factor that are not genuine and do not evidence true debts. The client may also dishonestly fail to give notice of assignment to the debtor so that he can demand payment and keep the proceeds for his own use. In the case of discounting, no notice of the assignment is given to the client, so discounters are also at particular risk from the client who diverts debtor payments for his own use rather than pay them into a trust account maintained for the discounter as agreed with the discounter. Once the financier discovers the fraud, it will have a number of avenues for recovery and it will require urgent action by its legal team. The financier will obviously seek to reduce its exposure by realising the bona fide book debts, but it will also enforce claims against a solvent client under the finance agreement, and possibly for fraud or breach of trust. The individuals implicated in the fraud will also be liable for deceit, conspiracy, and procuring breach of contract and, if they have received or dealt with trust monies, they may also be liable in knowing receipt and dishonest assistance. Of course recoveries will also be sought through any directors’ or corporate guarantees. However, the weak link in all of these causes of action is that they are personal and only give rise to a money judgment. It goes without saying that a judgment needs to be enforced, pending which the financier is at risk of the insolvency of the judgment debtor, whereupon he must prove as an unsecured creditor along with other creditors and subject to any secured creditors. So, although the lawyer will often be under huge pressure to ‘do something’, taking the easy option of chasing personal remedies will not necessarily be the best route for the client. The truth is that recoveries can often be enhanced by prompt and efficient action by a legal team who recognise the importance of the financier’s various proprietary claims. In the first place, and most obviously, of cardinal importance is the invoice financier’s proprietary interest in the debts. It is crucial that these are collected as quickly as possible before the quality of the ledger deteriorates over time. Secondly, assigned to the financier together with the debt are various ‘ancillary rights’, many of which are proprietary and which give rise to additional and relatively unexplored potential routes of recovery or sources of information. Of the greatest practical importance are those rights relating to information. All factoring agreements contain a provision that the factor will also own all books, computer data, records and documents on or by which the debt is recorded or evidenced. It is a great mistake not to seek these documents as soon as possible when initiating recovery claims in fraud, as they are often critical to identify and to enforce the right to payment of the debt. Sometimes the right to these documents even has to be enforced against administrators or liquidators who are reluctant to deliver up the relevant documents and records to the financier. Of course, even if a client is unable to deliver up such documents, his inability helps identify the extent to which the ledger is or may be fictitious. Thirdly, it should not be forgotten that the proceeds of any debts are held on trust by any recipient other than a bona fide purchaser for value without notice. Notice of the financier’s interest as beneficiary should therefore be given promptly to any person or bank it is considered may have received the traceable proceeds or product of the proceeds of the debts in the hands of anyone. Recipients may include co-conspirators, relatives or banks. Giving notice that the monies were diverted in breach of trust in favour of the financier will ensure that recipient will be liable for if he subsequently wrongfully misapplies the money. Again, all these beneficial rights should be protected by a proprietary injunction. It is because factors tend always to have proprietary remedies available that care should be taken to ensure that their full benefit is obtained. This is rare, because often the dialogue between the financier and his solicitor only involves a standard freezing order followed by a costly money judgment. Experience suggests that such orders are not always as effective as one might hope, particularly when the wrongdoer becomes insolvent. Accordingly, where possible, the relief claimed against the wrongdoer should include a proprietary as well as a freezing injunction, to protect not only the wrongdoer’s own assets but also those that can properly claimed to be owned by the financier. This reduces the risk of embarrassing and expensive failure to recover through the insolvency of the defendant.Simon Millsis a barrister who specialises in banking and finance law, insolvency and asset recovery at Five Paper chambers.