Can lenders take security over a project company's future receivables?

A project lender in Pakistan can take security over present and future receivables where the relevant contract, property and company law permits effective creation and enforcement of that interest. Revenue from a power purchase agreement, toll-road concession, lease or long-term offtake may provide the main repayment source for project finance. But an agreement described as an assignment of receivables does not automatically transfer every future payment to the bank free of restrictions. Counsel must distinguish contractual assignment, fixed or floating charge, account control, payment direction and actual collection rights.

Identify the revenue stream

The security schedule should list the contracts generating receivables, counterparties, currency, payment dates and relevant performance conditions. A government availability-payment undertaking can have different legal risks from receivables due from numerous retail customers. Future receivables may be conditional upon services being delivered, permits remaining valid or a counterparty accepting performance. The lender should not model them as unconditional existing cash merely because an offtake agreement was executed.

Assignment and the underlying contract

The Transfer of Property Act, 1882 contains rules concerning actionable claims and assignment, including section 130. The actual structure may involve assignment by way of security or a company charge. The underlying project agreement must be checked for restrictions on assignment, consent requirements and restrictions on transferring rights without associated duties. A loan agreement between borrower and lender cannot automatically override a prohibition binding the revenue counterparty.

Future versus existing debts

An amount already invoiced and due differs from a receivable that may arise after future construction, delivery or availability performance. The drafting should define how future receivables become subject to the security interest and whether further notices or steps are needed. A lender should not rely on a vague reference to "all project proceeds" without mapping accounts, contract rights and any assets excluded by law.

The company charge framework

Where a company creates a mortgage or charge, sections 100 and following of the Companies Act, 2017 and the Companies Regulations, 2024 may require registration of relevant particulars. Charge registration is an important perfection step, but it does not by itself cure an invalid assignment or grant rights that the borrower did not possess. The security provider must have the legal capacity and corporate authority to create the interest. Accurate collateral descriptions and registration timing matter.

Fixed and floating charges

A fixed charge may restrict dealings with specified receivables or controlled accounts, while a floating charge can cover a changing pool of current assets. The substantive rights and level of control matter, not merely the terminology. A business that freely collects, spends and substitutes all alleged fixed-charge receipts without lender control can raise questions about the true character of the security. Finance and legal advisers should align the documented structure with actual operational flows.

Account control and cash waterfalls

Security over receivables is more effective where collections flow into clearly identified project accounts subject to agreed controls. A cash waterfall may prioritise taxes, operating costs, debt service, reserves and permitted shareholder distributions. The lender should establish whether the account bank acknowledges the security and any restrictions on withdrawals. A payment instruction that the borrower can revoke without consequence may provide less practical control than the credit committee expects.

Notices to counterparties

Under applicable assignment law and the relevant contract, notifying the debtor or obtaining acknowledgement can affect enforceability and practical payment arrangements. A government offtaker may refuse a direct payment instruction unless an authorised consent or direct agreement is executed. The lender should not assume the concession authority knows of or accepts a private security deed. Notices must describe the assigned rights accurately and follow contractual form requirements.

Set-off and counterclaims

Receivables may be subject to deductions, liquidated damages, set-off, performance disputes or withholding under the underlying agreement. The lender ordinarily cannot acquire better payment rights than the assignor possesses merely by taking security. A projected Rs. 100 million monthly receivable may be materially reduced if performance penalties or disputed invoices apply. The due diligence should examine historical collection ratios and counterparty defences.

Revenue interruption risk

Electricity dispatch restrictions, fuel shortages, construction delay, tariff disputes or licence suspension can reduce future receivables. The lender should identify risks under each project contract and stress-test the financial model. Security over future payments cannot create revenue when no contractual entitlement arises. Appropriate reserve accounts, guarantees and step-in arrangements may therefore supplement, rather than replace, receivables security.

Competing secured lenders

A project company may have existing working capital facilities or other security over receivables. Review the SECP charge register, prior assignments and intercreditor documents. A later lender cannot assume first priority because its security description is more detailed. The parties may need ranking, release or pari passu arrangements. Intercreditor enforcement procedures should coordinate account control and proceeds distribution.

Foreign lender issues

Where receivables support an offshore loan, review foreign exchange rules, security-agent arrangements and permitted remittance mechanisms. A contract choosing English law does not automatically complete security formalities concerning Pakistani contracts or company assets. Pakistani counsel should coordinate with foreign lenders on conflict-of-laws, perfection and enforcement. A foreign-currency debt funded against rupee receipts also creates currency risk separate from legal collateral rights.

Insolvency and enforcement

In borrower distress, the lender's ability to collect receivables depends on legally effective security, priority, insolvency provisions and any court or regulator restrictions. A security agent may need to give notices and act under defined default conditions. An unregistered company charge can create serious consequences under applicable law. A lender should not simply redirect all customer receipts without checking the security deed and required enforcement process.

Public project concessions

A road, transport or energy concession may require consent before assigning payment rights or changing collection accounts. The public authority can retain statutory functions or termination rights. A lender direct agreement can provide acknowledgement, notice and cure arrangements. Project lenders should not treat receivables assignments as automatic transfer of the underlying licence or concession.

Example: availability payments

A bus operator receives monthly payments from a provincial authority if vehicles meet availability and performance requirements. A bank takes security over those receivables. The lender should examine deductions for missed services, counterparty budget risk and whether payment can lawfully be made to a secured collection account. The security does not eliminate performance deductions merely because the bank expects fixed instalments.

Example: power purchase revenue

A project SPV assigns receivables under a power purchase agreement to a security trustee. The offtaker has a contractual right to dispute metering and certain invoices. A lender must evaluate that right, the relevant notice and the legal status of assignments. It should coordinate with the trustee, account bank and other secured creditors to avoid inconsistent payment demands.

Drafting and legal opinion

The transaction should specify secured obligations, collateral scope, collection accounts, representations, continuing undertakings, enforcement rights and release on repayment. Lender counsel should provide a jurisdiction-specific opinion on corporate authority, registration and enforceability, with qualifications concerning underlying contract restrictions. Financial due diligence should assess receivables quality separately from security validity.

Opinion and recommended course

Future project receivables can form valuable security, but effectiveness depends on underlying payment rights, lawful assignment or charge, notices, registration and account control. Conduct contract and priority due diligence, obtain required counterparty consents and design a practical cash waterfall. Security over contingent future revenue does not guarantee that revenue will arise.

Principal authorities: Companies Act, 2017, sections 100–112; Transfer of Property Act, 1882, including section 130; Contract Act, 1872; Companies Regulations, 2024; applicable banking, insolvency and foreign exchange provisions; executed project and security documents.