assignment of part of a debt

Debt Assignment: Understanding the Mechanics, Risks, and Benefits with Real-world Examples

Last updated 03/19/2024 by

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What is debt assignment?

How debt assignments work, special considerations, criticism of debt assignment.

• Enhanced liquidity for creditors.
• Risk reduction by divesting high-risk loans.
• Quick injection of capital for urgent financial needs.
• Opportunity to free up resources from aging debts.
• Potential for unethical practices by debt collectors.
• Allegations of harassment and threats towards debtors.
• Risk of pursuing debts that have already been settled.

Frequently asked questions

Is debt assignment legal, can a debtor reject a debt assignment, how does debt assignment impact the debtor’s credit score, what recourse do debtors have if faced with unethical debt collection practices, key takeaways.

• Debt assignment involves the legal transfer of debt and associated rights to a third party.
• Notification to the debtor is crucial to prevent unintentional default and ensure proper payment channels.
• Third-party debt collectors operate under the Fair Debt Collection Practices Act (FDCPA).
• Creditors may assign debt to improve liquidity, reduce risk exposure, or deal with aging debts.
• Debt assignment has faced criticism for unethical practices by some debt buyers.

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Assignment Of Debt Agreement

Jump to section, what is an assignment of debt agreement.

An assignment of debt agreement is a legal document between a debtor and creditor that outlines the repayment terms. An assignment of debt agreement can be used as an alternative to bankruptcy, but several requirements must be met for it to work.

In addition, if obligations are not met under a debt agreement, it might still be necessary to file for bankruptcy later on. Therefore, consulting with an attorney specializing in debt agreements is always recommended before entering into one of these contracts.

Assignment Of Debt Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-10 5 exhibit1024f10qsbmay04.htm EXHIBIT 10.24 , Viewed December 20, 2021, View Source on SEC .

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Meet some of our Assignment Of Debt Agreement Lawyers

McGhee at Law is a purpose-driven law firm located in Indiana. We are focused on assisting Clients with creating opportunities of advancement. Our strategy is to assist, advise and support our Clients in fulfilling their vision for their personal lives and businesses through the practice of law.

I was born and raised in Wayne, New Jersey and attended Seton Hall University, graduating cum laude. I followed my family down to Florida to attend Ave Maria School of Law where I graduated cum laude. I was admitted to the Florida Bar in 2018. During law school, I participated in the Certified Legal Internship program with the State Attorney's Office of the 20th Judicial Circuit and litigated 5 jury trials, 1 non jury trial and argued various motions before the court under the supervision of an Assistant State Attorney. I was an Assistant States Attorney for Collier County from 2018 to 2020 before moving into private practice in the areas of real estate and first party property from 2020 to 2021. As of November 2021, I started my own law practice that focuses on business planning, real estate and estate planning.

I work with private tech companies on entity formation, corporate governance, and commercial agreements. I was an in-house counsel for a unicorn fintech startup and am currently associated with a startup boutique while operating my solo practice. I received my JD from Berkeley Law, and served in the US Navy for 5 years as a combat linguist. I am fluent in Korean.

I have been an attorney for 30 years. I am a Colorado native with many years in Alaska. I have a Bachelors in Biology, Chemistry and French, JD from Seattle University and Masters in Environmental Science and Law from Vermont Law School. I have traveled extensively, mostly in Europe, and speak several languages with more or less proficiency. I practiced law in Alaska and Colorado, much of it in remote areas but also large cities. I have taught in an environmental masters program and run large environmental nonprofits and a hot springs resort. I have worked with and run business incubators, a process I love. Empowering people to build their own futures is a passion.

Whitney L. Smith's journey from entrepreneur to advocate is fueled by a profound understanding of the business world. With a decade of firsthand entrepreneurial experience, she entered law school driven by a mission to protect others' businesses. However, her passion for real estate law blossomed as she recognized the tremendous benefits rental property ownership offers to individuals seeking passive income and community development. Blending her deep understanding of transactional law with zealous courtroom advocacy, she empowers landlords to thrive. Born and raised in St. Petersburg, Florida, she is a proud graduate of Stetson College of Law and cherishes her role as a devoted parent to two children and a beloved pit bull companion.

Business, Real Estate, Tax, Estate Planning and Probate attorney with over 20 years experience in private practice in Colorado. Currently owner/operator of John M. Vaughan, Attorney at Law solo practitioner located in Boulder, CO. My practice focuses on transactional matters only.

I have 20-plus years of experience as a corporate general counsel, for public and private corporations, domestic and international. I have acted as corporate secretary for a publicly-held corporation and have substantial experience in corporate finance, M&A, corporate governance, incorporations, corporate maintenance, complex transactions, corporate termination and restructuring, as well as numerous aspects of regulatory and financial due diligence. In my various corporate roles, I have routinely drafted complex corporate contracts and deal-related documents such as stock purchase agreements, option and warrant agreements, MSAs, SOWs, term sheets, joint venture agreements, tender agreements purchase and sale agreements, technology licensing agreements, vendor agreements, service agreements, IP and technology security agreements, NDAs, etc. and have managed from both a legal and business perspective many projects in the financial, technology, energy and venture capital fields.

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Assigning debts and other contractual claims - not as easy as first thought

Harking back to law school, we had a thirst for new black letter law. Section 136 of the Law of the Property Act 1925 kindly obliged. This lays down the conditions which need to be satisfied for an effective legal assignment of a chose in action (such as a debt). We won’t bore you with the detail, but suffice to say that what’s important is that a legal assignment must be in writing and signed by the assignor, must be absolute (i.e. no conditions attached) and crucially that written notice of the assignment must be given to the debtor.

When assigning debts, it’s worth remembering that you can’t legally assign part of a debt – any attempt to do so will take effect as an equitable assignment. The main practical difference between a legal and an equitable assignment is that the assignor will need to be joined in any legal proceedings in relation to the assigned debt (e.g. an attempt to recover that part of the debt).

Recent cases which tell another story

Why bother telling you the above?  Aside from our delight in remembering the joys of debating the merits of legal and equitable assignments (ehem), it’s worth revisiting our textbooks in the context of three recent cases. Although at first blush the statutory conditions for a legal assignment seem quite straightforward, attempts to assign contractual claims such as debts continue to throw up legal disputes:

• In  Sumitomo Mitsui Banking Corp Europe Ltd v Euler Hermes Europe SA (NV) [2019] EWHC 2250 (Comm),  the High Court held that a performance bond issued under a construction contract was not effectively assigned despite the surety acknowledging a notice of assignment of the bond. Sadly, the notice of assignment failed to meet the requirements under the bond instrument that the assignee confirm its acceptance of a provision in the bond that required the employer to repay the surety in the event of an overpayment. This case highlights the importance of ensuring any purported assignment meets any conditions stipulated in the underlying documents.
• In  Promontoria (Henrico) Ltd v Melton [2019] EWHC 2243 (Ch) (26 June 2019) , the High Court held that an assignment of a facility agreement and legal charges was valid, even though the debt assigned had to be identified by considering external evidence. The deed of assignment in question listed the assets subject to assignment, but was illegible to the extent that the debtor’s name could not be deciphered. The court got comfortable that there had been an effective assignment, given the following factors: (i) the lender had notified the borrower of its intention to assign the loan to the assignee; (ii) following the assignment, the lender had made no demand for repayment; (iii) a manager of the assignee had given a statement that the loan had been assigned and the borrower had accepted in evidence that he was aware of the assignment. Fortunately for the assignee, a second notice of assignment - which was invalid because it contained an incorrect date of assignment - did not invalidate the earlier assignment, which was found to be effective. The court took a practical and commercial view of the circumstances, although we recommend ensuring that your assignment documents clearly reflect what the parties intend!
• Finally, in Nicoll v Promontoria (Ram 2) Ltd [2019] EWHC 2410 (Ch),  the High Court held that a notice of assignment of a debt given to a debtor was valid, even though the effective date of assignment stated in the notice could not be verified by the debtor. The case concerned a debt assigned by the Co-op Bank to Promontoria and a joint notice given by assignor and assignee to the debtor that the debt had been assigned “on and with effect from 29 July 2016”. A subsequent statutory demand served by Promontoria on the debtor for the outstanding sums was disputed on the basis that the notice of assignment was invalid because it contained an incorrect date of assignment. Whilst accepting that the documentation was incapable of verifying with certainty the date of assignment, the Court held that the joint notice clearly showed that both parties had agreed that an assignment had taken place and was valid. This decision suggests that mistakes as to the date of assignment in a notice of assignment may not necessarily be fatal, if it is otherwise clear that the debt has been assigned.

The conclusion from the above? Maybe it’s not quite as easy as first thought to get an assignment right. Make sure you follow all of the conditions for a legal assignment according to the underlying contract and ensure your assignment documentation is clear.

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Debt Assignment and Assumption Agreement

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Updated June 22, 2023

A debt assignment agreement allows a person who owes money to assign the debt to someone else who assumes its obligation. This is common when a person takes possession of an asset where the seller still owes money. The buyer will purchase the asset and assume the debt.

Lender’s Approval

In most loan agreements and notes, the lender will be required to approve the new debtor. This can be done with a signed waiver or statement by the lender.

Sample  Debt Assignment Agreement

Download: PDF , MS Word , OpenDocument

ASSIGNMENT AND ASSUMPTION OF DEBT WITH RELEASE

I. THE PARTIES. This Assignment and Assumption of Debt with Release (“Agreement”) is effective and created on [ DATE ] (“Effective Date”) is by and between:

Debtor : [ DEBTOR’S NAME ], with a mailing address of [ DEBTOR’S MAILING ADDRESS ] (“Debtor”),

Assuming Party : [ ASSUMING PARTY’S NAME ], with a mailing address of [ ASSUMING PARTY’S ADDRESS ] (“Assuming Party”),

Creditor : [ CREDITOR’S NAME ], with a mailing address of [ CREDITOR’S NAME ] (“Creditor”),

The Debtor, Assuming Party, and Creditor shall each be referred to herein as a “Party” and collectively as the “Parties.”

II. ASSIGNMENT OF DEBT. It is known that the Debtor is indebted to the Creditor, under a separate agreement, for the current principal sum of $[ CURRENT DEBT AMOUNT ], plus any interest (“Debt”).

Under this Agreement, the Assuming Party agrees to assume: (choose one)

☐ – All of the Debt.

☐ – Portion of the Debt. The Assuming Party agrees to assume $[ PORTION OF DEBT AMOUNT ].

The Debt shall continue its repayment in accordance with the terms located in a separate agreement between the Debtor and Creditor.

III. CONSENT FROM CREDITOR. For this Agreement to be legally valid: (choose one)

☐ – Consent is Required from the Creditor. This Agreement is contingent upon the Creditor approving and consenting to its terms and conditions. The Creditor shall be required to grant their consent within [ # ] days of the Effective Date. If the Creditor does not consent or rejects this Agreement, it shall be considered void.

☐ – Consent is Not Required from the Creditor. This Agreement is not contingent upon the Creditor to approve its terms and conditions.

IV. ASSUMPTION OF LIABILITIES. The Assuming Party agrees to assume the Debt, which may or may not include, further legal or financial liability. If the Debtor is subject to legal or financial liability, the Assuming Party shall assume its liability, including but not limited to, attorney’s fees and damages.

V. DEBTOR’S RELEASE. This Agreement shall release the Debtor from all liabilities in relation to the Debt, the Creditor, and the Assuming Party.

VI. SEVERABILITY. If any term, covenant, condition, or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired, or invalidated.

VII. PARTIES’ REPRESENTATIONS. This Agreement can be considered void, at any time, if evidence is presented that any Party was not honest, untruthful, or did not negotiate in good faith (“Fraudulent Practices”). Furthermore, if any Party’s actions are considered Fraudulent Practices, they may be subject to legal and financial penalties to the fullest of the law.

VIII. GOVERNING LAW. This Agreement shall be governed under the laws located in the State of [ STATE ] (“Governing Law”).

IX. ADDITIONAL TERMS. [ ADDITIONAL TERMS & CONDITIONS ]

X. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement between the Parties. No modification or amendment of this Agreement shall be effective unless in writing and signed by both Parties.

Debtor Signature: ______________________________ Date __________

Print Name: ______________________________

Assuming Party Signature: ______________________________ Date __________

Creditor Signature (if required): ______________________ Date __________

How to Write

Section 1 the parties.

(1) Effective Assignment Date. This agreement must clearly establish the calendar date when the assignment of the debt to the Assuming Party becomes active.

(2) Debtor Name And Mailing Address. The current Holder of the debt should be identified as the Debtor in this agreement. To this end, record the Debtor’s name and address.

(3) Assuming Party. The name of the Party that will be charged with paying the debt will be the Assuming Party. Furnish the Assuming Party’s entire name and mailing address.

(4) Creditor Name And Address . Naturally, it will be important that the debt is properly defined. This requires that the Creditor is named and that his or her mailing address is presented. If this is a Business then its legal Company Name must be used to identify the Creditor properly.

Section 2 Assignment Of Debt

(5) Sum Of Debt. The amount of money required by the debt being discussed is needed to complete the statement made in Section 2. This must be the total dollar amount that the Creditor expects the Debtor to pay.

(6) Assuming All Debt. The debt that is being transferred requires definition. If the total amount of the debt owed by the Debtor will be transferred to the Assuming Party, then the “All Of The Debt” checkbox should be selected.

(7) Assignment Of Portion Of Debt . If the Assuming Party will only take on part of the concerned debt then select the “Portion” checkbox. In addition to this selection, supply the dollar amount that the Assuming Party will pay to the Creditor to satisfy the part of the debt held by Debtor.

Section III Consent From Creditor

(8) Creditor Consent Required. In some cases, the Creditor must be informed of this assignment and provide consent for the Debtor and Assuming Party’s actions in this document. If so, then select the first checkbox statement from Section III. Additionally, supply the number of days before the effective date when the Creditor consent must be provided.

(9) No Consent Of Creditor Required. Select the “Not Required” checkbox to indicate that the Creditor’s consent is not needed for this contract’s execution.

Section VIII Governing Law

(10) Governing Law. Identify the State where this agreement will be effective and be enforceable.

Section IX. Additional Terms

(11) Additional Terms. Any agreements between the Debtor and the Assuming Party or conditions placed by the Creditor that should be considered part of this assignment should be documented in Section IX.

(12) Debtor Signature . The Debtor must approve of the information defining this assignment. For this task, he or she must sign and date this document upon satisfactory review. The Debtor should attend the first line presented in the signature area by signing his or her name on it.

(13) Debtor Signature Date.

(14)  Debtor Printed Name .

(15) Assuming Party Signature.  The Assuming Party must submit his or her signature to participate in this contract.  

(16) Signature Date Of Assuming Party. The date when the Assuming Party signed this agreement must be noted.

(17) Printed Name Of Assuming Party.

(18) Creditor Signature And Date. In order for the Creditor to approve of this agreement, he or she must sign it or a Signature Representative appointed by the Creditor must supply this approving signature.

(19) Creditor Signature Date. Upon the signing, the Creditor’s Signature Party must define the current date.

(20) Printed Name Of Creditor . The printed name of the Creditor’s Signature Party is expected.

Assignment Involves Transfer of Rights to Collect Outstanding Debts

What is an assignment of debt, debt can be bought and sold or otherwise transferred from a creditor who is owed money to another person who then becomes the assignee creditor with the right to collect the outstanding debt., understanding what constitutes as a legally binding assignment of creditor rights to collect a debt.

Right to Collect on Debts

In Ontario, the Court of Appeal case of Clark v. Werden , 2011 ONCA 619 confirmed the right to assign debts per the Conveyancing and Law of Property Act , R.S.O. 1990, c. C.34 , whereas such statute prescribes the conditions and requirements for the transfer of rights involving monies, among other things, whereas it was said:

Clark v. Werden , 2011 ONCA 619 at paragraph 13

[13]   The ability to assign a debt or legal chose in action is codified in s. 53 of the  Conveyancing and Law of Property Act , which provides that a debt is assignable subject to the equities between the original debtor and creditor and reads as follows:

53 (1) Any absolute assignment made on or after the 31st day of December, 1897, by writing under the hand of the assignor, not purporting to be by way of charge only, of any debt or other legal chose in action of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action is effectual in law, subject to all equities that would have been entitled to priority over the right of the assignee if this section had not been enacted, to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor.

Partially Assigned

It is notable that the statute makes mention of " absolute assignment " without clearly addressing the rights and method of treatment for a partial assignment of a debt.  In this circumstance, where more than one assignee may obtain or assume the rights of the creditor (or earlier assignee), a partial assignee is required to join all assignees when bringing legal action against the debtor.  This view was stated by the Court of Appeal in  DiGuilo v. Boland , 1958 CanLII 92 where it was said:

DiGuilo v. Boland , 1958 CanLII 92

The main reason why an assignee of a part of a debt is required to join all parties interested in the debt in an action to recover the part assigned to him is in my opinion because the Court cannot adjudicate completely and finally without having such parties before it.  The absence of such parties might result in the debtor being subjected to future actions in respect of the same debt, and moreover might result in conflicting decisions being arrived at concerning such debt.

Failed Notice

Of potentially grave concern to creditors, and potentially with great relief to debtors, for an assignee to retain the right to pursue the debtor, express written notice of the assignment is required.  This requirement was stated in 1124980 Ontario Inc. v. Liberty Mutual Insurance Company and Inco Ltd. , 2003 CanLII 45266  as part of the four part test to establish the right to pursue an assigned debt:

1124980 Ontario Inc.  v. Liberty Mutual , 2003 CanLII 45266 at paragraph 44

[44]   Accordingly, for there to be a valid legal assignment under  section 53(1) of the  CLPA , four requirements must be met:

a)  there must be debt or chose in action;

b)  the assignment must be absolute;

c)  the assignment must be written; and

d)  written notice of the assignment must be given to the debtor.

Where there is a failure of notice, and therefore failure to comply with the Conveyancing and Law of Property Act , it is said that the right to assign fails in law; however, relief in equity, via an equitable assignment may be available to an assignee affected by failure of notice.  Generally, in equity, when failure of notice occurs, the assignee is unable, in law, to bring an action in the name of the assignee and may do so only in the name of the creditor; however, even in the absence of proper notice as results in failure of assignment in law, and failure ot enjoin the creditor in an action pursued as an equitable assignment, the court may remain prepared to waive such a requirement whereas such occurred in the matter of  Landmark Vehicle Leasing Corporation v. Mister Twister Inc. , 2015 ONCA 545 wherein it was stated:

Landmark v. Mister Twister , 2015 ONCA 545 at paragraphs 10 to 16

[10]    Section 53(1) requires “ express notice in writing ” to the debtor.  Although there is some ambiguity in her reasons, it would appear that the trial judge found that Mr.  Blazys had express notice of the assignment, but not notice in writing.  Ross Wemp Leasing therefore did not assign the leases to Landmark in law: see  80 Mornelle Properties Inc.  v. Malla Properties Ltd. , 2010 ONCA 850 (CanLII) , 327 D.L.R.  (4th) 361, at para.  22 .  Ross Wemp Leasing did, however, assign the leases to Landmark in equity.  An equitable assignment does not require any notice, let alone written notice:  Bercovitz Estate v. Avigdor , [1961] O.J.  No.  20 (C.A.), at paras.  16, 25.

[11]   The appellants, relying on  DiGuilo v. Boland , 1958 CanLII 92 (ON CA), [1958] O.R.  384 (C.A.), aff’d, [1961] S.C.C.A.  vii, argue that as the appellants did not have written notice of the assignment, Landmark could not sue on its own.  Instead, Landmark had to join Ross Wemp Leasing in the action.  The appellants argue that the failure to join Ross Wemp Leasing requires that the judgment below be set aside.

[12]    DiGuilo does in fact require that the assignor of a chose in action be joined in the assignee’s claim against the debtor when the debtor has not received written notice of the assignment.  The holding in DiGuilo tracks rule 5.03(3) of the  Rules of Civil Procedure , R.R.O.  1990, Reg.  194 : In a proceeding by the assignee of a debt or other chose in action, the assignor shall be joined as a party unless,

(a) the assignment is absolute and not by way of charge only; and

(b) notice in writing has been given to the person liable in respect of the debt or chose in action that it has been assigned to the assignee.  [Emphasis added.]

[13]   Yet the assignee’s failure to join the assignor does not affect the validity of the assignment or necessarily vitiate a judgment obtained by the assignee against the debtor.  Rule 5.03(6) reads:

The court may by order relieve against the requirement of joinder under this rule.

[14]   The joinder requirement is intended to guard the debtor against a possible second action by the assignor and to permit the debtor to pursue any remedies it may have against the assignor without initiating another action:  DiGuilo , at p.  395.  Where the assignee’s failure to join the assignor does not prejudice the debtor, the court may grant the relief in rule 5.03(6) : see  Gentra Canada Investments Inc.  v. Lipson , 2011 ONCA 331 (CanLII), 106 O.R.  (3d) 261, at paras.  59 - 65 , leave to appeal refused, [2011] S.C.C.A.  No.  327.

[15]   In this case, the trial judge found that Mr.  Blazys, and effectively all of the appellants, gained actual notice of the lease assignments very shortly after the assignments were made and well before Landmark sued.  Armed with actual, albeit not written, notice of the assignment, the appellants could fully protect themselves against any prejudice from Landmark’s failure to join Ross Wemp Leasing.  Had the appellants seen any advantage in joining Ross Wemp Leasing, either to defend against Landmark’s claim or to advance a claim against Ross Wemp Leasing, the appellants could have moved for joinder under rule 5.03(4).  The appellants’ failure to bring a motion to add Ross Wemp Leasing speaks loudly to the absence of any prejudice caused by Landmark’s failure to join the assignor.

[16]   Ross Wemp Leasing perhaps should have been a party to the proceeding.  Landmark’s failure to join Ross Wemp Leasing, however, did not prejudice the appellants and should have had no impact on the trial judgment.  If requested, this court will make a  nunc pro tunc order relieving Landmark from the requirement of joining Ross Wemp Leasing in the action.

Summary Comment

The rights to collect on a debt can be sold and transferred from the original creditor to a substitute creditor or assignee who then takes on the rights of the original creditor.  Indeed, the selling and buying of individual debts, or debts within an entire portfolio debts is common within business.  The entire collection services industry is based on the concept of buying outstanding debt and then standing in the shoes of the original creditor and pursuing the payment of the debt.  Other forms of buying and selling debt includes mortgage swaps, among other things.

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Assignments for the Benefit of Creditors – an often-overlooked state law alternative to Chapter 7 bankruptcy

For some folks the three letters ABC are a reminder of elementary school and singing a song to learn the alphabet.  For others, it is a throw back to the early 70’s when the Jackson Five and its lead singer Michael, still with his adolescent high voice, sang a catchy love song.  Then there is a select group of people in the world of corporate workouts, liquidations and bankruptcies, who know those three letters to stand for the A ssignment for the B enefit of C reditors – a voluntary state law liquidation process that may arguably offer a hospitable and friendly alternative to federal bankruptcy.  This article is a brief summary of this potentially attractive alternative to bankruptcy.

 The Assignment for the Benefit of Creditors (“ABC”), also known as a General Assignment, is a state law procedure governed by state statute or common law.  Over 30 states have codified statutes, and the remainder of states rely on common law.  See Practical Issues in Assignments for the Benefit of Creditors , by Robert Richards & Nancy Ross, ABI Law Review Vol. 17:5 (2009) at p. 6 (listing state statutes).  In some states, the statutory authority and common law can coexist.  At its most basic, the ABC process involves the transfer of all assets by a financially distressed debtor (the assignor) to an individual or entity (the assignee) with fiduciary obligations who then liquidates the assets and pays creditors.  The assignment agreement is essentially a contract involving the transfer and control of property, in trust, to a third party.  In some states that have enacted a statute, state courts may supervise the process (and at different levels of involvement depending on the statute).  The statutory scheme in other states such as California and Nevada, and in states where common law govern, do not provide for judicial oversight..  

ABCs are promoted as less expensive and more flexible than a chapter 7 liquidation and may proceed substantially faster than bankruptcy liquidation. See generally Practical Issues in Assignments for the Benefit of Creditors , ABI Law Review Vol. 17:5 (2009) at p. 8 (citations omitted).  In addition, the ABC process may provide four other noteworthy benefits not available in a bankruptcy.  First, the liquidating company chooses the assignee, there is no appointment of a random trustee or formal election required like in a bankruptcy.  This freedom of choice allows the assignor to evaluate the reputation and experience of proposed assignees, as well as select an assignee with familiarity in the nature of the assignor’s business and/or with more expansive contacts in the industry to facilitate the sale/liquidation.  Second, the ABC process generally falls under the radar of the media (particularly in states that do not require court supervision), and the assignor may avoid publicity, often negative, that can be associated with bankruptcy proceedings.  Third, with an ABC, the assignee has the ability to sell the assets without the imposition of potentially cumbersome requirements of Section 363 of the Bankruptcy Code, and in some cases, can conduct a sale the same day as the general assignment.  Finally, the ABC process generally authorizes the sale of assets free of unsecured creditor debt.  In essence, in an ABC, a company buying assets from a distressed business does not acquire the debt of the assignor.

On the down side, ABCs do not provide the protection of the automatic stay that is triggered upon the filing of a bankruptcy petition.  In some situations, the debtor entity needs to stop the pursuit of creditors immediately, and a bankruptcy proceeding will supply this relief.  Unlike bankruptcy, the sale through an ABC: i) is not free and clear of liens; ii) unexpired leases cannot be assumed and assigned without the consent of the contract counter-party; and iii) insolvency can trigger a default under an unexpired lease or executory contract. See generally Practical Issues in Assignments for the Benefit of Creditors , ABI Law Review Vol. 17:5 (2009) at p. 20. In general, an ABC is not a good choice for debtors that have secured creditors that do not consent because there is no mechanism for using cash collateral or transferring assets free and clear of liens without the secured creditors’ consent.  In cases where junior lienholders are out of the money, there is no incentive for those creditors to voluntarily release their liens.  In addition, while unsecured creditors do not have to consent to the general assignment for it to be valid, choosing this alternative forum may cause concern for creditors (particularly those used to the transparency of a court-supervised bankruptcy or receivership proceeding) and invite the filing of an involuntary bankruptcy. Therefore, it is prudent to involve major creditors in the process, and perhaps even in the pre-assignment planning. In addition, if an involuntary petition is filed, the assignee could request that the bankruptcy court abstain in order to proceed with the ABC.

Using the ABC state process in lieu of filing for bankruptcy in federal court may result in a more streamlined, efficient liquidation process that is less expensive and likely completed quicker than a federal bankruptcy proceeding.  In some jurisdictions, such as New Jersey, workout professionals note anecdotally that corporate clients fare better under this state law alternative rather than the lengthy, more complicated federal bankruptcy proceedings.

Many bankruptcy professionals are unfamiliar with the procedures of ABC and are reluctant to recommend it as a method for liquidating assets and administering claims.  This lack of familiarity may be a disservice to potential clients.  

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What Is an Assignment of Debt?

George Simons | December 02, 2022

Co-Founder of SoloSuit George Simons, JD/MBA

George Simons is the co-founder and CEO of SoloSuit. He has helped Americans protect over $1 billion from predatory debt lawsuits. George graduated from BYU Law school in 2020 with a JD-MBA. In his spare time, George likes to cook, because he likes to eat.

Edited by Hannah Locklear

Editor at SoloSuit Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: Have a debt collection agency coming after you for a past due account? Not convinced that they have the right to sue you? Learn about the assignment of debt and how you can beat a debt collector in court.

Assignment of debt means that the debt has been transferred, including all obligations and rights, from the creditor to another party. The debt assignment means there has been a legal transfer to another party, who now owns the debt. Usually, the debt assignment involves a debt collector who takes the responsibility to collect your debt.

How does a debt assignment work?

When the creditor lends you money, it does so thinking that what it lends you as well as interest will be paid back according to the legal agreement. The lender will wait to get the money back according to the contract.

When the debt is assigned to another party, you must be notified when it happens so you know who owns the debt and where to send your payments. If you send payments to the previous creditor, the payments probably will be rejected and you could default.

When the debtor gets this notice, it's wise for them to check that the creditor has the right balance and the payment that you should pay each month. Sometimes, you may be able to offer changes to the terms of the loan. If you decide to try this, the creditor must respond.

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Why creditors assign debts

Note that debt assignments and debt collectors must adhere to the Fair Debt Collection Practices Act . This is a law overseen by the FTC that restricts when the debtor can contact you and how. For example, they only can call you between 8 am and 9 pm and they cannot call you at work if you tell them not to do so.

If the FDCPA is broken by the debt collector, you can file a countersuit and may get them to pay damages and your attorney fees.

There are many reasons why the creditor may assign a debt. The most common reason is to boost their liquidity and reduce risk. The creditor could need capital, so they'll sell off some of their debts to debt collection companies.

Also, the creditor may have many higher-risk loans and they could be worried they could have a lot of defaults. In these situations, the creditor may be ok with selling debts for pennies on the dollar if it enhances their financial outlook and reassures investors.

Or, the creditor may think the debt is too old to worry about and may not assign it at all.

Different perspectives on debt assignment

Debt assignment is often criticized, especially in the past 30 years. Debt buyers often engage in shady practices. For example, some debt collectors may call consumers in the middle of the night and harass them to pay debts. Or, they may call friends and family looking for you. Some debt collectors even use foul language with consumers and threaten them.

Sometimes the debt is sold several times, so the consumer is chased for a debt she doesn't owe. Or, the debt amount could be different than what the debt collector claims.

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What to do if a debt collector comes after you

If you owe a debt and the debt has been assigned to a debt collector, you may be getting a lot of phone calls at all hours to get you to pay what you allegedly owe. This can continue for months or even years.

Sometimes, you can just ignore the phone calls and nothing happens. However, if enough money is involved, the debt collector could file a lawsuit against you. The worst thing you can do in this situation is to ignore the lawsuit.

What you should do is use the debt assignment game against them. What happens is this: The debt was probably sold a few times. You want to make the debt collector prove that the debt is yours and that you owe what they say you owe.

When the debt has been sold several times, it can be difficult for them to track down all that paperwork. You need to respond to the lawsuit by filing an answer with your clerk of court and then mail that answer to the debt collector by certified mail.

If you are being pursued for a debt that has been purchased by a third party debt buyer, there is a good chance you can get the issue resolved fairly easily. For example, in many instances, you may be able to negotiate a fairly low settlement on the debt, if you prefer to do so. This is because many companies who specialize in debt assignments actually purchased the debt for pennies on the dollar and are not actually looking to collect on the full amount owed.

Even if you cannot negotiate a settlement, make sure to log all of your interaction with the debt buyer since the collection agents they employ are notorious for routinely violating provisions contained within the FDCPA, which means you may have grounds to file a counterclaim and demand compensatory damages.

What is SoloSuit?

SoloSuit makes it easy to respond to a debt collection lawsuit.

How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.

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Not sued yet? Use our Debt Validation Letter.

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Business Law Today

November 2015

Assignment for the Benefit of Creditors: Effective Tool for Acquiring and Winding Up Distressed Businesses

David s kupetz.

Nov 15, 2015

12 min read

• Assignments for the benefit of creditors are an alternative to the formal burial process of a Chapter 7 bankruptcy.
• The ABC process may allow the parties to avoid the delay and uncertainty of formal federal bankruptcy court proceedings.
• ABCs can be particularly useful when fast action and distressed transaction and/or industry expertise is needed in order to capture value from the liquidation of the assets of a troubled enterprise.

An assignment for the benefit of creditors (ABC) is a business liquidation device available to an insolvent debtor as an alternative to formal bankruptcy proceedings. In many instances, an ABC can be the most advantageous and graceful exit strategy. This is especially true where the goals are (1) to transfer the assets of the troubled business to an acquiring entity free of the unsecured debt incurred by the transferor and (2) to wind down the company in a manner designed to minimize negative publicity and potential liability for directors and management.

The option of making an ABC is available on a state-by-state basis. During the meltdown suffered in the dot-com and technology business sectors in the early 2000s, California became the capital of ABCs. In discussing assignments for the benefit of creditors, this article will focus primarily on California ABC law.

Assignment Process

The process of an ABC is initiated by the distressed entity (assignor) entering an agreement with the party which will be responsible for conducting the wind-down and/or liquidation or going concern sale (assignee) in a fiduciary capacity for the benefit of the assignor’s creditors. The assignment agreement is a contract under which the assignor transfers all of its right, title, interest in, and custody and control of its property to the third-party assignee in trust. The assignee liquidates the property and distributes the proceeds to the assignor’s creditors.

In order to commence the ABC process, a distressed corporation will generally need to obtain both board of director authorization and shareholder approval. While this requirement is dictated by applicable state law, the ABC constitutes a transfer of all of the assignor’s assets to the assignee, and the law of many states provides that the transfer of all of a corporation’s assets is subject to shareholder approval. In contrast, shareholder approval is not required in order for a corporation to file a petition commencing a federal bankruptcy case. In some instances, the shareholder approval requirement for an ABC can be an impediment to the quick action ordinarily available in the context of an ABC, especially when a public company is involved as the assignor.

The board of directors of an insolvent company (a company with debt exceeding the value of its assets) should be particularly attentive to avoiding harm to the value of the enterprise and the interests of creditors. Under Delaware law, for example, the obligation is to maximize the value of the enterprise, which should result in protecting the interests of creditors.

It is not unusual for the board of a troubled company to determine that a going concern sale of the company’s business is in the best interests of the company and its creditors. However, generally the purchaser will not acquire the business if the assumption of the company’s unsecured debt is involved. Further, often the situation is deteriorating rapidly. The company may be burning through its cash reserves and in danger of losing key employees who are aware of its financial difficulties, and creditors of the company are pressing for payment. Under these circumstances, the company’s board may conclude than an ABC is the most appropriate course of action.

The Alternative of Voluntary Federal Bankruptcy Cases

Chapter 7 bankruptcy provides a procedure for the orderly liquidation of the assets of the debtor and the ultimate payment of creditors in the order of priority set forth in the U.S. Bankruptcy Code. Upon the filing of a Chapter 7 petition, a trustee is appointed who is charged with marshaling all of the assets of the debtor, liquidating the assets, and eventually distributing the proceeds of the liquidation to the debtor’s creditors. The process can take many months or even years and is governed by detailed statutory requirements.

Chapter 11 of the Bankruptcy Code provides a framework for a formal, court-supervised business reorganization. While the primary goals of Chapter 11 are rehabilitation of the debtor, equality of treatment of creditors holding claims of the same priority, and maximization of the value of the bankruptcy estate, Chapter 11 can be used to implement a liquidation of the debtor. Unlike the traditional common law assignment for the benefit of creditors (assignments are governed by state law and may differ from state to state), Chapter 7 and Chapter 11 bankruptcy cases are presided over by a federal bankruptcy judge and are governed by a detailed federal statute.

Advantages of an ABC

The common law assignment by simple transfer in trust, in many cases, is a superior liquidation mechanism when compared to using the more cumbersome statutory procedures governing a formal Chapter 7 bankruptcy liquidation case or a liquidating Chapter 11 case. Compared to bankruptcy liquidation, assignments may involve less administrative expense and are a substantially faster and more flexible liquidation process. In addition, unlike a Chapter 7 liquidation, where generally an unknown trustee will be appointed to administer the liquidation process, in an ABC the assignor can select an assignee with appropriate experience and expertise to conduct the wind-down of its business and liquidation of its assets. In prepackaged ABCs, where an immediate going concern sale will be implemented, the assignee will be involved prior to the ABC going effective. Further, in states that have adopted the common law ABC process, court procedures, requirements, and oversight are not involved. In contrast, in bankruptcy cases, the judicial process is invoked and brings with it additional uncertainty and complications, including players whose identity is unknown at the time the bankruptcy petition is filed, expense, and likely delay.

In situations where a company is burdened with debt that makes a merger or acquisition infeasible, an ABC can be the most efficient, effective, and desirable means of effectuating a favorable transaction and addressing the debt. The assignment process enables the assignee to sell the assignor’s assets free of the unsecured debt that burdened the company. Unlike bankruptcy, where the publicity for the company and its officers and directors will be negative, in an assignment, the press generally reads “assets of Oldco acquired by Newco,” instead of “Oldco files bankruptcy” or “Oldco shuts its doors.” Moreover, the assignment process removes from the board of directors and management of the troubled company the responsibility for and burden of winding down the business and disposing of the assets.

From a buyer’s perspective, acquiring a going concern business or the specific assets of a distressed entity from an Assignee in an ABC sale transaction provides some important advantages. Most sophisticated buyers will not acquire an ongoing business or substantial assets from a financially distressed entity with outstanding unsecured debt, unless the assets are cleansed either through an ABC or bankruptcy process. Such buyers are generally unwilling to subject themselves to potential contentions that the assets were acquired as part of a fraudulent transfer and/or that they are a successor to or subject to successor liability for claims against the distressed entity. Buying a going concern or specified assets from an assignee allows the purchaser to avoid these types of contentions and issues and to obtain the assets free of the assignor’s unsecured debt. Creditors of the assignor simply must submit proofs of claim to the assignee and will ultimately receive payment by the assignee from the proceeds of the assignment estate. Moreover, compared to a bankruptcy case, where numerous unknown parties (e.g., the bankruptcy trustee, the bankruptcy judge, the U.S. trustee, an unsecured creditors’ committee, and possibly others) will become part of the process and where court procedures and legal requirements come into play, a common law ABC allows for flexibility and quick action.

From the perspective of a secured creditor, in certain circumstances, instead of being responsible for conducting a foreclosure proceeding, the secured creditor may prefer to have an independent, objective third party with expertise and experience liquidating businesses of the type of the distressed entity act as an assignee. There is nothing wrong with an assignee entering into appropriate subordination agreements with the secured creditor and liquidating the assignor’s assets and turning the proceeds over to the secured creditor to the extent that the secured creditor holds valid, perfected liens on the assets that are sold.

As a common law liquidation vehicle that has been around for a very long time, ABCs have been used over the years for all different types of businesses. In the early 2000s, in particular, ABCs became an especially popular method for liquidating troubled dot-com, technology, and health-care companies. In large part, this was simply a reflection of the distressed nature of those industries. At the same time, ABCs allow for quick and flexible action that frequently is necessary in order to maximize the value that might be obtained for a business that is largely dependent on the know-how and expertise of key personnel. An ABC may provide a vehicle for the implementation of a quick transaction which can be implemented before key employees jump from the sinking ship.

The liquidation process in an ABC can take many different forms. In some instances, negotiations between the buyer and the assignee commence before the assignment is made and a prepackaged transaction is agreed on and implemented contemporaneously with the execution of the assignment. This type of turnkey sale can effectively allow the purchaser of a business to acquire the business without assuming the former owner’s unsecured debt in a manner where the business operations continue uninterrupted.

In certain instances, the assignee may operate the assignor’s business post-ABC with the intent of selling the business as a going concern even if an agreement has not been reached with a purchaser. However, the assignee must weigh the risks and costs of continuing to operate the business against the anticipated benefits to be received from a going concern sale.

In many cases, the distressed enterprise has already ceased operations prior to making the assignment or will cease its business operations at the time the ABC is entered. In these cases, the assignee may be selling the assets in bulk or may sell or license certain key assets and liquidate the other assets through auctions or other private or public liquidation sale methods. At all times, the assignee is guided by its responsibility to act in a reasonable manner designed to maximize value obtained for the assets and ultimate creditor recovery under the circumstances.

Disadvantages of an ABC

As discussed above, an ABC can be an advantageous means for a buyer to acquire assets and/or a business in financial distress. However, unlike in a bankruptcy case, because the ABC process in California is nonjudicial, there is no court order approving the sale transaction. As a result, a buyer who requires the clarity of an actual court order approving the sale will not be able to satisfy that desire through an ABC transaction. That being said, the assignee is an independent, third-party fiduciary who must agree to the transaction and is responsible for the ABC process. The buyer in an ABC transaction will have an asset purchase agreement and other appropriate ancillary documents that have been executed by the assignee.

Unlike in a formal federal bankruptcy case, executory contracts and leases cannot be assigned in an ABC without the consent of the counter party to the contract. Accordingly, if the assignment of executory contracts and/or leases is a necessary part of the transaction and, if the consent of the counter parties to the contracts and leases cannot be obtained, an ABC transaction may not be the appropriate approach. Further, ipso facto default provisions (allowing for termination, forfeiture, or modification of contract rights) based on insolvency or the commencement of the ABC are not unenforceable as they are in a federal bankruptcy case.

Secured creditor consent is generally required in the context of an ABC. There is no ability to sell free and clear of liens, as there is in some circumstances in a federal bankruptcy case, without secured creditor consent (unless the secured creditor will be paid in full from sale proceeds). Moreover, there is no automatic stay to prevent secured creditors from foreclosing on their collateral if they are not in support of the ABC. The lack of an automatic stay is generally not significant with respect to unsecured creditors since assets have been transferred to the assignee and unsecured creditors claims are against the assignor.

While there is a risk of an involuntary bankruptcy petition being filed against the assignor, experience has shown that this risk should be relatively small. Further, when an involuntary bankruptcy petition is filed, it is generally dismissed by the bankruptcy court because an alternative insolvency process (the ABC) is already underway. In the context of an out-of-court workout or liquidation, there is always the risk that an involuntary bankruptcy petition may be filed against the debtor. Such a risk is substantially less, however, in connection with an assignment for the benefit of creditors because the bankruptcy court is likely to abstain when a process (the assignment) is already in place to facilitate liquidation of the debtor’s assets and distribution to creditors. A policy is in place that favors allowing general assignments for the benefit of creditors to stand.

Distribution Scheme in ABCs

ABCs in California are governed by common law and are subject to various specific statutory provisions. In states like California, where common law (with specific statutory supplements) governs the ABC process, the process is nonjudicial. An assignee in an assignment for the benefit of creditors serves in a capacity that is analogous to a bankruptcy trustee and is responsible for liquidating the assets of the assignment estate and distributing the net proceeds, if any, to the assignor’s creditors.

Under California law, an assignee for the benefit of creditors must set a deadline for the submission of claims. Notice of the deadline must be disseminated within 30 days of the commencement of the assignment and must provide not less than 150 and not more than 180 days’ notice of the bar date. Once the assignee has liquidated the assets, evaluated the claims submitted, resolved any pending litigation to the extent necessary prior to making distribution, and is otherwise ready to make distribution to creditors, pertinent statutory provisions must be followed in the distribution process. Generally, California law ensures that taxes (both state and municipal), certain unpaid wages and other employee benefits, and customer deposits are paid before general unsecured claims.

Particular care must be taken by assignees in dealing with claims of the federal government. These claims are entitled to priority by reason of a catchall-type statute which entitles any agency of the federal government to enjoy a priority status for its claims over the claims of general unsecured creditors. In fact, the federal statute provides that an assignee paying any part of a debt of the person or estate before paying a claim of the government is liable to the extent of the payment for unpaid claims of the government. As a practical result, these payments must be prioritized above those owed to all state and local taxing agencies.

In California, there is no comprehensive priority scheme for distributions from an assignment estate like the priority scheme in bankruptcy or priority schemes under assignment laws in certain other states. Instead, California has various statutes which provide that certain claims should receive priority status over general unsecured claims, such as taxes, priority labor wages, lease deposits, etc. However, the order of priority among the various priority claims is not clear. Of course, determining the order of priority among priority claims becomes merely an academic exercise if there are sufficient funds to pay all priority claims. Secured creditors retain their liens on the collateral and are entitled to receive the proceeds from the sale of their collateral up to the extent of the amount of their claim. Thereafter, distribution in California ABCs is made in priority claims, including administrative expenses, obligations owing to the federal government, priority wage and benefit claims, state tax claims, including interest and penalties for sales and use taxes, income taxes and bank and corporate taxes, security deposits up to $900 for the lease or rental of property, or purchase of services not provided, unpaid unemployment insurance contribution, including interest and penalties, and general unsecured claims. Interest is paid on general unsecured claims only after the principal is paid for all unsecured claims submitted and allowed and only to the extent that a particular creditor is entitled under contract or judgment to assert such claim for interest.

If there are insufficient funds to pay the unsecured claims in full, then these claims will be paid pro rata. If unsecured claims are paid in full, equity holders will receive distribution in accordance with their liquidation rights. No distribution to general unsecured creditors should take place until the assignee is satisfied that all priority claims have been paid in full.

Assignments for the benefit of creditors are an alternative to the formal burial process of a Chapter 7 bankruptcy. Moreover, ABCs can be particularly useful when fast action and distressed transaction and/or industry expertise is needed in order to capture value from the liquidation of the assets of a troubled enterprise. The ABC process may allow the parties to avoid the delay and uncertainty of formal federal bankruptcy court proceedings. In many instances involving deteriorating businesses, management engages in last-ditch efforts to sell the business in the face of mounting debt. However, frequently the value of the business is diminishing rapidly as, among other things, key employees leave. Moreover, the parties interested in acquiring the business and/or assets will move forward only under circumstances where they will not be taking on the unsecured debt of the distressed entity along with its assets. In such instances, especially when the expense of a Chapter 11 bankruptcy case may be unsustainable, an assignment for the benefit of creditors can be a viable solution.

Sulmeyerkupetz

David Kupetz specializes in troubled transactions, crisis avoidance consultation, workouts, restructurings, reorganizations, bankruptcies, receiverships, assignments for the benefit of creditors, municipal debt adjustment and...

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Debt Assignment and Assumption Agreement

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A Debt Assignment and Assumption Agreement is a very simple document whereby one party assigns their debt to another party, and the other party agrees to take that debt on. The party that is assigning the debt is the original debtor; they are called the assignor. The party that is assuming the debt is the new debtor; they are called the assignee.

The debt is owed to a creditor.

This document is different than a Debt Settlement Agreement , because there, the original debtor has paid back all of the debt and is now free and clear. Here, the debt still stands, but it will just be owed to the creditor by another party.

This is also different than a Debt Acknowledgment Form , because there, the original debtor is simply signing a document acknowledging their debt.

How to use this document

This document is extremely short and to-the-point. It contains just the identities of the parties, the terms of the debt, the debt amount, and the signatures. It is auto-populated with some important contract terms to make this a complete agreement.

When this document is filled out, it should be printed, signed by the assignor and the creditor, and then signed by the assignee in front of a notary. It is important to have the assignee's signature notarized, because that is the party that is taking on the debt.

Applicable law

Debt Assignment and Assumption Agreements are generally covered by the state law where the debt was originally incurred.

How to modify the template

You fill out a form. The document is created before your eyes as you respond to the questions.

At the end, you receive it in Word and PDF formats. You can modify it and reuse it.

Other names for the document:

Agreement to Assign Debt, Agreement to Assume Debt, Assignment and Assumption of Debt, Assumption and Assignment of Debt Agreement, Debt Assignment Agreement

Country: United States

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Assignment of Accounts Receivable: Meaning, Considerations

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

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What Is Assignment of Accounts Receivable?

Assignment of accounts receivable is a lending agreement whereby the borrower assigns accounts receivable to the lending institution. In exchange for this assignment of accounts receivable, the borrower receives a loan for a percentage, which could be as high as 100%, of the accounts receivable.

The borrower pays interest, a service charge on the loan, and the assigned receivables serve as collateral. If the borrower fails to repay the loan, the agreement allows the lender to collect the assigned receivables.

Key Takeaways

• Assignment of accounts receivable is a method of debt financing whereby the lender takes over the borrowing company's receivables.
• This form of alternative financing is often seen as less desirable, as it can be quite costly to the borrower, with APRs as high as 100% annualized.
• Usually, new and rapidly growing firms or those that cannot find traditional financing elsewhere will seek this method.
• Accounts receivable are considered to be liquid assets.
• If a borrower doesn't repay their loan, the assignment of accounts agreement protects the lender.

Understanding Assignment of Accounts Receivable

With an assignment of accounts receivable, the borrower retains ownership of the assigned receivables and therefore retains the risk that some accounts receivable will not be repaid. In this case, the lending institution may demand payment directly from the borrower. This arrangement is called an "assignment of accounts receivable with recourse." Assignment of accounts receivable should not be confused with pledging or with accounts receivable financing .

An assignment of accounts receivable has been typically more expensive than other forms of borrowing. Often, companies that use it are unable to obtain less costly options. Sometimes it is used by companies that are growing rapidly or otherwise have too little cash on hand to fund their operations.

New startups in Fintech, like C2FO, are addressing this segment of the supply chain finance by creating marketplaces for account receivables. Liduidx is another Fintech company providing solutions through digitization of this process and connecting funding providers.

Financiers may be willing to structure accounts receivable financing agreements in different ways with various potential provisions.​

Special Considerations

Accounts receivable (AR, or simply "receivables") refer to a firm's outstanding balances of invoices billed to customers that haven't been paid yet. Accounts receivables are reported on a company’s balance sheet as an asset, usually a current asset with invoice payments due within one year.

Accounts receivable are considered to be a relatively liquid asset . As such, these funds due are of potential value for lenders and financiers. Some companies may see their accounts receivable as a burden since they are expected to be paid but require collections and cannot be converted to cash immediately. As such, accounts receivable assignment may be attractive to certain firms.

The process of assignment of accounts receivable, along with other forms of financing, is often known as factoring, and the companies that focus on it may be called factoring companies. Factoring companies will usually focus substantially on the business of accounts receivable financing, but factoring, in general, a product of any financier.

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What is an Assignment of Debt?

By Sej Lamba

Updated on 26 February 2024 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

When Could an Assignment of Debt Happen?

Key issues on assignment of debt, drafting the correct documentation, giving notice, key takeaways.

Debts are increasingly common in today’s financial climate, and unfortunately, many people struggle to repay what they owe. Debts owed can be sold to third parties and a lot of companies in the UK purchase debts. However, this can be complicated as specific legal formalities apply when assigning debts. This article will explain some of the critical issues around the assignment of debt. 

Debt collection can be a complex process. There are various reasons as to why debt is assigned. For example, a company owed debt may want to avoid putting in time and effort to chase it or want to take legal action to recover it. 

To picture a scenario, imagine this:

• Joe Bloggs gets a brand-new shiny credit card. Joe purchases lots of nice things for his family with the credit card. Usually, he can keep up with payments as he keeps track of them and earns enough to pay them back;
• suddenly, Joe has an injury and cannot work anymore. He has to give up his job and now can’t afford to pay the credit card company back;
• Joe ignores various letters chasing the debt and hopes the problem will disappear. Ultimately, after months, the credit card company gives up and sells Joe’s debt to a debt collection agency.  

So, in summary – after the debt sale, Joe now owes money to a different company. 

In practice, debt assignments can be complex, and the parties must follow the relevant legal rules and draft the correct documentation.

An assignment of debt essentially transfers the debt from one party (the assignor) to a third party (an assignee). 

In practice, this will mean the original debtor (e.g. Joe Bloggs) will now owe the debt to a new third-party creditor (e.g. the debt collection business). Therefore, in the scenario above, Joe must now repay the debt to the third-party debt collection business.

This process can be complex. There have been several legal cases in the courts where this process has given rise to disputes.

There are two different types of assignment of debt – a legal assignment of debt and an equitable assignment of debt. 

In simple terms:

• a legal assignment of debt will transfer the right for enforcement of the debt; and
• an equitable assignment of debt will transfer only the benefit of the debt without the right to enforce it. 

Let us explore each type below.

Legal Assignment of Debt 

If the assignment complies with specific legal requirements under the Law of Property Act 1925, it will be a ‘legal assignment’. This means that the assignee will be the new owner of the debt. 

A legal assignment requires various formalities to be effective. For example, it must:

• be in writing and signed by the assignor;
• the debtor must be given written notice of the assignment;
• be absolute with no conditions attached to it;
• relate to the whole of the debt and not just part of it; and
• not be a charge.

After the transfer of the debt, the assignor can sue the debtor in its own name. 

Equitable Assignment of Debt

It is also possible to have an equitable debt transfer – the requirements for this are much less strict. For example, this can be done informally by the assignor informing the assignee that the rights are transferred to them. 

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For an equitable assignment, giving notice is not essential, but still always highly advisable. 

Where an equitable assignment is made, the assignee won’t have the right to pursue court action for the debt. In this case, the assignee will have to join forces with the assignor to sue for the debt to sue for the debt. 

The debtor should receive notice of any debt transfer so they know to whom the money is owed. Following notice, the new debt owner can pursue the debt owed. 

A legal assignment is the best option for an assignee of debt – this will give them full rights to enforce the debt. 

Assignments of debts can be very complex. For a legal assignment of debt, you need to follow various formalities. Otherwise, it may be unenforceable and lead to disputes. If you need help executing a debt assignment correctly, you should seek legal advice from an experienced lawyer.

If you need help with an assignment of debt, LegalVision’s experienced business lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page .

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Assignment of debt

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The Enforcement of Assigned Debts

In the realm of financial recoveries, the assignment of credit contracts in default is a well-established practice. Banks and financial institutions frequently assign defaulting credit card and personal loan accounts to debt collectors in an effort to streamline their cost-effective recovery processes. At RCR Lawyers, we recognize the importance of understanding the legal intricacies surrounding the assignment of debts, and we are here to provide you with valuable insights and guidance.

Assignment of Debts: The Legal Framework

Under the Property Law Act 1974 (Qld), specifically in Section 199, provisions are made for the assignment of debt at law. This allows for the transfer of debt ownership from the original credit provider (the assignor) to the new owner (the assignee). However, it’s crucial to note that this assignment must be absolute, and written notice must be given to the debtor. Importantly, the debtor’s consent is not a prerequisite for this assignment.

Once a debt is assigned, all rights and responsibilities vested in the original credit provider are now transferred to the new owner. This transfer grants the assignee the authority to collect on the debt as if they were the initial credit provider. This includes the ability to charge interest as per the original contract terms and to initiate legal proceedings to recover the debt.

The National Credit Code: A Comprehensive Framework

The National Credit Code, a crucial component of the National Consumer Credit Protection Act 2009 (Cth), extensively addresses the assignment of debt. It outlines the responsibilities of all credit lenders, providing a comprehensive framework for debt assignment and recovery.

Debtor Confusion and Legal Challenges

For debtors, the collection of assigned debts can often lead to confusion. While written notice of the assignment is a requirement, this notice extends only to the last known address (or last provided address) of the debtor. Many debtors are not familiar with the concept of debt assignment and often have not scrutinized the details of their credit contracts. As a result, an assignee who initiates legal proceedings to recover an outstanding balance may encounter significant obstacles.

In legal matters related to assigned debts, the case of Clark v Gallop Reserve Pty Ltd [2016] QCA 146 serves as an illustrative example. In this case, the validity of the Westpac Bank Corporation’s Deed of Assignment was challenged, as it did not explicitly include the judgment debt in the description of the outstanding debt owed to Westpac.

Philip McMurdo JA, in his judgment, emphasized that the wording “Westpac assigns to the Transferee all of Westpac’s full, absolute and entire legal and beneficial interest, right and title in and to the Westpac Debt, the Westpac Finance Documents, and the Westpac Guarantees” was sufficient to encompass the judgment obtained by Westpac before assignment. This exemplifies the court’s acknowledgment of the validity of the debt assignment and the assignee’s right to enforce the judgment debt.

Enforcement Options for Assignees

Once a debt has been validly assigned (following the absolute written assignment and proper notice to the debtor’s last known residence), and there are no offsetting claims available to the debtor, the assignee is entitled to pursue legal steps to recover the outstanding debts. These enforcement options may include:

• Commencing legal proceedings
• Obtaining judgments
• Enforcing judgments through methods such as statutory demands, bankruptcy notices, creditors’ petitions, warrants for property seizure and sale, garnishee orders, and more.

The RCR Recovery Team possesses extensive knowledge of various enforcement methods applicable in all Australian jurisdictions, particularly in the recovery of assigned debts. We are also well-equipped to provide guidance on the assignment of debts and the obligations that arise once such assignments occur.

If you have any inquiries or require further information on this topic, please don’t hesitate to contact RCR Recoveries at 07 3009 8444. Our legal team is ready to assist you with any questions or concerns you may have regarding the assignment and recovery of debts, ensuring that you have the necessary support to navigate these complexities with confidence.

At RCR Lawyers, we are dedicated to empowering you with the knowledge and guidance you need to effectively manage and recover assigned debts while upholding the highest legal standards.

If you have any queries in relation to the above, please contact RCR Recoveries on (07) 3009 8444 . Alternatively, you can contact us online or email us at [email protected] . 

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Debt Assignment of Debt

Can assignee be treated as non-related party and voted in coc meetings when financial debt transferred by related party financial creditor on an arm-length transaction during ongoing cirp – peanence commercial pvt. ltd. and anr. vs. mamta binani, rp for rolta india ltd. – nclat new delhi.

In this case, Rolta Pvt. Ltd. entered into MoU with Peanence Commercial Pvt. Ltd. for assignment of debt for a one-time consideration. It was argued that the Assignment for consideration of Rs.50 Crore is an arm-length transaction and Peanence Commercial Pvt. Ltd. is not a related party to the Corporate Debtor nor there is any disqualification attached to the Assignee to be part of the Committee of Creditors. Hon’ble NCLAT held that:

(i) Present is a case where in fact no assignment has taken place. What is entered between the parties is agreement for assignment that is contingent on approval by the Resolution Professional that Assignee will be given a seat in the CoC. (ii) The Adjudicating Authority has rightly noticed the judgment of the Hon’ble Supreme Court in Phoenix ARC Pvt. Ltd. vs. Spade Financial Services Ltd. & Ors. (2021) ibclaw.in 03 SC. (iii) At this stage, the Assignment Agreement which has been entered by the parties and has been communicated to the Resolution Professional, clearly indicates that Rolta Pvt. Ltd. is trying to bring its Assignee to create hurdles and delay in the CIRP of the Corporate Debtor.

Can Assignee be treated as non-related party and voted in CoC meetings when Financial Debt transferred by related party Financial Creditor on an arm-length transaction during ongoing CIRP – Peanence Commercial Pvt. Ltd. and Anr. Vs. Mamta Binani, RP for Rolta India Ltd. – NCLAT New Delhi Read Post »

Where Debt Assignment Agreement is registered without raising any objection regarding inadequacy of the stamp, by virtue of Section 5(2) of SARFAESI Act, Assignee is entitled to prosecute and deeming clause as contained in Section 5(2) fully protects and entitled the Assignee to prosecute Section 7 application under Insolvency Code – Emta Coal Ltd. Vs. L&T Finance Ltd. and Anr. – NCLAT New Delhi

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Where Debt Assignment Agreement is registered without raising any objection regarding inadequacy of the stamp, by virtue of Section 5(2) of SARFAESI Act, Assignee is entitled to prosecute and deeming clause as contained in Section 5(2) fully protects and entitled the Assignee to prosecute Section 7 application under Insolvency Code – Emta Coal Ltd. Vs. L&T Finance Ltd. and Anr. – NCLAT New Delhi Read Post »

Whether the assignment under Section 5 of SARFAESI Act, 2002 excludes assignment of liability | Whether enforceability of an assignment depends on adequacy of stamp duty – CFM Asset Reconstruction Pvt. Ltd. – NCLT Kolkata Bench

Hon’ble NCLT Kolkata Bench held that:

(i) Validity of an assignment on the basis of adequacy or inadequacy of the stamp duty etc., cannot be gone into in a summary proceeding as the present one. (ii) SARFAESI Act, 2002 does not specifically contemplate the assignment of a liability to an assignee. It is explicit that the statute permits only the assets to be assigned and not the liability, and the statute book does not provide for the assignment of liability or obligation. (iii) Section 5(3) of the SARFEASI Act, 2002 and Section 5(4) of the Act, 2002 and held that the liabilities of the Assignor in regard to the very same assets in question would remain protected to such extent, as envisaged under the provisions Sections 5(3) and 5(4) of the SARFAESI Act, 2002, as it appears that the provisions will squarely apply to the present case.

Whether the assignment under Section 5 of SARFAESI Act, 2002 excludes assignment of liability | Whether enforceability of an assignment depends on adequacy of stamp duty – CFM Asset Reconstruction Pvt. Ltd. – NCLT Kolkata Bench Read Post »

In case of assignment of the debt during the course of pendency of CIRP petition, Assignee is entitled to all rights exercisable under the IBC and enjoys the locus to file the restoration application before the Adjudicating Authority – Raj Radhe Finance Ltd. Vs. Shrinathji Spintx Pvt. Ltd. and Anr. – NCLAT New Delhi

Hon’ble NCLAT held that when NCLT Rule 2(4) defines “applicant” to mean a petitioner or an appellant or any other person or entity capable of making an application including an interlocutory application or a petition or an appeal under the IBC. Tested against this definition of an “applicant”, let us now see whether the Appellant fits into this definition of an “applicant”. An Appellant who by virtue of an assignment agreement has already stepped into the shoes of the original petitioner.

In case of assignment of the debt during the course of pendency of CIRP petition, Assignee is entitled to all rights exercisable under the IBC and enjoys the locus to file the restoration application before the Adjudicating Authority – Raj Radhe Finance Ltd. Vs. Shrinathji Spintx Pvt. Ltd. and Anr. – NCLAT New Delhi Read Post »

CFM Asset Reconstruction Pvt. Ltd. – NCLT Kolkata Bench

CFM Asset Reconstruction Pvt. Ltd. – NCLT Kolkata Bench Read Post »

Assignment of loan to a new Entity by the Lender/Bank need not be on an express consent of the borrower, the Court would not sit as a supervisor to Banking Activities between the Lender and the Borrower except in cases where the dispute between the Banker and the Lender would touch upon violation of any statutory provision – Gstaad Hotels Pvt. Ltd. Vs. Union of India and Ors. – Karnataka High Court

Hon’ble High Court held that: (i) The underlying principle is that the assignment of asset to a new entity by the lender need not be on an express consent of the borrower. Knowledge to the borrower would be suffice and knowledge to the petitioner in the case at hand cannot be disputed. (ii) Assignment or re-assignment by private entities or in the business of banking is best left to bankers, borrowers and the lenders unless it runs contrary to any statutory provision either under the SARFAESI Act or Circulars issued by the Reserve Bank of India which are held to have statutory force. (iii) Banking business is better left to bankers. This Court would not sit as a supervisor to banking activities between the lender and the borrower except in cases where the dispute between the banker and the lender would touch upon violation of any statutory provision. No such violation though projected with all vehemence is found in the case at hand. Therefore, I decline to grant any of the prayers sought by the petitioner noticed supra. It is for the petitioner to avail all such remedies as are available in law.

Assignment of loan to a new Entity by the Lender/Bank need not be on an express consent of the borrower, the Court would not sit as a supervisor to Banking Activities between the Lender and the Borrower except in cases where the dispute between the Banker and the Lender would touch upon violation of any statutory provision – Gstaad Hotels Pvt. Ltd. Vs. Union of India and Ors. – Karnataka High Court Read Post »

Whether transfer of loan account by a Bank/Financial Institution to an Asset Reconstruction Company (ARC) would amount to “conveyance” as defined in Sec. 2(d) of the Kerala Stamp Act, 1959 – Abdul Azeez Vs. The Authorized Officer, Phoenix ARC. Ltd. and Anr. – Kerala High Court

Hon’ble Kerala High Court holds that: (i) What is transferred by a Bank / financial institution to an Asset Reconstruction Company is only a transfer of economic interest and there is no conveyance of property or proprietary rights. The transfer of legal ownership of the loan is limited to the extent to the economic interest transferred. (ii) Article 22 of the Kerala Stamp Act, 1959 takes within its ambit only those conveyances as defined in Section 2(d). Even assuming that transfer of loan interest by a financial institution involves transfer of any interest in the secured asset and therefore it amounts to conveyance, even then such conveyance will not fall in any of the categories mentioned in Article 22. (iii) The NCLT has taken a contrary view in CP(IBC)/08/KOB/2023 wherein the Tribunal has held that the assignment deed in favour of the Asset Reconstruction Company is not a conveyance relating to immovable property.

Whether transfer of loan account by a Bank/Financial Institution to an Asset Reconstruction Company (ARC) would amount to “conveyance” as defined in Sec. 2(d) of the Kerala Stamp Act, 1959 – Abdul Azeez Vs. The Authorized Officer, Phoenix ARC. Ltd. and Anr. – Kerala High Court Read Post »

Debt Assignment Deed cannot be challenged in petition under Sec. 7 of IBC | Proceedings under IBC are summary proceedings and it is beyond the ambit of Adjudicating Authority to delve into the details regarding the requirement or exemption of registration of Assignment Agreement – CFM Asset Reconstruction Pvt. Ltd. Vs. M.G. Finvest Pvt. Ltd. – NCLT New Delhi Bench

In this important judgment, NCLT New Delhi Bench holds that: (i) The assignment of debt essentially being a transaction between the Creditor and the Assignee and assignment being recognized by the Code, 2016 as a valid mode of transfer of rights across the ambit of Section 5(7) of the Code, therefore, the entity who received the said assignment of debt falls within the fold of “Financial Creditor‟. (ii) In Palm Products Pvt. Ltd. Vs T.V.L. Narsimha Rao & Anr. (2021) ibclaw.in 115 NCLAT, the issue is with regard to admission of claim by the RP not for admission of an application filed under Sec 7 of the Code, 2016. (iii) Proceedings under Insolvency and Bankruptcy Code, 2016 are summary proceedings and it is beyond the ambit of this Adjudicating authority to delve into the details regarding the requirement or exemption of registration of the Assignment Agreement dated 18.01.2021. Therefore, the assignment agreement cannot be challenged in the petition under Section 7 of the Code, 2016. (iv) Further, the assignment does not affect the liability and obligations of the Corporate Debtor to discharge the debt.

Debt Assignment Deed cannot be challenged in petition under Sec. 7 of IBC | Proceedings under IBC are summary proceedings and it is beyond the ambit of Adjudicating Authority to delve into the details regarding the requirement or exemption of registration of Assignment Agreement – CFM Asset Reconstruction Pvt. Ltd. Vs. M.G. Finvest Pvt. Ltd. – NCLT New Delhi Bench Read Post »

SREI Equipment Finance Ltd. Vs. Uday Narayan Mitra IRP of ARSS Infrastructure Projects Ltd. – NCLAT New Delhi

SREI Equipment Finance Ltd. Vs. Uday Narayan Mitra IRP of ARSS Infrastructure Projects Ltd. – NCLAT New Delhi Read Post »

Trade receivables discounted on non-recourse basis and liability arose to Corporate Debtor to pay Financers, Financers stepped into the shoes of Suppliers | When Section (5)(8)(e) specifically covers receivables sold or discounted, the discounting of invoices cannot be covered by any other clause such as Section 5(8)(f) – Mudraksh Investfin Pvt. Ltd. Vs. Brijesh Singh Bhaduriya, RP of RCI Industries and Technologies Ltd. – NCLAT New Delhi

Hon’ble NCLAT holds that: (i) Supplier has sold goods to the Corporate Debtor against which invoices were raised by the Supplier against the Buyer. The said invoices were discounted by the Financer from time to time and Corporate Debtor was liable to make payment to the Financer along with interest. The Financers have made payment to the Suppliers. The Corporate Debtor could not make the payment to the Financers. (ii) The original transaction between the parties were for the sale and purchase of goods. (iii) Discounting was without any recourse basis. Thus, the discounting is clearly excluded from financial debt under Section 5, sub-section (8) (e). (iv) When Section 5, sub-section (8) (e) specifically covers receivables sold or discounted, the discounting of invoices cannot be covered by any other clause. Hence, discounting of invoices cannot fall under Section 5, sub-section (8) (f). (v) The transaction emanates from sale and purchase of goods in the present case. No disbursement was made to the Corporate Debtor, hence, the transactions cannot be held to be a financial debt.

Trade receivables discounted on non-recourse basis and liability arose to Corporate Debtor to pay Financers, Financers stepped into the shoes of Suppliers | When Section (5)(8)(e) specifically covers receivables sold or discounted, the discounting of invoices cannot be covered by any other clause such as Section 5(8)(f) – Mudraksh Investfin Pvt. Ltd. Vs. Brijesh Singh Bhaduriya, RP of RCI Industries and Technologies Ltd. – NCLAT New Delhi Read Post »

English law assignments of part of a debt: Practical considerations

United Kingdom |  Publication |  December 2019

Enforcing partially assigned debts against the debtor

The increase of supply chain finance has driven an increased interest in parties considering the sale and purchase of parts of debts (as opposed to purchasing debts in their entirety).

While under English law part of a debt can be assigned, there is a general requirement that the relevant assignee joins the assignor to any proceedings against the debtor, which potentially impedes the assignee’s ability to enforce against the debtor efficiently.

This note considers whether this requirement may be dispensed with in certain circumstances.

Can you assign part of a debt?

Under English law, the beneficial ownership of part of a debt can be assigned, although the legal ownership cannot. 1  This means that an assignment of part of a debt will take effect as an equitable assignment instead of a legal assignment.

Joining the assignor to proceedings against the debtor

While both equitable and legal assignments are capable of removing the assigned asset from the insolvency estate of the assignor, failure to obtain a legal assignment and relying solely on an equitable assignment may require the assignee to join the relevant assignor as a party to any enforcement action against the debtor.

An assignee of part of a debt will want to be able to sue a debtor in its own name and, if it is required to join the assignor to proceedings against the debtor, this could add additional costs and delays if the assignor was unwilling to cooperate. 2

Kapoor v National Westminster Bank plc

English courts have, in recent years, been pragmatic in allowing an assignee of part of a debt to sue the debtor in its own name without the cooperation of the assignor.

In Charnesh Kapoor v National Westminster Bank plc, Kian Seng Tan 3 the court held that an equitable assignee of part of a debt is entitled in its own right and name to bring proceedings for the assigned debt. The equitable assignee will usually be required to join the assignor to the proceedings in order to ensure that the debtor is not exposed to double recovery, but the requirement is a procedural one that can be dispensed with by the court.

The reason for the requirement that an equitable assignee joins the assignor to proceedings against the debtor is not that the assignee has no right which it can assert independently, but that the debtor ought to be protected from the possibility of any further claim by the assignor who should therefore be bound by the judgment.

Application of Kapoor

It is a common feature of supply chain finance transactions that the assigned debt (or part of the debt) is supported by an independent payment undertaking. Such independent payment undertaking makes it clear that the debtor cannot raise defences and that it is required to pay the relevant debt (or part of a debt) without set-off or counterclaim. In respect of an assignee of part of an independent payment undertaking which is not disputed and has itself been equitably assigned to the assignee, we believe that there are good grounds that an English court would accept that the assignee is allowed to pursue an action directly against the debtor without needing the assignor to be joined, as this is likely to be a matter of procedure only, not substance.

This analysis is limited to English law and does not consider the laws of any other jurisdiction.

Notwithstanding the helpful clarifications summarised in Kapoor, as many receivables financing transactions involve a number of cross-border elements, assignees should continue to consider the effect of the laws (and, potentially court procedures) of any other relevant jurisdictions on the assignment of part of a debt even where the sale of such partial debt is completed under English law.

Legal title cannot be assigned in respect of part of a debt. A partial assignment would not satisfy the requirements for a legal assignment of section 136 of the Law of Property Act 1925.

If an assignor does not consent to being joined as a plaintiff in proceedings against the debtor it would be necessary to join the assignor as a co-defendant. However, where an assignor has gone into administration or liquidation, there may be a statutory prohibition on joining such assignor as a co-defendant (without the leave of the court or in certain circumstances the consent of the administrator).

[2011] EWCA Civ 1083

• Financial institutions

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