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Debt Assignment: How They Work, Considerations and Benefits

Daniel Liberto is a journalist with over 10 years of experience working with publications such as the Financial Times, The Independent, and Investors Chronicle.

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

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

Investopedia / Ryan Oakley

What Is Debt Assignment?

The term debt assignment refers to a transfer of debt, and all the associated rights and obligations, from a creditor to a third party. The assignment is a legal transfer to the other party, who then becomes the owner of the debt . In most cases, a debt assignment is issued to a debt collector who then assumes responsibility to collect the debt.

Key Takeaways

• Debt assignment is a transfer of debt, and all the associated rights and obligations, from a creditor to a third party (often a debt collector).
• The company assigning the debt may do so to improve its liquidity and/or to reduce its risk exposure.
• The debtor must be notified when a debt is assigned so they know who to make payments to and where to send them.
• Third-party debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA), a federal law overseen by the Federal Trade Commission (FTC).

How Debt Assignments Work

When a creditor lends an individual or business money, it does so with the confidence that the capital it lends out—as well as the interest payments charged for the privilege—is repaid in a timely fashion. The lender , or the extender of credit , will wait to recoup all the money owed according to the conditions and timeframe laid out in the contract.

In certain circumstances, the lender may decide it no longer wants to be responsible for servicing the loan and opt to sell the debt to a third party instead. Should that happen, a Notice of Assignment (NOA) is sent out to the debtor , the recipient of the loan, informing them that somebody else is now responsible for collecting any outstanding amount. This is referred to as a debt assignment.

The debtor must be notified when a debt is assigned to a third party so that they know who to make payments to and where to send them. If the debtor sends payments to the old creditor after the debt has been assigned, it is likely that the payments will not be accepted. This could cause the debtor to unintentionally default.

When a debtor receives such a notice, it's also generally a good idea for them to verify that the new creditor has recorded the correct total balance and monthly payment for the debt owed. In some cases, the new owner of the debt might even want to propose changes to the original terms of the loan. Should this path be pursued, the creditor is obligated to immediately notify the debtor and give them adequate time to respond.

The debtor still maintains the same legal rights and protections held with the original creditor after a debt assignment.

Special Considerations

Third-party debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA). The FDCPA, a federal law overseen by the Federal Trade Commission (FTC), restricts the means and methods by which third-party debt collectors can contact debtors, the time of day they can make contact, and the number of times they are allowed to call debtors.

If the FDCPA is violated, a debtor may be able to file suit against the debt collection company and the individual debt collector for damages and attorney fees within one year. The terms of the FDCPA are available for review on the FTC's website .

Benefits of Debt Assignment

There are several reasons why a creditor may decide to assign its debt to someone else. This option is often exercised to improve liquidity  and/or to reduce risk exposure. A lender may be urgently in need of a quick injection of capital. Alternatively, it might have accumulated lots of high-risk loans and be wary that many of them could default . In cases like these, creditors may be willing to get rid of them swiftly for pennies on the dollar if it means improving their financial outlook and appeasing worried investors. At other times, the creditor may decide the debt is too old to waste its resources on collections, or selling or assigning it to a third party to pick up the collection activity. In these instances, a company would not assign their debt to a third party.

Criticism of Debt Assignment

The process of assigning debt has drawn a fair bit of criticism, especially over the past few decades. Debt buyers have been accused of engaging in all kinds of unethical practices to get paid, including issuing threats and regularly harassing debtors. In some cases, they have also been charged with chasing up debts that have already been settled.

Federal Trade Commission. " Fair Debt Collection Practices Act ." Accessed June 29, 2021.

Federal Trade Commission. " Debt Collection FAQs ." Accessed June 29, 2021.

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Home » Law and Ethics » How do the courts classify charges over book debts?

How do the courts classify charges over book debts?

Executive Summary

This study is designed to get a clear understanding of charges over a company’s book debts and the courts role to develope it by judging the nature and volume of reported cases. Although, the charges over book debts frequently give rise to difficulties as the Company Act 1985 does not define ‘book debt’, it has been defined by judges in a series of cases.

This project further discusses the evolution of the floating charge and recent developments in the law which have considered the question whether a lender may create a fixed charge over the borrower’s assets which are of a type traditionally the subject of a floating charge, in particular book debt. The recent Privy Council decision in Agnew is at odds with the English position and this article considers whether the current uncertainty in the law should be resolved by legislative reform based upon the New Zealand model.

Finally, the project examines the nature of the security mechanisms of fixed and floating charges. In particular, charges over company book debts and their practical importance to corporate activity, are considered.

Relevant English, Australian and New Zealand case law is examined, with a detailed analysis of the judgment of the Privy Council in Agnew and Kevin James Bearsley v. The Commissioner of Inland Revenue and Official Assignee for the Estate in Bankruptcy of Bruce william Birtwhistle and Mark Leslie Birtwhistle(2001) UKPC 28; (2002) 20 ACLC 3,051

1.The creation of a charge on book debts:

Significant developments take place this century in law by the courts in relation to one particular type of charge frequently used by companies as security for repayment of a loan, namely, a charge over a company’s book debts. However, a charge over a book debt may be created in many ways and, for it to operate as an equitable assignment or charge, no particular form of words is required in the document 1 . In particular, an agreement between a debtor and a creditor that the debt owing shall be paid out of a specific fund coming to the debtor, or an order given by a debtor to his creditor upon a person owing money or holding funds belonging to the debtor, directing such person to pay the funds to the creditor, will create a valid equitable charge upon such fund, unless there is an absolute assignment. This will only be the case if the agreement, as well as providing that the fund shall be applied in a particular way, also imposes a positive obligation in favour of the creditor to apply the fund towards payment of the debt 2 .

 Thus, an undertaking to pay a specified sum out of the first moneys to be received on a future sale of certain rights constituted a good equitable assignment of the entitlement to the moneys 3 . A letter from a company to its customer instructing the customer to pay to the company’s account at its bank all amounts payable by the customer and stating that the instructions were to be regarded as irrevocable without the bank’s consent, constituted a charge on the book debts of the company and also has been held to be within S 396 (1) (e) of the Company Act 1985 4 .

2.Book debts define in common law:

This category of charge frequently gives rise to difficulties because the Companies Act 1985 does not define ‘book debts’ . The question whether any item is a book debt is generally a question of fact. The term ‘book debts’ has been defined by Lord Esher MR as ‘debts arising in a business in which it is the proper and usual course to keep books, and which ought to be entered in such books’ 5 . Furthermore, a debt is a book debt if it arises in the course of a business and, as a matter of practice, such a debt would, in the ordinary course of a business, be entered in well-kept books relating to the business 6 . It is not necessary that it actually be entered, only that it be of the sort that accountancy practice would ordinarily require to be entered in the relevant books as a book debt (or, at least, as a debt) 7 . The fact that a company holds security or a guarantee for the debt does not alter its nature as a book debt. However, to be a book debt it must be enforceable by action directly against the debtor.

3.The nature of the charges:

The courts primarily determine whether a charge has been created over book debts and, if it has, the nature of the charge 8 . However, companies generally have two options available to them. First, a company can, like a natural person, provide a lender with a fixed or specific charge over the company’s property, for example a mortgage over its land. Secondly, unlike a natural person, a company can provide a floating charge. Thus, a fixed charge is one, which attaches to a specific item of property such as freehold and leasehold property, goodwill, shares in subsidiaries, intellectual property rights, fixed plant and machinery. The fixed charges also attaches to these categories of assets acquired in the future by the company. Importantly, the chargor is not permitted to dispose of the property without the chargee’s consent. A floating charge, on the other hand, covers a class of property, but does not attach to any specific items within the class until some specified future event occurs. Until that event transpires, the chargor can dispose of items in the class in the ordinary course of its business without reference to the chargee. In this way, a floating charge enables a company to provide security for a loan via assets, which will flow into and out of its ownership 9 .

It can be said that recently, the boundary between the fixed and floating charge was fairly settled, at least in England, judging by the nature and volume of reported cases. Lord Macnaghten’s description of fixed versus floating charges in Illingworth v. Houldsworth 10 is helpful:

A specific charge, I think, is one that without more fastens on ascertained and definite property or property capable of being ascertained and defined; a floating charge, on the other hand, is ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp 11 .

However, the instrument creating the several charges will, in most cases, state whether each is intended to take effect as ‘fixed’ or ‘floating’ security. So, the characterisation in the instrument is unlikely to be determinative; a charge expressed to be ‘fixed’ may take effect as a floating charge. Indeed, it has been said that ‘the subjective intentions of the parties to the instrument are irrelevant and inadmissible’ for the purposes of determining the proper categorisation of the charge 12 .

4.The creditors prefer to take fixed charge over book debts:

The efficient operation of company business relies to a great extent on the ability of companies to procure debt capital. This in turn is dependent on the confidence of lenders in their ability to protect themselves against undue risk. A fixed charge gives a greater level of protection than a floating charge. One of the inherent risks of a floating charge, not shared by a fixed charge, is that certain unsecured creditors, including employees of the company, are given priority over a creditor who holds a floating charge (including a floating charge that has become fixed). For this reason, a lender taking security will prefer to obtain a fixed charge over those assets available for such a charge, that is, fixed assets which the company is not likely to want to dispose of whilst the charge exists. Furthermore, many small companies do not have large tangible assets such as property. Therefore, the practice was that the bank would like to take a fixed charge over future monies due to the company (e.g. book and trade debts, amounts due under insurance claims, refunds due from Crown Departments etc.). In reality, for many small companies, the book debt ledger was the barometer, which set the level of lending the bank, was prepared to extend.

 However, there may be insufficient fixed assets available and this will then necessitate the creation of floating charges with their attendant risk. The types of assets, which are typically subject to floating charges, are book debts and trading stock.

5.The floating charge becomes attractive to the creditors:

The floating charge is used most often to take security over a company’s book debts, leaving the company the freedom to deal with the book debts by collecting them in the ordinary course of its business. However, the use of the floating charge took hold because, if a corporate debtor had been obliged to comply with the terms of a fixed charge, the effect on its circulating capital would be to paralyse its business. The reason for this was that under a fixed charge, unless the debtor company obtained the consent of the creditor, it would be unable to deal with its assets without breaking the terms of the fixed charge. This meant that it would be unable to give its customers ownership of the goods that it sold to them, or make use of the money that they paid it for goods sold. It could not use that money or the cash in its bank account to buy more goods or to meet other commitments 13 . In other words, a fixed charge deprived the company of its cash flow.

The floating charge, on the other hand, was intended to give creditor effective and comprehensive security over the debtor company’s whole business as well as its assets, while at the same time leaving the debtor company free to deal with its assets and pay its trade creditors in the ordinary course of its business. This form of security became especially attractive for banks that advanced loans to their corporate customers.

6.The vulnerability of the floating charges:

By the 1970s, however, banks had become disillusioned with the floating charge, because of the increasing range of claims of other creditors with floating charges, as well as the growth in other classes of preferential creditor with priority over the banks on the insolvency of corporate debtors. This led the banks to explore other ways of expanding their use of fixed charges 14 .

It was, however, generally considered that it was not possible to take a fixed charge over a fluctuating class of present and future book debts. The reasons for this were commercial: book debts were part of the circulating capital of a business, and were an important component of its cash flow, and a fixed charge would have the effect of strangling the debtor’s business.

7.The controversial academic debates on book debts:

In 1994, a decision of the English Court of Appeal (Civil Division) 15 , relating to charges over company book debts, gave rise to a flurry of academic debate. Professor Roy Goode started the debate, in which he pronounced the New Bullas decision to be “so disappointing” 16 . Conversely, Alan Berg, in a reply to Goode described New Bullas as “a correct and helpful decision ” 17 . The debate (into which a number of other academics also weighed) centred on the question of whether security in a book debt and its proceeds creates one security interest or two. According to Goode , if it creates a single interest which changes its character “from fixed to floating as it moves from assets to proceeds” 18 , then the interest in the proceeds ranks ahead of the claims of preferential creditors. If, on the other hand, upon collection of the proceeds of the book debt an entirely new floating security “springs into existence ” 19 , then the interest will be subordinate to the claims of preferential creditors.

Recently, the Privy Council in Agnew and Kevin James Bearsley v. The Commissioner of Inland Revenue and Official Assignee for the Estate in Bankruptcy of Bruce William Birtwhistle and Mark Leslie Birtwhistle 20 emphatically declared New Bullas to have been wrongly decided. The Privy Council’s decision is of significant interest to banks or others that hold a charge over the book debts of a borrowing company as security for a loan. Lenders may be wise to re-evaluate the level of security that such charges afford them, in light of the direction in which the Privy Council’s decision has taken the law.

The Agnew case, which emanated from New Zealand , concerned a company, Brumark Investments Limited that went into receivership. The receiver collected payment of various book debts of the company. The issue before the Privy Council was whether the amounts realised from the book debts should be applied towards payment of the company’s employees (and the Commissioner of Inland Revenue) as preferential creditors, or whether the amounts collected should be paid to Westpac Bank which held a charge over Brumark’s book debts. The answer turned on whether the charge was fixed or floating, for only a fixed charge would allow the bank to receive preferential payment under the relevant statutory provisions relating to receivership. The trial judge held the charge in question was a fixed charge, but this was reversed by the New Zealand Court of Appeal. The Privy Council dismissed the subsequent appeal by the bank and held the charge to be a floating charge, notwithstanding its description as a fixed charge in the debenture.

Lord Millett delivered the judgment of the Privy Council and commenced with a useful account of the history and an analysis of the nature of fixed and floating charges over book debts. This account is briefly summarised.

8.Case law on book debts:

Historically, series of cases have developed the applicability of charges over book debts. The cases analysed here both fixed and floating charges over book debts. The floating charge originated in a series of Chancery Division decisions in the 1870s 21 . The earliest judgment to recognise a floating charge did so as a necessary inference of the wording used in the particular debenture in question. The case was In re Panama, New Zealand and Australian Royal Mail Co 22 . The debenture charged ‘the undertaking’ of the company and ‘all sums of money arising there from’ 23 . The court regarded the words ‘the undertaking’ as including circulating assets. To construe the wording in the debenture as creating a fixed charge would mean the company would be unable to deal with its circulating assets without consent of the charge holder. Effectively this would paralyse the company’s operations 24 . Instead, the court took the view that the parties must have intended the company to continue its business. Such intention was inconsistent with the essential features of a fixed charge and the parties were therefore taken to have agreed on a type of charge, which did not possess the characteristics of a fixed charge. Thus came into existence a type of charge consistent with the intention of the company carrying on business, the floating charge. The floating charge enables a creditor to acquire comprehensive security over the entire undertaking of a company whilst simultaneously allowing the company to deal with its assets in the course of its daily business, without reference to the creditor holding the charge.

The most celebrated, and certainly the most often cited, description of a floating charge is that given by Romer LJ in re Yorkshire Woolcombers Association Ltd 25 . He stated that a charge would be a floating charge:

…. If you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets 26 .

This case was the first decision to consider charges in the specific context of book debts. The court held that a charge on uncollected book debts was necessarily a floating charge because the company’s right to receive the book debts and use them in carrying on business was inconsistent with the nature of a fixed charge 27 . The matter went to the House of Lords under the name Illingworth v. Houldsworth 28 . Where Lord Halsbury LC stated:

… the whole purport of this instrument is to enable the company to carry on its business in the ordinary way, to receive the book debts that were due to them, to incur new debts and to carry on their business exactly as if this deed had not been executed at all. That is what we mean by a floating security 29 .

The analysis primarily in Illingworth does not preclude a lender from holding a fixed charge over a company’s debts. To do so, a lender can take an assignment of a specified debt, notify the debtor of the assignment and become entitled to collect the debt itself. However, Lord Millett, in Agnew , pointed out the impracticality of such an arrangement from the perspective of both the lender and the borrowing company. The lender is unlikely to want to be the collector of the debt. Moreover, notification to the debtors of the company of the assignment has the potential to seriously harm the company’s credit.

An alternative method of obtaining an effective fixed charge over book debts is for the lender/assignee not to notify the company’s debtors of the assignment (until the company is in default). The assignee then authorises the assignor company to collect the debts as trustee on the assignee’s behalf.

 Whilst this alternative method creates a feasible alternative for lenders with regard to specified debts, according to Lord Millett ‘ it was, however, generally considered that it was not possible to take a fixed charge over a fluctuating class of present and future book debts’ 30 . These concerns were laid to rest in cases decided in the 1970s and 1980s. In 1979, in Siebe Gorman & Co Ltd v. Barclays Bank Ltd 31 . A company granted its bank a fixed charge on its book debts and a floating charge over other assets. The company could not dispose of the debts by, for example, assigning or factoring them. It could, however, collect them if it subsequently paid the proceeds into an account in its name with the lending bank. On the facts, Slade J found that the company was not free thereafter to draw on the account without the bank’s consent, even though this was not expressly stated in the debenture. This critical factor led the Judge to conclude that the charge was fixed. However, had the company enjoyed an unrestricted right to deal with the money in the bank account, the charge would have been ‘no more than a floating charge’ 32 . The bank in Siebe Gorman appeared to be the beneficiary of a generous interpretation of the wording of the debenture. The debenture provided that:

during the continuance of this security the company… shall pay into the company’s account with the Bank all monies which it may receive in respect of the book debts and other debts hereby charged and shall not without the prior consent of the Bank in writing purport to charge or assign the same in favour of any other person and shall if called upon to do so by the bank execute a legal assignment of such book debts and other debts to the Bank.

This wording was sufficient to lead Slade J to conclude that the bank had sufficient control to constitute the charge as fixed 33 . His Honour stated:

I do not accept the argument that the provisions…negative the existence of a specific charge. All that they do, in my judgment, is to reinforce the specific charge given …The mere fact that there may exist certain forms of dealing with book debts which are not specifically prohibited…does not in my judgment turn the specific charge into a floating charge 34 .

Lord Millett in Agnew noted that Slade J’s finding that the company was not free to draw on the account without the consent of the bank ‘has been doubted’ 35 .

The decision was followed by the Supreme Court of Ireland in Re Keenan Bros Ltd 36 , a charge over present and future book debts was held to be a fixed charge where moneys collected by the company from the book debts were required to be paid into a designated account from which withdrawals could only be made with written consent of the bank. In both the above cases the deciding factor was that the proceeds of the book debts collected by the company were not available freely for the company’s use.

Conversely, in the Australian case Re Falcon Sportswear Pty Ltd; Hart v. Barnes 37 , where a debenture purported to create a fixed charge over book debts, but the parties agreed that the company could collect the debts and use the proceeds at its discretion. The charge was held to be floating because the charged assets were not under the chargee’s control.

A number of subsequent cases followed this line of reasoning. Where a company was free to utilise the proceeds of collected debts without reference to the lender, the charge over the book debts was consistently held to be a floating charge. In Re Brightlife Ltd 38 the company purported to grant its bank a fixed charge over its present and future book debts and a floating charge over its other assets. The company was not permitted to sell, factor or discount debts without the bank’s consent, but it could collect the debts and pay them into its ordinary bank account, although it was not required to do so. Notwithstanding the description of the charge over the book debts as fixed, the court held it was a floating charge, because the company was free to collect the proceeds which were then at the free disposal of the company 39 . Hoffmann J stated that:

A right to deal in this way with the charged assets for its own account is a badge of a floating charge and is inconsistent with a fixed charge 40 .

Supercool Refrigeration and Air Conditioning v. Hoverd Industies Ltd 41 and In re Cosslett (Contractors) Ltd 42 are similar to Brightlife . In Cosslett, the court described the position as follows:

The question is not whether the chargor has complete freedom to carry on his business as he chooses, but whether the chargee is in control of the charged assets.

These decisions established that banks were able to obtain the security of a fixed charge as long as they exercised control over the charged assets. This apparently did not satisfy the banks. Banks did not want to take on the monitoring of the chargor company’s bank account nor did banks want to be required to give consent to withdrawals from the account. Hence, the development in the 1990s of the novel approaches taken by the drafters of the debenture in the New Bullas case.

 9.New Bullas versus Agnew approach:

The debenture in New Bullas was designed to obviate the need for monitoring of bank accounts and consent to withdrawals by the bank whilst still providing the security of a fixed charge. Whereas all the debentures considered in previous cases treated book debts and the proceeds thereof indivisibly, the draftsman in New Bullas split them into two. The new-look New Bullas debenture endeavoured to create two distinct charges, a fixed charge on uncollected book debts and a floating charge on their proceeds. The intention of the debenture was clearly to create a situation where the company could not factor or assign uncollected debts, but could collect them. Upon collection the proceeds would be subject to a floating charge.

The debenture in Agnew , which Lord Millett believed to be closely modelled on the New Bullas debenture, was described by his Lordship as follows:

It is expressed to create a fixed charge on the book debts of the company which arise in the ordinary course of trading and their proceeds, but not those proceeds which are received by the company before the charge holder requires them to be paid into an account with itself (which it could do at any time but never did) or the charge created by the deed crystallises or is enforced whichever should first occur. Subject thereto, the charge is expressed to be a floating charge as regards other assets of the company. The debenture prohibits the company from disposing of its uncollected book debts, but permits it to deal freely in the ordinary course of its business with assets, which are merely subject to the floating charge; these include the money in its bank accounts and the proceeds of the book debts when collected 43 .

This meant that the company was free to collect its book debts and deal with the proceeds in the ordinary course of business. However, the company could not assign or factor the book debts.

The debenture in Agnew differed from the New Bullas debenture in that the proceeds of the debts were not to be released from the fixed charge until they were paid into the company’s bank account, whereas in New Bullas they were to be released as soon as they were collected by the company. However, the Privy Council saw no significance in this distinction to the issue under consideration.

In both cases the companies went into receivership and the issue that arose was whether, given the companies’ ability to deal freely with the collected proceeds of the book debts, the uncollected debts were subject to a fixed or a floating charge, notwithstanding the description of the charge as fixed.

The court at first instance in New Bullas followed the decision in Brightlife and held that the uncollected debts were subject to a floating charge 44 . However, this was reversed by the Court of Appeal . Nourse LJ gave the Court of Appeal’s judgment and held the matter to be one of construction in which the intention of the parties was paramount. Clearly, the parties intended exactly what they had expressed, namely a fixed charge over the uncollected debts and a floating charge over the proceeds. His Honour concluded that unless some principle of law prohibited the parties from such an agreement, their clear agreement must prevail 45 .

To approach the issue as a matter of construction was, however, described by Lord Millett in Agnew as ‘fundamentally mistaken’ 46 . Instead, the Privy Council regarded the correct approach as being a two-part process. First, the court must establish the intention of the parties in relation to the rights and obligations each has over the charged assets. This done, it is for the court then to categorise the charge. The categorisation is a matter of law that is not dependent on the intention of the parties.

If their intention, properly gathered from the language of the instrument, is to grant the company rights in respect of the charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge however they may have chosen to describe it … The only intention which is relevant is the intention that the company should be free to deal with the charged assets and withdraw them from the security without the consent of the holder of the charge; or, to put the question another way, whether charged assets were intended to be under the control of the company or of the charge holder 47 .

On the facts of Agnew this led to the conclusion that the charge was floating as the only limitation on the company’s control was its inability to assign or factor the book debts. Over and above this, the company enjoyed complete control over the debts, their collection and the proceeds thereof.

One of the grounds of argument of the preferential creditors in New Bullas was rejected by Nourse LJ on an interesting theoretical basis. The preferential creditors argued that the charge over the debts was floating because the company had freedom to withdraw the debts from the security and use the proceeds. Nourse LJ , however, regarded this ability of the company as being not at the will of the company, but rather as arising from the agreement of the parties in advance when they entered into the debenture. The Privy Council in Agnew forcefully rejected this aspect of Nourse LJ’s judgment. Lord Millett pointed out that every charge derives from contract and that pursuit of this reasoning would convert every floating charge into a fixed charge 48 .

Nourse LJ, in New Bullas , also treated as vital to the court’s finding of a fixed charge the fact that the company could not dispose of the charged assets to third parties by assigning, factoring or charging them. It was regarded as unnecessary to prohibit in addition the collection of the debts and disposal of the proceeds. The Privy Council also rejected this, stating ‘alienation and collection are merely different methods of realising a debt by turning it into money’ 49 . To restrict one and allow the other is inconsistent with the fixed nature of the charge. ‘It allows the debt and its proceeds to be withdrawn from the security by the act of the company in collecting it’ 50 .

The last matter dealt with by the Privy Council in Agnew has been the subject of much debate, namely, whether a debt can be separated from its proceeds. Lord Millett noted the academic articles relating to this issue and whilst recognising that a debt and its proceeds are two different assets, thought that the proceeds represent the entire value of the debt. An assignment or charge of a receivable like a debt, which does not carry the right to its receipt, is worthless. Lord Millett concluded that even if conceptually the ownership of a debt can be separated from the ownership of its proceeds, in the context of security it makes no commercial sense. This accounted for the draftsman of the debenture in Agnew purporting to separate the book debts and their proceeds, but not attempting to separate their ownership. They were charged by the same chargor to the same chargee. Lord Millett described it as a matter of personal choice whether one describes a debenture such as the Agnew debenture as creating two different charges or a single convertible charge.

The Privy Council’s conclusion in Agnew was that the company was left in control over the process by which the charged assets were removed from the charge and replaced by different assets which were not the subject of a fixed charge and were at the company’s free disposal. This was found to be inconsistent with a fixed charge.

10.The approval of New Bullas:

The New South Wales Supreme Court in Australia, in Whitton v. CAN 003 266 886 Pty Ltd (Controller Apptd) (in liq) & Ors 51 . approved of and followed the decision of Nourse LJ in New Bullas. Bryson J gave judgment on a deed of charge, which purported to create a fixed charge as to all book debts, present and future of the mortgagor and a floating charge over moneys or property actually received by the mortgagor on account of any book debt. The floating charge provided that the mortgagor could not dispose of any property under the floating charge without written consent of the mortgagee except in the ordinary course of business . The New South Wales Supreme Court held that there was a fixed charge over moneys received on book debts after appointment of the receiver.

Bryson J described floating charges 52 as “a creation of ingenuity and judicial laissez faire in the Nineteenth Century” and as “prominent features of the raw deal which, according to Lord Templeman, unsecured creditors receive: see Borden (UK) Ltd v. Scottish Timber (1981) Ch 25 at 42”. Bryson J rejected the standpoint taken by Hoffmann J in Brightlife and followed instead the decision in New Bullas . In Bryson J’s view, the intention of the parties should determine the issue- “Principle requires that characterisation as a floating charge take place according to the rights which the parties intended to create” 53 . His Honour referred to the statement of Nourse LJ in New Bullas that the debt be collected and the proceeds applied to business, however, on insolvency, a fixed charge enabling the lender to intercept payment to the company may be of real value.

11.The consequences of Agnew:

The Privy Council is the highest appellate tribunal for appeals from decisions of British Commonwealth court. Although, strictly speaking, its decisions are not binding on English domestic courts, they are of very persuasive authority and certainly indicative of how such issues are likely to be viewed in the future at the same level (i.e. by the House of Lords as the highest appellate tribunal for purely domestic appeals).

If English courts followed Agnew , the charges on book debts of New Bullas type of debentures will not be fixed on uncollected book debts unless the charges on the proceeds are also made fixed. Importantly, the general rule is that the chargee must be in ‘control’ of the proceeds if the charge is to be fixed.

Furthermore, Banks may well be forced to reconsider the value of their security, particularly where they are heavily reliant upon book debts and if there are likely to be significant preferential claims on insolvency. This may cause certain banks to reduce overdraft limits. There is also likely to be a move away from debenture lending and towards some form of invoice discounting.

The question of fixed or floating charges would be important for insolvency practitioners who are acting as receivers because of preferential claims and priority. A receiver who would wrongly classify the charge as fixed may become personally liable for paying the wrong creditor.

12.Was the decision in Agnew correct?

The effect of Privy Council decision in Agnew is that if a secured party wants to rank ahead of preferential creditors in relation to its security interest in receivables, it must maintain genuine control of the proceeds of those receivables, as they are collected. The categorisation of charges as fixed and floating is actually something of a pretext, as the only significance of the distinction is the relative ranking of the secured party in relation to preferential creditors.

One might conclude, however, that even if the distinction is a pretext, it is perfectly valid for the court to require a secured party to meet certain conditions if it is to take security ranking ahead of preferential creditors. After all, a security agreement between a borrower and a lender has ramifications that go beyond their relationship. Other creditors of the borrower, including particularly vulnerable creditors such as employees, 54 are affected by the arrangement. However, the court in Agnew alludes to this in its discussion of the difficulties that floating charges pose for ordinary creditors 55 .

Although the Privy Council does not expressly put it in these terms, it must be the need to protect other creditors that justifies its interference with an agreed arrangement between a borrower and a lender. It is difficult to find any other justification that there is no inherent feature of fixed and floating charges that requires the distinction between them to be maintained in order for a legal framework governing secured transactions to function effectively.

Furthermore, after Agnew , the borrowers seeking to secure finance with receivables will simply be required to look to factors and other lenders who are in effect prepared to purchase the receivables 56 . Alternatively, such a borrower could make arrangements with its bank whereby the bank sets up adequate arrangements for policing the collection of the receivables and the payment of their proceeds into a blocked account.

From the point of view of the borrower, all of this makes the financing of its working capital more complicated and more expensive. It is difficult to see how that serves the interests of employees or any other creditors of the borrower, since such mechanisms will in any event be designed to ensure that the lenders rank ahead of preferential creditors in relation to receivables.

Notwithstanding its conceptual faults, New Bullas , which Agnew suggests is no longer good law, produced a more satisfactory commercial result than Agnew . New Bullas provided a device whereby a lender could take a valid first-ranking security interest in receivables without the parties incurring the significant additional cost of a policing arrangement. The Privy Council in Agnew took a more interventionist approach, but with no real justification beyond the somewhat perfunctory one of putting right the conceptual shortcomings of New Bullas . Therefore, the English courts should avoid going down the route of Agnew and, if legislation is necessary, Parliament should consider what is required to avoid English law taking this retrograde step.

13.Conclusion:

The legal status of charges over book debts is still unclear. The approach of charges similar to those described in the cases in this article is commonplace in UK’s business and banking practice. It seems inevitable that, before long, the issue considered in these cases will arise again before the English courts. It remains to be seen whether future English courts will follow the New Bullas approach of the Court of Appeal or be persuaded by the opposite decision in the recent Privy Council judgment in Agnew . Importantly, the decision of the Court of Appeal in New Bullas is still binding as a precedent on the English courts up to the Court of Appeal, because decisions of the Judicial Committee of the Privy Council, although of persuasive authority, are not precedents binding on the English courts. Moreover, so far as New Zealand law is concerned, the very question involved in Agnew will cease to exist when New Zealand legislation floating charge passed in 1999 is brought into force. It would therefore appear that a breathing space is available for the banks in this country to amend their loan documentation governing existing secured loans, and to adjust the loan documentation used by them in future, so as to counter the likelihood that the eminent commercial lawyers who sat in the Judicial Committee in Agnew render similar judgments if a parallel English case comes before the House of Lords. If that is done the only disturbance, which the decision of the Judicial Committee will have caused, will be the addition of a paragraph to the standard loan documentation used by English banks. This addition was probably implicit in the documentation used in New Bullas .

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Re Brumark (2002)LMCLQ 289. P.289-292.

Fixed Charges over book debts (2002) LMCLQ 246 P.246-258.

The nature of security over receivables (2002) 23 Co Law (3) P 84-92.

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Brumark revisited-The Privy Council and Brumark: A lingering shadow over book debts? ( 2001) 22 Co Law (10). P 318-319.

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www.hmso.gov.uk/acts/acts2000                       date 15 Feb to 8 th may 2003 www.dti.gov.uk/affairs.htm                                    date 15 Feb to 8 th may 2003 www.lawtet2002.com                                           date 15 Feb to 8 th may 2003 www.westlaw.shtml                                           date 15 Feb to 8 th may 2003 www.justis.com                                        date 15 Feb to 8 th may 2003 www.ili.co.uk                                                       date 15 Feb to 8 th may 2003 www.google.co.uk                                            date 15 Feb to 8 th may 2003 www.yahoo.co.uk                                                date 15 Feb to 8 th may 2003

1 Durham Brothers v. Robertson (1898) 1 QB 765 at 796; William Brandt’s v. Dunlop (1905) AC 454 at 462).

2 Ridick v. Candell (1852) 1 De GM Lloyds Bank Limited (1982) 2 All ER 449 at 453).

3 Cotton v. Heyl (1930) 1 Ch 510)

4 Re Kent & Sussex Sawmills Limited (1947) Ch 177; Walter & Sullivan Limited v. Murphy Limited (1955) 2 QB 584; Paul and Frank Ltd v. Discount Bank (Overseas) Limited (1967) Ch 348 at 364).

5 Official Receiver v. Tailby (1886).

6 Generally, a bank will issue a bond or a guarantee or will make advances against a ‘charge’ over moneys standing to the credit of a company’s account with it. Such a credit balance represents a debt from the bank to the company; Foley v. Hill (1848) 2 HL Cas 28; Parker v. Marchant 1 Ph 356 at 361, but it is doubtful that it is a ‘book debt’ for the purposes of the section (Re Brightlife, Re Permanent Houses (Holdings) Ltd and Northern Bank v. Ross (1990) BCC 883).

7 Paul and Frank Ltd v. Discount Bank (Overseas) Limited (1967) Ch 348; Re Brightlife).

8 For example, Re Cosslett (Contractors) Ltd (1996) 4 All ER 46).

9 There are three basic features of a floating charge, which need to satisfy before, were analysed in Re Yorkshire Woolcombers Association Ltd; Houldsworth v. Yorkshire Woolcombers Association Ltd (1903) 2 Ch 284, and are:

it is an equitable charge over the whole or a class of the company’s assets, for example over the book debts;

the assets subject to the charge are constantly changing; and

the company retains the freedom to deal with the assets in the ordinary course of business until the charge ‘crystallises’.

This was offered as a description and not a definition. These three characteristics are the ‘indicia’ of a floating charge, not a definition of it and it is possible to have a floating charge, which does not contain all of them (Re Bond Worth (1980) 1 Ch 228). The first two characteristics are typical of a floating charge but they are not distinctive of it, since they are not necessarily inconsistent with a fixed charge. It is the third characteristic, which is the hallmark of a floating charge and serves to distinguish it from a fixed charge. Since the existence of a fixed charge would make it impossible for the company to carry on business in the ordinary way without the consent of the charge holder, it follows that its ability to so without such consent is inconsistent with the fixed nature of the charge.

10 (1904) AC 355

12 Re Cimex Tissues Ltd at 628)

13 In addition, it could not use borrowed money either, not even, as Sir George Jessel MR. observed, the money advanced to it by the charge holder. In short, a fixed charge would deprive the company of access to its cash flow, which is the lifeblood of a business. Where, therefore, the parties contemplated that the company would continue to carry on business despite the existence of the charge, they must be taken to have agreed on a form of charge, which did not possess the ordinary incidents of a fixed charge.

14 Having, however, a fixed charge meant imposing a requirement that the company should pay the proceeds of its book debts into its bank account, but was not a problem for banks or their customers, because companies did that in any case, even where there was no such requirement. But the banks did not want to comply with other fixed charge requirements, such as that of having to monitor the company’s bank account and consent whenever the company wanted to make a withdrawal. The banks wanted the best of both worlds: a fixed charge on the company’s book debts, but with the company having the same freedom to use the proceeds of the charge had been a floating charge.

15 RE New Bullas Trading Ltd (1994) BCC 36 (1994); 12 ACLC 3, 203.

16  “Charges over Book Debts: a Missed Opportunity” (1994) 110 Law Quarterly Review 592.

17  “Charges over Book Debts: a Reply” (1995) Journal of Business Law 433.

18 n 6 at 603

20  (2001) UKPC 28; (2002) 20 ACLC 3,051.

21 Before the introduction of the legislation the expression ‘floating charge’, though in common use, had no distinct meaning. It was not a legal term or term of art. Now, it became necessary to distinguish between fixed charges and charges which were floating charges within he meaning of the Acts. Lord Macnaghten’s essayed the first judicial definition in Governments Stock and other Securities Investment Co Ltd v. Manila Railway Co. (1897) AC 81, at p86: ‘ A floating security is an equitable charge on the assets for the time being of a going concern. It attaches to the subject charged in the varying condition in which it happens to be from time to time. It is of the essence of such a charge that it remains dormant until the undertaking charged ceases to be a going concern, or until the person in whose favour the charge is created intervenes’.

22 (1870) 5 Ch App 318.

23 Agnew at 3054

24 This theme was repeated in many of the cases: see for example In re Florence Land and Public works Co (1878) at p 541 per Sir George Jessel MR; Biggerstaff v. Rowatt’s Wharf Ltd (1896) 2 Ch 93 at p 101 per Lindley LJ and p 103 per Lopes LJ.

25 (1903) 2 Ch D 284

26 Ibid at 295.

27 In 1910, the jurisprudential nature of the floating charge further was analysed by Buckley LJ in Evans v. Rival Granite Quarries Ltd. (1910) 2 KB 979. By now it was evident that the classification of a security as a floating charge was a matter of substance and not merely a matter of drafting. As Fletcher Moulton LJ observed in that case at p 993: “But at an early period it became clear to judges that this conclusion did not depend upon the special language used in the particular document, but upon the essence and nature of a security of this kind”.

28 (1904) AC 355

29 Quoted in Agnew at 3,056

30 At 3,057

31 (1979) 2 Lloyd’s Rep 142.

32 However, Slade J said at p. 158:

“…if I had accepted the premise that (the company) would have had the unrestricted right to deal with the proceeds of any relevant book debts paid into its account, so long as that account remained in credit, I would have been inclined to accept the conclusion that the charge on such book debts could be no more than a floating charge”.

33 The decision in Siebe Gorman has been criticised on the basis that the parties clearly intended the company to continue to trade and, in practical terms, it could not do so if periodically deprived of all debts due to it. Legal debated on this issue continues, so it is possibly that, at some stage, Siebe Gorman will be reversed- with the consequence that many perceived fixed charges will prove to be floating charges. Until Siebe Gorman is reversed, however, it continues to be relied upon by clearing banks compelled to address the practical and business considerations of their customers.

34 . Ibid at 159.

35 n 1 at 3,057

36 (1986) BCLC 242

37 (1983) 1 ACLC 690; (1982) 7 ACLR 310; In Hart, Anderson J held that the charge was a floating charge. The debenture holder could not sensibly be said to have obtained a proprietary interest by way of a fixed charge when its interest was

“ defeasible and capably of being destroyed by the company which is able to use the proceeds of such book debt in its business without in any way being accountable to the debenture holder for such proceeds”.

38 (1987) Ch 200

39 The case was thus distinguishable from but very similar to Siebe Gorman save that it was concerned with the proceeds of book debts, which were still uncollected when the receivers were appointed.

40 Ibid at 209.

41 (1994) 3 NZLR 300

42 (1998) Ch 495

43 n 1 at 3,053.

44 In addition, Mr Justice Knox’s judgment is reported at (1993) BCC 251. Having considered the provisions of the debenture and several of the previous authorities, including Re Yorkshire Woolcombers Association, Ltd., Siebe Gorman & Co Ltd. v. Barclays Bank Ltd. and RE Brightlife Ltd., the judge reached the conclusion that the case fell on the floating charge side of the line, in that the company’s ability to deal with book debts was, at the creation of the charge. met subject top am a greater fetter than Hoffmann J had held to be inadequate in Re Brightlife Ltd. He continued, at p.265E-F:

“Absent a direction from 3i there was a freedom of action conferred upon the company which was in my judgment inconsistent with the existence of a specific charge”.

45 On the other hand, the decision is inconsistent with the actual decisions in Brightlife and Supercool and contrary to the statements of principle in virtually every case from Re Youkshire Woolcombers Association Ltd. to Cosslett.

46 Ibid at 3,060.

50 Ibid at 3,061

51 (1996) 14 ACLC 1799

52 Ibid at 1,809.

53 Ibid at 1813.

54 It is more difficult to make this argument in relation to the Crown revenue agents, and the Department of Trade and Industry has proposed the abolition of the Crown preference. White Paper, Insolvency- A second Chance, Secretary of State for Trade and Industry (July 2oo1)

55 Agnew, paras 9&10

56 This throws into relief the distinction between the sale of a receivable and a charge over a receivable, and means that the distinction could be crucial to the creation of a perfected arrangement for financing secured by receivables. Again, this is contrary to what the draftsmen of the UCC (Uniform Commercial Code-United States) recognised as the commercial trend: “commercial financing on the basis of accounts and chattel paper is often so conducted that the distinction between a security transfer and a sale is blurred…(therefore the purchaser of a receivable) is treated (under the UCC) as a secured party, and his interest is a security interest”. Comment 2 to s.9-102 of the Pre-Revision (2000) Art.9 of the UCC.

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Assignments of Book Debts - Outright Transfers of Rights or Unregistered Securities?

Wolverhampton Law Journal, Vol. 1, No. 1, 2018

20 Pages Posted: 11 Oct 2018

Peter Walton

University of Wolverhampton

Date Written: October 11, 2018

Businesses are increasingly being financed by receivables financiers who take assignments of a company’s book debts. The receivables finance industry is estimated to be worth over €1.6 trillion across Europe with the UK market leading the way. In the event that the company goes bust, the assigned book debts are swept away by the financier, as legal owner, and consequently what is often the only significant asset of a company is not available to the general body of creditors. The financier will either give notice to the debtor at the time of taking the assignment (“debt factoring”) or delay such notice until sometime later (“invoice discounting”). The accepted wisdom is that such agreements are absolute assignments and not security interests and therefore do not require registration under the Companies Act 2006. This article considers the history of assignments of book debts and suggests that an equitable assignment of a debt is not an out-and-out transfer of the debt but operates by way of charge. Such an agreement is therefore a security interest which is void against other creditors without registration. Although the invoice discounter may convert the equitable assignment into a legal assignment by giving notice to the debtor, if that notice is subsequent to the commencement of a formal insolvency process, that notice will be of no effect.

Keywords: book debts, equitable assignment, legal assignment, receivables financing, liquidation, administration

Suggested Citation: Suggested Citation

Peter Walton (Contact Author)

University of wolverhampton ( email ).

Wulfruna Street Wolverhampton, West Midlands WV1 1SB United States

HOME PAGE: http://https://www.wlv.ac.uk/

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Assignment of book debts

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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

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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.

Respond to debt collection lawsuit in 15 minutes with SoloSuit.

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.

Don't let debt collectors harass you. Respond with SoloSuit.

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.

Respond with SoloSuit

"First time getting sued by a debt collector and I was searching all over YouTube and ran across SoloSuit, so I decided to buy their services with their attorney reviewed documentation which cost extra but it was well worth it! SoloSuit sent the documentation to the parties and to the court which saved me time from having to go to court and in a few weeks the case got dismissed!" – James

>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

>>Read the NPR story on SoloSuit: A Student Solution To Give Utah Debtors A Fighting Chance

How to answer a summons for debt collection in your state

Here's a list of guides for other states.

All 50 states .

Guides on how to beat every debt collector

Being sued by a different debt collector? We're making guides on how to beat each one.

• Waypoint Resource Group

Win against credit card companies

Is your credit card company suing you? Learn how you can beat each one.

• Wells Fargo

Going to Court for Credit Card Debt — Key Tips

How to Negotiate Credit Card Debts

How to Settle a Credit Card Debt Lawsuit — Ultimate Guide

Get answers to these FAQs

Need more info on statutes of limitations? Read our 50-state guide.

Why do debt collectors block their phone numbers?

How long do debt collectors take to respond to debt validation letters?

What are the biggest debt collector companies in the US?

Is Zombie Debt Still a Problem in 2019?

SoloSuit FAQ

If a car is repossessed, do I still owe the debt?

Is Portfolio Recovery Associates Legit?

Is There a Judgment Against Me Without my Knowledge?

Should I File Bankruptcy Before or After a Judgment?

What is a default judgment?— What do I do?

Summoned to Court for Medical Bills — What Do I Do?

What Happens If Someone Sues You and You Have No Money?

What Happens If You Never Answer Debt Collectors?

What Happens When a Debt Is Sold to a Collection Agency

What is a Stipulated Judgment?

What is the Deadline for a Defendant's Answer to Avoid a Default Judgment?

Can a Judgement Creditor Take my Car?

Can I Settle a Debt After Being Served?

Can I Stop Wage Garnishment?

Can You Appeal a Default Judgement?

Do I Need a Debt Collection Defense Attorney?

Do I Need a Payday Loans Lawyer?

Do student loans go away after 7 years? — Student Loan Debt Guide

Am I Responsible for My Spouse's Medical Debt?

Should I Marry Someone With Debt?

Can a Debt Collector Leave a Voicemail?

How Does Debt Assignment Work?

What Happens If a Defendant Does Not Pay a Judgment?

Can You Serve Someone with a Collections Lawsuit at Their Work?

What Is a Warrant in Debt?

How Many Times Can a Judgment be Renewed in Oklahoma?

Can an Eviction Be Reversed?

Does Debt Consolidation Have Risks?

What Happens If You Avoid Getting Served Court Papers?

Does Student Debt Die With You?

Can Debt Collectors Call You at Work in Texas?

How Much Do You Have to Be in Debt to File for Chapter 7?

What Is the Statute of Limitations on Debt in Washington?

How Long Does a Judgment Last?

Can Private Disability Payments Be Garnished?

Can Debt Collectors Call From Local Numbers?

Does the Fair Credit Reporting Act Work in Florida?

The Truth: Should You Never Pay a Debt Collection Agency?

Should You Communicate with a Debt Collector in Writing or by Telephone?

Do I Need a Debt Negotiator?

What Happens After a Motion for Default Is Filed?

Can a Process Server Leave a Summons Taped to My Door?

Learn More With These Additional Resources:

Need help managing your finances? Check out these resources.

How to Make a Debt Validation Letter - The Ultimate Guide

How to Make a Motion to Compel Arbitration Without an Attorney

How to Stop Wage Garnishment — Everything You Need to Know

How to File an FDCPA Complaint Against Your Debt Collector (Ultimate Guide)

Defending Yourself in Court Against a Debt Collector

Tips on you can to file an FDCPA lawsuit against a debt collection agency

Advice on how to answer a summons for debt collection.

Effective strategies for how to get back on track after a debt lawsuit

New Hampshire Statute of Limitations on Debt

Sample Cease and Desist Letter Against Debt Collectors

The Ultimate Guide to Responding to a Debt Collection Lawsuit in Utah

West Virginia Statute of Limitations on Debt

What debt collectors cannot do — FDCPA explained

Defending Yourself in Court Against Debt Collector

How to Liquidate Debt

Arkansas Statute of Limitations on Debt

You're Drowning in Debt — Here's How to Swim

Help! I'm Being Sued by My Debt Collector

How to Make a Motion to Vacate Judgment

How to Answer Summons for Debt Collection in Vermont

North Dakota Statute of Limitations on Debt

ClearPoint Debt Management Review

Indiana Statute of Limitations on Debt

Oregon Eviction Laws - What They Say

CuraDebt Debt Settlement Review

How to Write a Re-Aging Debt Letter

How to Appear in Court by Phone

How to Use the Doctrine of Unclean Hands

Debt Consolidation in Eugene, Oregon

Summoned to Court for Medical Bills? What to Do Next

How to Make a Debt Settlement Agreement

Received a 3-Day Eviction Notice? Here's What to Do

How to Answer a Lawsuit for Debt Collection

Tips for Leaving the Country With Unpaid Credit Card Debt

Kansas Statute of Limitations on Debt Collection

How to File in Small Claims Court in Iowa

How to File a Civil Answer in Kings County Supreme Court

Roseland Associates Debt Consolidation Review

How to Stop a Garnishment

Debt Eraser Review

It only takes 15 minutes. And 50% of our customers' cases have been dismissed in the past.

"Finding yourself on the wrong side of the law unexpectedly is kinda scary. I started researching on YouTube and found SoloSuit's channel. The videos were so helpful, easy to understand and encouraging. When I reached out to SoloSuit they were on it. Very professional, impeccably prompt. Thanks for the service!" – Heather

Not sued yet? Use our Debt Validation Letter.

Our Debt Validation Letter is the best way to respond to a collection letter. Many debt collectors will simply give up after receiving it.

How does it work?

1. choose this template.

Start by clicking on "Fill out the template"

2. Complete the document

Answer a few questions and your document is created automatically.

3. Save - Print

Your document is ready! You will receive it in Word and PDF formats. You will be able to modify it.

Debt Assignment and Assumption Agreement

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.

Debt Assignment and Assumption Agreement - FREE

Country: United States

General Business Documents - Other downloadable templates of legal documents

• Amendment to Agreement
• Loan Agreement
• Loan Agreement Modification
• Release of Loan Agreement
• Non-Compete Agreement
• Partnership Dissolution Agreement
• Notice of Withdrawal from Partnership
• Power Of Attorney
• Debt Acknowledgment Form
• Meeting Minutes
• Request to Alter Contract
• Release Agreement
• Guaranty Agreement
• Joint Venture Agreement
• Contract Assignment Agreement
• Debt Settlement Agreement
• Breach of Contract Notice
• Corporate Proxy
• Mutual Rescission and Release Agreement
• Notice for Non-Renewal of Contract
• Other downloadable templates of legal documents

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9 Avoidance of General Assignments of Book Debts—Bankruptcy (Insolvency Act 1986, Section 344)

• Published: March 2018
• Cite Icon Cite
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In cases where the bankrupt has engaged in business, it may be that the bankrupt has executed a general assignment of book debts, or a class of such debts, in order to raise capital. Under section 344, such an assignment is void against the trustee, in respect of debts that were unpaid at the time when the bankruptcy petition was presented, unless the assignment has been registered under the Bills of Sale Act 1878. It is only the assignment that is void and not the whole instrument containing it, so that the debt owed by the bankrupt, other covenants, and other assignments remain valid. The provision does not require that the debtor was insolvent at the time of the assignment. One reason why these assignments are void unless registered is that it can be difficult to judge whether a proper price has been paid in respect of a general assignment. Also, the presence of substantial book debts may deceive creditors into thinking that the debtor is creditworthy: registration enables the prudent creditor to discover the true position. The restrictions, however, only apply in bankruptcy and it may be that, in the modern context, this restriction puts unincorporated businesses at an unwarranted disadvantage.

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Deed of Assignment of Debt – Everything You Need to Know

Scott Nelson

Debt Expert

Scott Nelson is a renowned debt expert who supports people in debt with debt management and debt solution resources.

Janine Marsh

Financial Expert

Janine is a financial expert who supports individuals with debt management, cost-saving resources, and navigating parking tickets.

Total amount of debt?

For free & impartial money advice you can visit MoneyHelper . We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.

For free & impartial money advice you can visit MoneyHelper . We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.

Are you facing a ‘deed of assignment of debt’? Are you worried about a debt collector knocking on your door?

You’re in the right place. Each month, over 170,000 people visit our site looking for guidance on debt issues, just like this one. 

In this article, we’ll explain:

•  What a ‘deed of assignment’ is
•  What it means for your debts
•  Different types of assignment
•  Why companies sell their debts
•  Ways to handle your debt situation

We know how scary it can be when debt collectors get involved; some of our team have faced similar situations. We’re here to help you understand your situation and make the best choices.

There are several debt solutions in the UK, choosing the right one for you could write off some of your unaffordable debt , but the wrong one may be expensive and drawn out.

Answer below to get started.

How much debt do you have?

This isn’t a full fact find. MoneyNerd doesn’t give advice. We work with The Debt Advice Service who provide information about your options.

Deed of Assignment of Debt – the basics

Being in debt is confusing enough as it is. And it can get even more complicated when you get a letter through the door from a company you may never have heard of demanding (often in quite a strongly-worded way) that you make your payments to them instead.

What’s going on, you might ask yourself?

At the end of the day, the creditor will want the money that you owe back.

However, sometimes when an account falls into arrears , they won’t have the capabilities or resources to claim it back . This is when the original company you owe money might ‘ assign’ your debt . 

What is a Deed of Assignment of Debt?

This is notice that tells you that you now owe a debt collection agency or another collection service the money you originally owed to the creditor .

Instead of paying the company you might have originally owed money to, you now owe a third party company. 

A deed of assignment of debt is a legal documen t alerting you of the transfer of ownership of your debt to another person. The right to receive payment from the debt you owe is transferred over to this new party as well.

How a debt solution could help

Some debt solutions can:

• Stop nasty calls from creditors
• Freeze interest and charges
• Reduce your monthly payments

A few debt solutions can even  result in writing off some of your debt.

Here’s an example:

Monthly debt repayments

£429 reduction in monthly payments

If you want to  learn what debt solutions are available to you,  click the button below to get started.

What does it mean?

A deed of assignment of debt is used to transfer or sell the right to recover a debt .

Without a deed of assignment of debt, the two companies are not able to do this – you need a written transfer document. 

Once the transfer document, or deed of assignment of debt, has been signed by the assignee (the party transferring the debt) and the party receiving the debt ( assignor ), they must give notice to the debtor (the person that owes the company the sum of money).

Notice must be given within 7 days of assigning the debt. Unless someone gives notice to the debtor, then the new owner of the debt can’t enforce the debt by suing in court.

Is there more than one type of assignment? 

Confusingly, there are actually two different sorts of assignment that a creditor can make. These are Legal and Equitable.

Both types of assignment fall under the Law of Property Act 1925 , and both require the creditor to inform you of the change in writing – this is known as a notice of assignment of debt .

1. Legal Assignment

Legal assignment of debt gives the company who are purchasing the debt the power to enforce it .

Basically it means that you make payments to this company instead of the original creditor, and they can send you letters and make calls to your home.

2. Equitable

If a debt is an equitable assignment, only the amount you owe is transferred , and the original creditor will still retain the original rights and responsibilities .

The purchasing company will not be able to enforce the debt either.

Thousands have already tackled their debt

Every day our partners, The Debt Advice Service, help people find out whether they can lower their repayments and finally tackle or write off some of their debt.

I’d recommend this firm to anyone struggling with debt – my mind has been put to rest, all is getting sorted.

Reviews shown are for The Debt Advice Service.

Why do companies sell their debts?

A deed of assignment of debt can be a real headache, as you now have another layer of money owed. You will probably rightly ask yourself – why? And how can they sell it?

It may seem strange and confusing, but it’s actually completely legal for them to sell your debt . When you sign a credit agreement, there is almost always a clause in fine print that states that the original creditor has the power to assign their rights to a third party.

As you have signed this agreement, they don’t actually need to ask for your permission to assign your debt.

This also means that you cannot dispute it or make a complaint about it either. The only exception to this rule is if you have given evidence of mental health issues .

» TAKE ACTION NOW:  Fill out the short debt form

What are the next steps?

So that’s the basics about a Deed of Assignment of Debt. But what does this mean for you? 

If your creditor passes one of your debts onto a third party company or debt collection agency, it will be officially noted that this new company is now responsible for collection .

You will be able to see this change on your credit report , and any defaults will also be registered in their name too. 

While it certainly adds another layer of confusion to proceedings and you may be unsure of what’s going on when you find out about a deed of assignment of debt, it can occasionally be a bit of a blessing in disguise. 

You may find it much easier dealing with the new company, as they could be more flexible when it comes to discussing interest and additional charges.

There is also the likelihood that these companies actually specialise in collecting debts , and so know how to approach you as the customer with more tact and delicacy than the original creditor.

Is there something missing? We’re all ears and eager to improve. Send us a message and let us know how we can make our article more useful for you.

You can email us directly at [email protected] to share your feedback.

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Deeds of Assignment of a Debt – Your Top Questions Answered

Posted by david cammack on february 7, 2020.

Home / Blog / Deeds of Assignment of a Debt – Your Top Questions Answered

( Revised for 2023. )

Do you want to know more about what a deed of assignment of a debt is, if you need one, or what to include in it? If so, our blog article has all the answers. So today, we are answering the top questions from the Internet about deeds of assignment of a debt.

1. Can a debt be assigned? How do I assign a debt in the UK?

Yes. Banks regularly buy and sell debts. If you are a creditor, then you can do so too. But you need to do so in writing. A deed of assignment of a debt is the document to use for this. You would need to assign the whole of a debt, as you cannot assign only part of it. The debtor cannot assign the debt to someone else unless the creditor agrees and you would then do this via a deed of novation.

2. What is an assignment of a loan?

This means the same thing as an assignment of a debt. It is always the right to receive repayment of the debt or loan that you are assigning.

3. What is a deed of assignment of a debt?

This is a legal document that transfers the ownership of the debt to another person. By ‘ownership’ we mean the right to receive repayment of that debt from the same original debtor or borrower.

4. What does assignment of debt mean?

The assignment of a debt will mean that the original debtor or borrower now owes the debt to a different creditor. So the debtor will now need to repay that debt to a new person, because you have transferred the debt.

5. Is a deed of assignment of a debt a legal document?

If prepared correctly, yes, a deed of assignment is a legally-binding document. In order to make the assignment legally binding on the debtor, the creditor should give notice of the assignment to the debtor. Our template includes a notice of the assignment of the debt, so you can complete it and send it to the debtor.

6. What is a notice of assignment of a debt? What do I need to do to give notice of an assignment of a debt?

Once you have assigned a debt, then you need to give the debtor notice of the transfer of the debt. Otherwise, how will they know to repay the new owner of the debt? Ideally, the deed of assignment of debt will mention this and include a form for the notice. (Legalo’s template does.) Wikipedia explains why such notice is necessary here: https://en.wikipedia.org/wiki/Rule_in_Dearle_v_Hall#Criticisms .

7. How do you draft a deed of assignment of a debt?

If you require this deed, then the quickest way to get one is with a template from Legalo. Find our great template here: just click on this link .

8. What are the contents of a deed of assignment of a debt?

If you click on this link and scroll down to the section about the Guide to the template, then you will see the contents of our template for a deed of assignment of a debt.

9. Who can prepare a deed of assignment of a debt? Can a non-lawyer prepare a deed of assignment of a debt?

A non-lawyer can use any of the documents we sell as templates. So this includes a deed of assignment of a debt.

10. Does a deed of assignment of a debt need to be signed by both parties?

The parties who do need to sign it are (a) the original creditor and (b) the one buying (or otherwise taking) the debt from the original creditor. The debtor does not sign it.

11. Does a deed of assignment of a debt need to be witnessed?

All deeds need to be signed correctly with an adult witness, preferably one who none of the persons signing are related to.

12. Does an assignment of debt need to be a deed?

If there is no price being paid for the purchase of the debt, then the document does need to be a deed, in order to ensure it is legally binding. Otherwise, technically it does not need to be prepared and signed as a deed, but generally it is better to do it as a deed in case there is any doubt. Legalo’s template is set up to be signed as a deed.

13. Does a deed of assignment of a debt need to be registered?

Not unless you have secured the debt, for example on a property in the UK at the Land Registry. In such a case, then you would need to register the transfer of the security separately at the Land Registry. You do not register the assignment of the debt itself.

14. How long does a deed of assignment of a debt take to draft?

Legalo’s template makes it easy, so you should only need a few minutes to draft your deed of assignment.

15. How much does a deed of assignment of a debt cost? How much does a notice of assignment of a debt cost? How much do lawyers charge for deed of assignment of a debt?

Our template for a deed of assignment includes a notice of assignment and costs only £24.95. Solicitors would charge an estimated £500 plus VAT for one, so ours represents a significant cost saving.

In just a few minutes yours can be ready. What’s more, Legalo’s templates each come with a guide to make it clear how to complete it. We also provide a free helpline just in case you need any extra assistance to use it. So it could not be easier.

So if you need one, you know where to find it.

Get Legal & Compliance tips straight to your inbox, free!

Understanding Deed of Assignment: Definition, Uses, and Legal Implications Explained

A deed of assignment is a legal document that transfers the ownership of a tangible or intangible asset from one party (assignor) to another (assignee). It is used to formalize the transfer of rights, interests, or benefits associated with the asset specified in the deed. This document is commonly used in various legal and financial transactions to ensure clarity and enforceability of the transfer.

Table of Contents

Key characteristics of deed of assignment.

• Legal Form : It is a formal written document recognized under legal jurisdictions.
• Transfer of Rights : Involves transferring ownership or interests in a specific asset.
• Specificity : Clearly defines the asset being transferred and the terms of transfer.
• Enforceability : Once executed, it becomes legally binding on both parties.

How Deed of Assignment Works

Examples and usage, 1. transfer of debt example.

• Definition : A debtor assigns their debt obligation to a new creditor.
• Process : A deed of assignment is used to transfer the rights to receive payment from the debtor to the new creditor.

2. Intellectual Property Transfer

• Definition : An author assigns their copyright in a book to a publishing company.
• Procedure : A deed of assignment outlines the transfer of intellectual property rights from the author to the publisher.

Advantages of Deed of Assignment

• Legal Clarity : Provides a clear record of the transfer of rights or interests.
• Enforceability : Ensures that the assignee can legally enforce their rights against the assignor.
• Asset Protection : Helps protect the rights of the assignee against claims by third parties.

Challenges of Deed of Assignment

Considerations.

• Legal Requirements : Must adhere to specific legal formalities to be enforceable.
• Risk of Breach : Potential for disputes over the validity or terms of the assignment.

Importance of Deed of Assignment

Practical applications, legal transfers.

• Debt Assignments : Transferring debt obligations from one creditor to another.
• Property Transfers : Assigning ownership rights in real estate or intellectual property.

Real-world Implications

Legal and financial security.

• Contractual Agreements : Facilitates smooth transfers of rights and responsibilities.
• Risk Management : Helps mitigate risks associated with ownership disputes or claims.

Example Scenario

Application in debt assignment, scenario: debt transfer deed of assignment.

• Context : A company assigns its accounts receivable to a factoring company.
• Procedure : Signing a deed of assignment outlining the transfer of rights to receive payment from debtors to the factoring company.

A deed of assignment is a crucial legal instrument used to transfer ownership or rights from one party to another. Whether for debts, intellectual property, or other assets, it ensures clarity and enforceability in legal transactions. By documenting the specifics of the transfer and adhering to legal requirements, parties can safeguard their interests and ensure that the transfer is legally binding. Understanding the purpose and implications of a deed of assignment is essential for navigating legal transfers of rights and assets effectively. It provides a structured approach to asset transfers, protecting the rights of both assignors and assignees under legal frameworks. Overall, deeds of assignment play a significant role in facilitating smooth and legally secure transfers of various types of assets and rights between parties.

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Assignment of book debts

Published by a lexisnexis banking & finance expert.

This Assignment is made on [ insert day and month ] 20[ insert year ]

[ insert name of Assignor ] , a company incorporated in England and Wales with registered number [ insert company number ] whose Registered office is at [ insert address ] (the Assignor ); and

[ insert name of Lender ] of [ insert address ] (the Lender ).

The Lender has agreed to Make available a loan facility to the Assignor on the terms and conditions set out in the Facility Agreement (as defined below).

It is a condition precedent to the availability of the loan facility that the Assignor enters into this Assignment for the purpose of providing security in favour of the Lender in respect of the Secured Obligations (as defined below).

IT IS AGREED as follows:

Definitions and interpretation

Definitions

In this Assignment, unless otherwise provided:

Assigned Rights

means all of

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Related legal acts:

• Contracts (Rights of Third Parties) Act 1999 (1999 c 31)
• Insolvency Act 1986 (1986 c 45)
• Law of Property Act 1925 (1925 c 20)

Key definition:

Book debt definition, what does book debt mean.

In the context of receivables , a sum of money which is payable by its debtors to a business in the ordinary course of its trade for the supply of goods or services.

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Bank Loan Against Book Debts

Sometimes a customer of a bank may seek a bank loan against book debts that have either become due or will accrue due in the near future. The customer may have to receive the money from them for a goods contractor will form a third party.

The debt which the customer has to realize from debtors is assigned to the banker. The established principle is that once the debt is assigned and the third party (i.e., the debtor) is given notice of the assignment, he is under a duty to pay the debt to the bank and not to the customer.

Section 130 of the Transfer of Property Act 1882 permits the assignment of an actionable claim to anyone except to a judge, a legal practitioner, or an officer of the Court of Justice.

According to section 3 of the said Act, “actionable claim” means a claim to any debt or any beneficial interest in movable property not in the possession of the claimant which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.”

A debt secured by mortgage of immovable property or by hypothecation or, the pledge of movable property, is not included in the actionable claim.

The person who assigns an actionable claim is called the assignor and the person to whom it is assigned is called the assignee. Assignment of debt may be with or without consideration.

Table of Contents

Disadvantages of bank loan against book debts

• Advances against book debt are not looked at with favor by the banker. Because, this is, after all, unsecured in nature and a clean advance, for its repayments entirely depend on the creditworthiness of the client. If the debtor refuses to pay, the bank will seek legal remedy for its recovery. The value of debts as security is mainly dependent upon the creditworthiness of the debtors of the customer.
• The realization of book debts is not an easy job and is risky.
• In the case of book debts, the banker is placed in the position of a debt collector.
• If the book debts are subject to a prior charge or a counter-claim of the debtor, the banker will not be able to get the full benefits of the book debts.

Books’ debts are, therefore, not accepted as main security but are taken as collateral security along with the principal security.

Only where the debtors are solvent or, where the dues form the government on contracts or, in the case of debenture of a good company having a charge on the property or, where the assignment is of money payable from a special fund, book debts are worthwhile for acceptance by the bankers as security for advances.

Precautions and Checks

Book debts are furnished as security by assigning them to the bank. When the debtors are given notice of such an assignment, they become duty-bound to pay the money to the bank.

When the debtors are given notice of such an assignment, they become duty-bound to pay the money to the bank.

Even if the customer goes bankrupt, his trustees cannot deprive the bank of his right of claiming the amount from the third-party debtors.

The banker should take the following precautions while advancing on the security of book debt.

1. The banker must enquire into the solvency of the debtor who owes money to the customer. The bank should also check the validity of the debt.

2. Legal Assignment : The assignment of book debt must be effected by the execution of an instrument in writing signed by the transferor or his duly authorized agent, clearly expressing his intention to transfer his interest in the debt to the assignee. He may pass an order to his debtor to pay the assigned debt to the banker. If the debt is in the form of a promissory note, the assignment must be made on the note itself.

3. Notice in Writing : The banker should give notice of the assignment to the debtor. Notice of assignment must contain particulars, such as the name of the assignor, the name of the assignee, and the debt assigned. This is necessary to prevent the debtor from making payment of the debt to the customer. Non-service of notice does not render the assignment ineffective or invalid but it is essential to make the debtor liable to make payment to the assignee.

4. To acknowledge the notice : The debtor should be requested to acknowledge receipt of the notice and confirm the debt. They should also be requested to furnish details of the earlier assignment, if any, and the right of set-off that they might have against the debt.

5. Notice of joint debtors : In order to bind all the debtors, it is necessary that notice should be given to all joint debtors or point trustees and, if the debtor is dead, to all his executors or administrators.

6. The borrower must authorize the bank to receive the debt of the party by executing a power of Attorney on his behalf. An undertaking should also be obtained from the borrower that money if received by him from the debtor in respect of the assigned debt, will be paid to the banker.

7. The assignment should be of the whole debt and not a part of it.

8. Execution by the limited company : Where the assignment is executed by a limited company, it must be registered with the Registrar of Joint Stock Company. Failure to get such registration renders the charge void against the liquidator and any creditor of the company.

9. After the assignment of debt, all rights and remedies of the transferor, whether by way of damage or otherwise, shall vest in the transferee, and the latter may sue or institute proceedings for the same in his own name against the debtor without obtaining the transferor’s consent and without making him a party to the suit.

10. The assignment, however, does not entitle the assignee (i.e., the banker) to better rights than what the assignor had against the debtor. For example, if the debtor has a counter-claim against the assignor, he continues to have the power to set off such a claim against the amount due to the assignee.

11. The transferee of an actionable claim shall take it subject to all the liabilities and equities to which the transferor was subject in this respect at the date of transfer. (Section 132 of transfer of Property Act, 1882).

12. Future Debt : Future debts may not be accepted as security. In a contract of sale of goods by installments or some construction contracts where the amounts are to be paid according to the progress of the work, it is likely that the customer may not strictly carry out the terms of the contract and thus nothing becomes payable by the third party. Even if the work has been properly carried out its quality may be disputed by the debtor.

Modes of Credit Facility

The facility of granting advances to the customer against book debts can be given in two ways:

1. The customer sends the invoices and the sale documents to the bank. The bank examines the documents and credits the account of the customer with the value of acceptable invoices with less margin. It returns the rest of the invoices to the customers. The bank also keeps the account of the debtors and collects money from them to credit their accounts. The borrower’s account is also credited with the balance of money collected by the bank which was not credited originally on account of margin.

2. The borrower may send a list of eligible debtors to the bank. The bank after going through the list and satisfying itself regarding the validity of debts and solvency of debtors determines the amount of advance to be given after keeping a sufficient margin.

• Demand Promissory Note
• Letter of continuity (in case of overdraft account)
• Legal assignment of debt
• Power of attorney executed by the borrower in favor of the bank to receive the debt of the borrower.

Hope you find all information regarding bank loans against book debts otherwise please feel free to comment below.

You May Like Also:

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• Bank loan against documents of title to goods
• Bank loan against gold
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• Bank loan against supply bills
• The procedure of bank loan against real estate
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• The procedure of bank loan against shares
• Bank loan against a car

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AVOIDANCE OF GENERAL ASSIGNMENTS OF BOOK DEBTS (BANKRUPTCY ONLY)

February 2010

31.4B.155 Introduction – assignment of book debts

Where a bankrupt has been running a business, book debts may have been assigned   in an attempt to raise money. The general idea being that monies from the assignment can be used to finance the business immediately, rather than waiting for the debts to be paid to the business in the normal course of events.

Where the assignment is of all the book debts, or a particular class of book debt it is called a “general assignment”.

31.4B.156 Avoidance of general assignments

Where there has been a general assignment of book debts, the assignment is void against the trustee as regards debts which were not paid prior to the presentation of the bankruptcy petition, unless the assignment was registered under the Bills of Sale Act 1878 [ note 1 ] .   The provisions do not have any effect on the assignment of specific book debts (see paragraph 31.4B.169 ).

31.4B.157 Effect of an avoidance of a general assignment

As the avoidance affects only those book debts that were not paid prior to the presentation of the bankruptcy petition [ note 2 ] , the provisions have only partial retrospective effect.   The official receiver, as trustee, can recover those book debt payments passed to the assignee where the payment of the debt was after the date of the presentation of the petition and, of course, those book debts that are unpaid would become “free” assets in the estate.

31.4B.158 Reasons for avoidance of general assignments of book debts

The main reasons for the provisions relating to the avoidance of general assignments of book debts are to encourage registration as, without registration, it can be difficult to establish whether a proper price has been paid in respect of the assignment. Registration also gives persons dealing with the debtor opportunity to check the position of his/her book debts.   The lack of registration may give a misleading impression that the debtor’s financial position is healthy in that the book debts may appear to be free of assignment.

So far as the official receiver, as trustee, is concerned, an inspection of the registration documents (see paragraph 31.4B.163 ) in conjunction with the bankrupt’s accounting records would give the opportunity to assess whether or not the debts were assigned at their true value and, if not, the matter may be pursued as a transaction at an undervalue (see Part 3 of Chapter 31.4A).

31.4B.159 Action to be taken by the official receiver

Where the official receiver considers that a general assignment of book debts contravenes the provisions of the Act (see paragraph 31.4B.156 ), then he/she should issue a letter to the bankrupt’s book debtors instructing them to make payments to the official receiver, which should be held on the estate suspense account.   The advice in paragraph 31.4B.160 (where the likely recovery is in excess of £5,000), or paragraph 31.4B.161 (where the recovery is likely to be less than £5,000) should then be followed.

31.4B.160 Realising voidable general assignments where recoverable amount is over £5,000

As explained in detail in Part 1 of this chapter, all antecedent recoveries where the amount to be recovered is over £5,000 are handled by the Service’s antecedent recovery contractor (see paragraph 31.4B.5 ).   The advice and information in this Part of the chapter will assist the official receiver in understanding voidable general assignments and assessing whether there is a matter for recovery to be passed over to the contractor.

The value of the recovery should include both amount to be recovered in respect of debts paid after the presentation of the petition and the value of the remaining, unpaid, book debts.

The following are the areas on which the official receiver should, ideally, obtain information before instructing the contractor:

• Any explanations given by the bankrupt for the transaction.

31.4B.161 Realising voidable general assignments where amount to be recovered less than £5,000

The antecedent recovery contractor engaged by the Service (see paragraph 31.4B.5 ) will only accept instructions where the amount to be realised is more than £5,000.   Where the amount to be recovered is less than £5,000, the official receiver, as trustee, should write to the assignee and advise him that he considers that the assignment is void, and that he/she will be collecting remaining book debts for the benefit of the bankruptcy estate.   The official receiver should also seek to recover from the assignee book debt monies passed to him/her in respect of debts paid after the presentation of the petition.   It is unlikely to be worth entering into prolonged correspondence or court action should the assignee dispute this position.

Paragraphs 31.4B.17 to 31.4B.21 give information and advice on the steps to be taken where the recovery is likely to be below £5,000.

31.4B.162 Registration under the Bills of Sale Act 1878

For the purposes of these provisions, the Insolvency Act 1986 treats the general assignment of book debts as if it were a bill of sale (a document that transfers ownership of property from one person to another) and states that the provisions of the Bills of Sale Act 1878 with respect to the registration of bills of sale apply [ note 3 ] .

The Bills of Sale Act 1878 provides that an applicable bill of sale must be registered within seven clear days of its making [ note 4 ] , and must be renewed at least once every five years [ note 5 ] .   The method of registering the bill of sale is to send, to the High Court, the original bill of sale, together with a witness statement attested in front of a solicitor stating that the effect of the bill of sale has been explained to the person granting the assignment [ note 6 ] .

31.4B.163 Entry in the register of bills of sale

The register of the Bills of Sale Act 1878 contains the particulars of registered bills of sale and an alphabetical list of the names of guarantors.

Following receipt of the documents detailed in paragraph 31.4B.162 , the High Court will seal a copy of the assignment, or a schedule to the assignment and return this to the applicant.   They will also issue a “debt number” which will be notated on the sealed assignment.   This number relates to the assignment’s position in the register.   The official receiver should seek to obtain this sealed assignment from the bankrupt to confirm registration of the general assignment.

31.4B.164 Searching the register of bills of sale

Where there is doubt as to whether a general assignment of book debts has been registered under the Bills of Sale Act 1878 the official receiver may conduct a search of the register by issuing a letter to the High Court of Justice Enforcement Section.   The letter should give details of the persons who may have been party to the assignment, and also such details as are known of the assignment itself (such as the date and the property concerned).   The request should be accompanied by a payment of £40 made payable to “HMCS” and should be sent to:

Judgements and Orders Section

Room E15-17

Royal Courts of Justice

Tel no: 020 7947 6221

This office will provide a certificate showing details of the registration (if any) and for a further fee of £5 will provide an office copy of the documents provided in support of the application of registration (see paragraph 31.4B.163 ).

31.4B.165 Provisions apply only to bankrupts engaged in business

The relevant provisions of the Act apply only to those bankrupts engaged in business [ note 7 ] .   The Act defines “business” to include “a trade or profession” [ note 8 ] , so the provisions would cover professionals such as doctors, dentists or accountants.

In reality, it is unlikely that a bankrupt who is not a trader would have book debts to assign.   Activities carried out purely for pleasure which happen to make a profit would not be considered to be engaging in a business as, under the accepted definition of the term, a business is something capable of making a profit, which is carried out with a view to making a profit [ note 9 ] .   The decision as to whether something is a business or not would appear to turn on the original intention of the person carrying on the activity.

31.4B.166 What is a book debt?

The definition of a book debt has been held to mean debts which are “commonly entered in books” [ note 10 ] .

Further, it has been held that a definition of “book debts” includes debts which would or could, in the ordinary course of business, be entered in well-kept books and, therefore, the fact that the debts may not have been entered into a book is irrelevant [ note 11 ] .

Also included in the definition of book debts are future debts and future rents under a hire purchase or rental agreement [ note 12 ]   a bank balance is not [ note 13 ] .

31.4B.167 Definition of assignment

“Assignment” is defined in the Act as including “assignment by way of security or charge on book debts”, so is not limited to assignment by way of sale [ note 14 ] .

The granting of a charge over book debts may also be challenged as a preference (see Part 2 of Chapter 31.4A).

31.4B.168 General assignments not covered by the Act

The Act [ note 15 ] aims to avoid only transactions detrimental to creditors and so excludes some assignments which are likely to be beneficial.   Therefore,   a general assignment of book debts as part of the transfer of a business made in good faith and for value is not voidable under these provisions, nor is an assignment for the benefit of creditors generally [ note 16 ] .  

31.4B.169 Specific assignments of book debts

The provisions of the Act cover only general assignments of book debts, so the assignment of a specific book debt would not fall foul of the provisions [ note 17 ] .   For a book debt to be considered a specific debt it would be necessary that the debt is identified with clarity and precision in the document of assignment itself [ note 18 ] .

An assignment of a specific book debt, or class of debt (see paragraph 31.4B.170 ), may be challenged as a voidable transaction (see Part 5 of this chapter).

31.4B.170 Assignment of a class of book debts

A general assignment does not have to relate to all book debts to be potentially voidable.   The assignment could be of a certain class of book debt which have a common factor. For example, an assignment of all debts due from “ABC Ltd” or all debts due during a certain period could fall foul of the provisions.   This would be termed a “class” of book debts.

31.4B.171 Factoring agreements

The assignment of book debts most likely to have occurred in a   bankruptcy case would be where the bankrupt has entered into a factoring agreement (see Chapter 31.1, Part 5 ) and, on the face of it, it would appear that this is a general assignment that would fall foul of the provisions of the Act.

Where, however, the agreement with the factoring company requires that each book debt is assigned and approved for payment individually, this would not be a voidable assignment under the provisions as it would be considered that each debt is being assigned specifically (see paragraph 31.4B.169 ) [ note 19 ] .   It is likely that all factoring agreements with recognised factoring companies operate in this way but the official receiver, as trustee, should obtain a copy of any factoring agreement entered into by the bankrupt and check the details.

[Back to Part 7 – Transactions defrauding creditors] [On to Part 9 – Recovery of excessive pension contributions]

Further Information