Assignment of Debt

This document is intended to be a response to any internet myths and frequently asked questions regarding accounts governed by English Law and is not legal advice.  If you have any questions regarding the below, we recommend that you take independent legal advice.

ASSIGNMENT QUESTIONS

What does Assignment mean?

The law treats debt as property belonging to the creditor. It is the creditor’s choice if they wish to pass that property on to someone else, just as you are free to sell or give away something that you own.

“Assignment” means passing property on to someone else who becomes the new legal owner. So assigning debt just means the new creditor now has the legal right to receive payment.

This is just like physical property you can touch, like a car or bike. Imagine I lend you my bike, but while you’re borrowing it, I sell it to a friend. Now you must return it to my friend, not me, because they now own it. Assigning debt is just the same.

Section 136 of the Law of Property Act 1925 says that legal assignment of debt (i.e.: change of ownership from one creditor to another) has only 2 conditions:

i.                 the original creditor must put the change of ownership in writing. There are no fixed rules or formalities about how, as long as it is written; and

ii.                the debtor must then be told about it in writing; again, there are no special formalities, as long as you are told in writing that the debt must now be paid to the new creditor instead of the original one.

The law does NOT say the debtor is entitled to see the written document that actually assigns the debt, only that they are entitled to be told in writing that the assignment has happened.

Proof of Assignment

Because you were given notice by the original creditor, as well as Lowell, that the debt must now be paid to Lowell, there is no question about that. However, if you are in genuine doubt about who to pay, you should ask the original creditor, who will be happy to confirm that debt is now payable to Lowell.

In the case of Promontoria (Oak)-v-Emanuel [2021] EWCA Civ 1682, the Court of Appeal says that if you wish to challenge assignment, you should ask the original creditor if they dispute the assignment. You normally have no right to dispute the assignment unless the original creditor does.

Deed of Assignment

A “Deed” of assignment is one way a creditor may assign a debt, but it’s not the only one. It can also be done by way of a simple contract. This is a private agreement between Lowell and the original creditor.

Van Lyn Developments-v-Pelias Construction [1969] 1 QB 607 

This case was about the rules for a party giving a valid notice of assignment. It does not relate to  proof of assignment. It doesn’t set rules on what documents you are allowed to see.

 

The highest court ruling so far on this subject is the case of Promontoria (Oak)-v-Emanuel [2021] EWCA Civ 1682, where the Court of Appeal stated that if you wish to challenge assignment, you should ask the original creditor, and produce evidence that they, as the original owner of the debt, dispute the assignment. You normally have no right to dispute the assignment unless the original creditor provides this evidence.

Section 44 Companies Act 2006

This section sets rules for how a company must sign certain documents but doesn’t apply to assignment of debt or notices of assignment.

In any case, rules about how a document must be signed, would normally only affect whether the company signing it, can be held to an agreement if they later dispute it. So, if the company signing the document doesn’t dispute the document, questions about its signature won’t affect its validity.

Bill of Exchange Act 1882

A “Bill of Exchange” is a legally binding written promise of payment. One common example is payment by cheque. The Bill of Exchange Act 1882 makes rules about those documents. It has absolutely nothing to do with the assignment of debt.

 

Notice of Assignment

The rules about notice of assignment are set by Section 136 of the Law of Property Act 1925 which just says that this must be given in writing.  The Court of Appeal in the case of Van Lyn Developments-v-Pelias Construction [1969] 1 QB 607  confirms that as long as notice is given to the debtor in writing, saying which debt it’s about and who it must now be paid to, there are no other special rules. It does not have to be called a notice of assignment or use those words.

This means that, although Lowell and the original creditor will have sent a specific letter for that purpose (which we call a ‘notice of assignment’) when the debt was first assigned, any of our letters or our solicitor’s letters containing that basic information, will also be proper notice of assignment.

Section 196 of the Companies Act – sending notice of assignment by registered post.

Registered post no longer exists, and the law now takes this to mean a similar “signed for” postal service. Section 196 does not state that notice of assignment must be sent in this way. It also gives other ways notice can be sent.

The High Court confirmed this in the case of Kinch-v-Bullard [Ch. 1997 K No. 6044], saying that notice can, among other ways, be sent by ordinary post.