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Valid assignment of debt/legal charge

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  • Valid assignment of debt/legal charge

    Hello



    I have a question about notice requirements when a debt is assigned.



    The situation is as follows (I posted this on a another business forum before I can across this site and the threads here about notice of assignment of a debt). I have added some additional information for the purposes of this question:



    "My question relates to the activities of a trading company that knows CHouse is about to strike it off/dissolve it for non compliance. Can the company transfer its debtors to another company before it is struck off/dissolved?

    I was a customer of Altd and owed ALtd monies for advertising services in magazines published by ALtd. The owner of ALtd was a close friend ("Y") and, when my business hit a difficult patch and I could not pay the invoices I owed ALtd, I gave a charge over my property in respect of the debt.

    The charge was given in the name of XLtd, another company owned Y. I assumed at the time that XLtd was rightly entitled to the benefit of the charge, as a company in the same group as ALtd. After all, I was dealing with a good friend, it never occurred to me that he would be deceiving me in any way. Even though by that time he was threatening to issue bankruptcy proceedings if I did not give the security

    It was only 2 years later that I was tipped off with information that lead me to discover ALtd had only printed a small fraction of the magazines I had contracted for (5-10,000 copies per edition rather than 70-100,000 copies each, with 7 editions printed in total). Of course, had I known that earlier, I would have disputed the debt and not given the charge.

    I also had no idea at the time that I gave the charge that Altd had been dissolved - it continued to trade under the same brand name, at the same address, with the same staff. In fact, I now know there was another company, Bltd, and from what I can make out, it carried on Altd's trade after Altd was dissolved. It seems 2 editions of the magazine were published by Bltd.



    At the time I gave the charge, I was not even aware of the existence of Bltd and I did not know that both Altd and Bltd had been dissolved.


    In 2013 I received a letter from Y enclosing a copy of the charge, now showing him as the registered owner in place of XLtd, and demanding payment or he would seek enforcement. This was the first I was aware that the charge had been assigned. In fact I was so taken aback I did a Land Registry search, because my initial reaction was that he must have fabricated the copy register document!


    The charge is still in place some 8 years after being given and I am looking into applying to court to have it set aside on the basis that it should never have been given in the first place."




    I received no notice at any time that the debt I owed Altd had been assigned to Bltd and then BLtd had assigned it to Xltd. Nor was I notified that Xltd had assigned the charge to Y.



    Am I understanding correctly what I have read here re section 196 PA1925 :

    - I should have been given notice at each assignment. I was given no such notice. In fact, if anything, great care was taken to ensure I had no idea of what was going on behind the scenes.

    - That may not be fatal to Y who now has the charge in his own name. He could argue they were equitable assignments rather than legal assignment.

    - However, if he relies on equitable assignment to the enforce the charge, he would have to join in the legal action the company that assigned the charge to him, ie XLtd.



    ALtd , BLtd and XLtd have long been dissolved (Y has a trail of companies struck off for non compliance......) so he would not be able to do that.



    Have I over-simplified or missed something here?

    Many thanks for your help, much appreciated.





    SNZ
    Tags: None

  • #2
    Re: Valid assignment of debt/legal charge

    If there yhas been no notification he may very well seek remedy under Equitable Assignment even though the other company is dissolved. Not the best explanation but i think is similar to that where if a married couple have an estate and one was to pass away, it then allows the other to seek remedy. This is my view on this as i am also looking into the legality of a loan assignment and failure to give notification.

    Good luck, keep us all posted on the outcome

    Comment


    • #3
      Re: Valid assignment of debt/legal charge

      6. 2. 2 Legal Assignment: Assignment involves the transfer of rights, but not
      obligations. For a legal assignment, s. 136 of the Law of Property Act 1925
      provides that the assignment must be:
      • absolute
      (i. e. the whole of the debt outstanding to the existing lender);
      • in writing and signed by the existing lender; and
      • notified in writing to the borrower.
      If any element of this requirement is missing, the assignment is likely to be
      equitable (see 6. 2. 3 Equitable Assignment).
      In the context of the syndicated loan, a legal assignment will transfer all of the
      existing lender' s rights under the Loan Agreement
      (including the right to sue the borrower and the right to discharge the assigned debt)
      to the new lender.
      The obligation of the existing lender to provide funds to the borrower cannot
      be transferred by legal assignment and thus remains with the existing lender.
      The new lender pays the existing lender any funds due under the loan and the
      existing lender sends those funds on to the Agent, who then passes such funds
      on to the borrower.
      6. 2. 3 Equitable Assignment: As mentioned above, an equitable assignment is
      created when one or more of the provisions of section 136 of the Law of
      Property Act 1925 is not met, provided the intention to assign is present
      between the parties.
      In contrast to a legal assignment, the new lender, as the equitable assignee,
      must join the existing lender, as assignor, in any action on the debt. The most
      significant difference between a legal and equitable assignment arises if the
      borrower is not notified of the assignment. If the borrower is not notified of
      the assignment, the new lender will be subject to all equities (for example,
      mutual rights of set-off) which arise between the existing lender and the
      borrower, even after the loan has been assigned.

      Comment

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