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Security assignments - not always what they say they are?
The nature of security created under a security document does not always match its description in the document. Charlotte Drake explains how this recharacterisation risk can apply to security assignments.
Is an "absolute" security assignment legal or equitable?
Legal assignments – key requirements
Lenders commonly take security over "choses in action" (such as debts or rights under contracts) by way of assignment. An assignment involves the transfer of either legal ownership (legal assignment) or equitable ownership (equitable assignment).
Section 136 of the Law of Property Act 1925 dictates the formalities for taking a legal assignment. It requires that a legal assignment must (among other things):
- be in writing;
- be executed by the assignor;
- be "absolute";
- not be expressed to be "by way of charge" only; and
- be notified in writing to the person against whom the assignor could enforce the assigned rights (the third party).
Legal assignments by way of security
There has been much case law on what "absolute" means. An assignment will not be absolute if it is conditional, or of part of a debt. However, a security assignment can qualify (provided it is not "by way of charge"): the fact the assignor has an equity of redemption under a security assignment does not of itself prevent the assignment from being "absolute". Security assignments sometimes use the term "absolute" to make clear they are intended to be legal assignments. However, the terminology used is not decisive. An assignment will not be "absolute" unless the third party can then deal with the assignee alone in respect of the assigned rights. The assignee owes an obligation to the assignor to reassign the rights on discharge of the secured liability. But the third party can continue to deal with the assignee until it receives notice of that reassignment.
In practice, this usually presents a considerable stumbling block to taking security by way of a legal assignment. Security assignments often allow the assignor to continue to deal with the third party, which commercially suits assignor, assignee and third party alike. However, such an assignment will not be "absolute" and so will take effect in equity only, even if the security document claims to effect a legal assignment.
The recent case of Ardila Investments NV v. ENRC NV and another 1 highlighted this. The judge accepted that the assignment clause in the document used "the words of a legal assignment". However, he pointed to other clauses in the assignment document which suggested the parties had intended it to take effect in equity rather than law. One of these clauses obliged the assignor to "pursue its rights" under the assigned contracts, which is clearly inconsistent with an absolute assignment.
Legal or equitable – does it matter?
Often not. A notified equitable assignment has as strong a priority against other interests in the assigned rights as a legal assignment.
One advantage of a legal assignment is that a legal assignee can sue the third party without the assignor's involvement. Received wisdom used to be that an equitable assignee could not sue alone and the assignor (as owner of the legal interest) must be joined in as party to proceedings (either as co-plaintiff if willing, or as co-defendant if not).
In Ardila the judge held that the assignment took effect in equity and that both assignor and assignee should join in the proceedings as co-claimants. As it happened, when the hearing took place, the assignor had been joined as co-claimant anyway. In other cases, an equitable assignee has been able to sue the third party alone. As a purely practical matter, even if the assignor does need to be joined into proceedings this is unlikely to be more than an inconvenience.
Could a security assignment be "floating" security?
Could there be another, more unpalatable, result of control remaining with the assignor following a security assignment? In Re Spectrum Plus 2 , the House of Lords of course held that a charge over a debt will be floating, not fixed, if the security holder fails to exercise control over the debt proceeds. Is a security assignment of a debt or similar contractual right also at risk of being recharacterised in this way? This is far from a settled point, but these obiter comments from Lord Scott in Re Spectrum Plus (at paragraph 107) suggest so:
" Suppose, for example, a case where an express assignment of a specific debt by way of security were accompanied by a provision that reserved to the assignor the right, terminable by written notice from the assignee, to collect the debt and to use the proceeds for its (the assignor's) business purposes, ie, a right, terminable on notice, for the assignor to withdraw the proceeds of the debt from the security. This security would, in my opinion, be a floating security notwithstanding the express assignment. "
There is some logic in this approach. If it were possible to "solve" Re Spectrum Plus by renaming all charges over debts as security assignments, the case would not have taken on the significance that it has. The risk of this type of recharacterisation is most obvious in a UK insolvency, where there is a clear distinction between the application of fixed and floating recoveries. In this context, at least, the "fixed/floating" distinction is likely to be more of a concern to a lender than whether its security assignment is "legal" rather than "equitable".
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The Government restricts bans on assignment
United Kingdom | Publication | November 2018
Legislation now in force preventing parties from prohibiting the assignment of receivables under certain contracts.
At the moment, a contract can prohibit or restrict the parties’ ability to assign or transfer rights created under the contract. The extent of the restriction is a matter of interpretation of the clause concerned. If one of the parties to the contract attempts to assign the benefit of the contract in breach of the restriction, the purported assignment is ineffective.
One of the key assets of any business is its receivables, and restrictions on assignment can prevent the parties from factoring receivables or otherwise raising finance on them. The Government has decided that it should be easier for businesses to raise finance on their receivables. Accordingly the Small Business, Enterprise and Employment Act 2015 allows regulations to be made to invalidate restrictions on the assignment of receivables in particular types of contract. The regulations have now been made. They are contained in The Business Contract Terms (Assignment of Receivables) Regulations 2018. Draft regulations published in July, have been approved by both Houses of Parliament and are now in force.
What types of contracts do the Regulations apply to?
The Regulations apply to contracts for the supply of goods, services or intangible assets under which the supplier is entitled to be paid money. But there are a number of important exclusions from their application, including the following:
- They only apply to contracts entered into on or after 31 December 2018.
- They only apply where the person who supplies the goods, services or intangible assets concerned, and is therefore entitled to the receivable, is a small or medium-sized enterprise which is not a special purpose vehicle. Whether or not an entity qualifies in any particular case requires a detailed examination of the precise wording of the
- Regulations. Counter-intuitively, the test is not applied at the time the contract is entered into, but at the time the assignment takes place.
- There is a specific exemption for contracts “for, or entered into in connection with, prescribed financial services”: These are widely defined to include “any service of a financial nature”.
- There are specific exclusions for particular types of contract, including certain commodities, project finance, energy, land, share purchase and business purchase contracts and operating leases.
- As a general rule, it would seem that the Regulations only apply to contracts governed by English law or the law of Northern Ireland, but they prevent the parties from choosing a foreign law if it can be established that the purpose of doing so was to evade the Regulations.
- The Regulations do not apply if none of the parties to the contract has entered into it in the course of carrying on a business in the United Kingdom.
What is the effect of the Regulations?
The Regulations provide that “a term in a contract has no effect to the extent that it prohibits or imposes a condition, or other restriction , on the assignment of a receivable arising under that contract or any other contract between the same parties.”
A receivable is the right to be paid any amount under a contract for the supply of goods, services, or intangible assets. The Regulations do not prevent the parties from restricting the assignment of other contract rights.
More difficult is to establish what is meant by assignment. Receivables are transferred in various ways in practice. Sometimes the transfer is outright (for instance by way of sale); and sometimes it is by way of security (for instance to secure a loan). The transfer may be effected by a statutory assignment, an equitable assignment, a charge or a trust. “Assignment” is not defined in the Regulations, and so there is some doubt as to which of these transactions are covered.
Although charges are not expressly referred to, they might be covered by the expression “assignment” if it is given a broad interpretation. But because of the uncertainty, the best course is to take an assignment by way of security over a receivable where there is, or might be, a restriction. That way, it is clear that the Regulations do apply.
Non-assignment clauses come in a variety of forms. They will be covered by the Regulations if they prohibit or impose a condition , or other restriction on the assignment of a receivable. The Regulations expressly invalidate terms which prevent the assignee from determining the validity or value of the receivable or their ability to enforce it. Whether or not the Regulations apply in any particular case will require an analysis of the precise terms of the restriction.
The Regulations will be of particular importance to businesses involved in the financing of receivables. And they will also be of concern to buyers because they will override their contractual protections.
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Bulletins | January 30, 2018
Assignment by way of security – beware of giving away more than you bargained for.
Construction
Assignment by way of security is a concept that comes up on many construction projects; typically as a condition of providing finance a funder will require an assignment by way of security of key construction documents, including building contracts and appointments, with the intention that if the borrower defaults on the loan, the assignment will be perfected and the funder will be entitled to enforce its rights under the constructions documents. How and when exactly such assignment takes place and the interplay with an employer’s rights under its contracts on a project was brought into focus in last year’s case of Mailbox (Birmingham) Limited v Galliford Try Construction Limited ([2017] EWHC 67 (TCC)).
Mailbox (Birmingham) Limited (“Mailbox”), the claimant special purpose vehicle set up to develop the Mailbox in Birmingham (“the Property”), a high-end mixed used development, boasting a Harvey Nichols and the base for BBC Birmingham, engaged Galliford Try Construction Limited (“Galliford”) for refurbishment works at the Property under a building contract dated 23 December 2013. A dispute arose between the parties regarding responsibility for delay, the final account, liquidated damages and Mailbox’s termination which was referred to adjudication, where Galliford were ordered to pay Mailbox £2,477,152.86 plus 75% of the adjudicator’s costs. Galliford did not pay the sums ordered, so Mailbox sought enforcement of the adjudicator’s decision in the High Court.
Did Mailbox have a right to bring an adjudication?
Galliford’s primary defence to the enforcement was that Mailbox had no right to bring the claim, as it had assigned the benefit of the building contract with Galliford to Aareal Bank AG Wiesbaden (“Aareal”) in accordance with the requirements of a debenture dated 10 May 2011. Mailbox raised three defences:
- The building contract was not in existence at the time of the assignment referred to in the debenture. Therefore there could be no assignment;
- Alternatively, any assignment was by way of charge rather than a legal assignment; or
- The contract had been re-assigned from Aareal to Mailbox before Mailbox commenced adjudication proceedings.
Mailbox failed on the first two defences, but won on the third so was able to enforce the adjudicator’s award. However, it was the analysis of the first and second defences and Mrs Justice O’Farrell’s review of the requirements for legal assignment under Section 138 of the Law of Property Act 1925 that are of particular note.
It was held that the wording of the debenture covered future contracts, including the building contract in question. The wording “each chargor with full title guarantee assigns absolutely by way of security in favour of the security trustee” amounted to a full legal assignment rather than an assignment by way of charge and/or a conditional assignment. Further, there was a requirement for notice of the assignment to be served and specific reference to rights being re-assigned, both of which were more akin to an absolute assignment. Express notice was given to Galliford, again consistent with an absolute assignment. Thankfully for Mailbox, on the day it commenced the adjudication, Aareal had re-assigned the rights under the building contract to Mailbox. If it had not done so, or done so after the adjudication had been commenced, Mailbox would not have been entitled to commence the adjudication.
Practical Tips
When obtaining finance for a project it is crucial to understand what the funder really requires in relation to security over construction documents. If all rights are assigned, the employer no longer has the ability to enforce such rights and may have given away more than he bargained for.
It may be that the use of collateral warranties or third party rights together with a charge will suffice but if not (which is unfortunately still the common position), it is important that any such rights are re-assigned before the employer commences an adjudication or any other proceedings.
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Out-Law Guide 4 min. read
Assignment and novation
19 Aug 2011, 4:40 pm
Assignment involves the transfer of an interest or benefit from one person to another. However the 'burden', or obligations, under a contract cannot be transferred.
Assignment in construction contracts
As noted above only the benefits of a contract can be assigned - not the burden. In the context of a building contract:
- the employer may assign its right to have the works constructed, and its right to sue the contractor in the event that the works are defective – but not its obligation to pay for the works;
- the contractor may assign its right to payment of the contract sum - but not its obligation to construct the works in accordance with the building contract or its obligation to meet any valid claims, for example for defects.
After assignment, the assignee is entitled to the benefit of the contract and to bring proceedings against the other contracting party to enforce its rights. The assignor still owes obligations to the other contracting party, and will remain liable to perform any part of the contract that still has to be fulfilled since the burden cannot be assigned. In practice, what usually happens is that the assignee takes over the performance of the contract with effect from assignment and the assignor will generally ask to be indemnified against any breach or failure to perform by the assignee. The assignor will remain liable for any past liabilities incurred before the assignment.
In construction contracts, the issue of assignment often arises in looking at whether collateral warranties granted to parties outside of the main construction contract can be assigned.
Funders may require the developer to assign contractual rights against the contractor and the design team as security to the funder, as well as the benefit of performance bonds and parent company guarantees. The developer may assign such rights to the purchaser either during or after completion of the construction phase.
Contractual assignment provisions
Many contracts exclude or qualify the right to assignment, and the courts have confirmed that a clause which provides that a party to a contract may not assign the benefit of that contract without the consent of the other party is legally effective and will extend to all rights and benefits arising under the contract, including the right to any remedies. Other common qualifications on the right to assign include:
- a restriction on assignment without the consent of the other party, whether or not such consent is not to be unreasonably withheld or delayed;
- only one of the parties may assign;
- only certain rights may be assigned – for example, warranties and indemnities may be excluded;
- a limit on the number of assignments - as is almost always the case in respect of collateral warranties;
- a right to assign only to a named assignee or class of assignee.
Note that in some agreements where there is a prohibition on assignment, it is sometimes possible to find the reservation of specific rights to create a trust or establish security over the subject matter of the agreement instead.
Legal and equitable assignment
The Law of Property Act creates the ability to legally assign a debt or any other chose in action where the debtor, trustee or other relevant person is notified in writing. If the assignment complied with the formalities in the Act it is a legal assignment, otherwise it will be an equitable assignment.
Some transfers can only take effect as an equitable assignment, for example:
- an oral assignment;
- an assignment by way of charge;
- an assignment of only part of the chosen in action;
- an assignment of which notice has not been given to the debtor;
- an agreement to assign.
If the assignment is equitable rather than legal, the assignor cannot enforce the assigned property in its own name and to do so must join the assignee in any action. This is designed to protect the debtor from later proceedings brought by the assignor or another assignee from enforcing the action without notice of the earlier assignment.
Security assignments
Using assignment as a way of taking security requires special care, as follows:
- if the assignment is by way of charge, the assignor retains the right to sue for any loss it suffers caused by a breach of the other contract party;
- if there is an outright assignment coupled with an entitlement to a re-assignment back once the secured obligation has been performed, it is an assignment by way of legal mortgage.
Please see our separate Out-Law guide for more information on types of security.
Restrictions on assignment
There are restrictions on the assignment of certain types of interest on public policy grounds, as follows:
- certain personal contracts – for example, a contract for the employment of a personal servant or for the benefit of a motor insurance policy cannot be assigned;
- a bare cause of action or 'right to sue' where the assignee has no commercial interest in the subject matter of the underlying transaction cannot be assigned;
- certain rights conferred by statute – for example, a liquidator's powers to bring wrongful trading proceedings against a director – cannot be assigned;
- an assignment of a contract may not necessarily transfer the benefit of an arbitration agreement contained in the contract;
- the assignment of certain rights is regulated – for example, the assignment of company shares or copyright.
If you want to transfer the burden of a contract as well as the benefits under it, you have to novate. Like assignment, novation transfers the benefits under a contract but unlike assignment, novation transfers the burden under a contract as well.
In a novation the original contract is extinguished and is replaced by a new one in which a third party takes up rights and obligations which duplicate those of one of the original parties to the contract. Novation does not cancel past rights and obligations under the original contract, although the parties can agree to novate these as well.
Novation is only possible with the consent of the original contracting parties as well as the new party. Consideration (the 'price' paid, whether financial or otherwise, by the new party in return for the contract being novated to it) must be provided for this new contract unless the novation is documented in a deed signed by all three parties.
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- > Understanding the Law of Assignment
- > Different Models of Equitable Assignment
Book contents
- Understanding the Law of Assignment
- Copyright page
- Legislation
- Abbreviations
- Part I Introduction
- Part II The Model
- 3 Invariability
- 4 Different Models of Equitable Assignment
- 5 Misconceptions
- 6 Combination
- Part III Joinder
- Part IV Notice
- Part V Statutes
- Part VI Consequences
- Bibliography
4 - Different Models of Equitable Assignment
from Part II - The Model
Published online by Cambridge University Press: 10 October 2019
This chapter explores the two main conceptions of equtiable assignment as are currently found in the academic discourse, namely, a ‘substitutive transfer’ model, and a ‘partial trust’ model. The former denies that an equitable assignment operates by way of a trust, at all. The latter, however, admits taht where a legal chose in action is equtably assigned, some form of trustee-beneficiary relationship arises between the assignor and her assignee. But it denies that this arises when an equtiable chose in action is equitably assigned. The ‘partial trust’ model therefore takes equitable assignment to be a fragemented doctrrine which works differently, depending on whether the chose that is to be assigned is a common law chose, or one which arises in equity. This chapter then shows how each of these models are deficient, before showing how a composite model of equitable assignment would avoid these deficiencies.
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- Different Models of Equitable Assignment
- C. H. Tham , Singapore Management University
- Book: Understanding the Law of Assignment
- Online publication: 10 October 2019
- Chapter DOI: https://doi.org/10.1017/9781108636674.010
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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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Security Assignments – Not Always What They Say They Are?
Contributor.
The nature of security created under a security document does not always match its description in the document. Charlotte Drake explains how this recharacterisation risk can apply to security assignments.
Is an "absolute" security assignment legal or equitable?
Legal assignments – key requirements.
Lenders commonly take security over "choses in action" (such as debts or rights under contracts) by way of assignment. An assignment involves the transfer of either legal ownership (legal assignment) or equitable ownership (equitable assignment).
Section 136 of the Law of Property Act 1925 dictates the formalities for taking a legal assignment. It requires that a legal assignment must (among other things):
- be in writing;
- be executed by the assignor;
- be "absolute";
- not be expressed to be "by way of charge" only; and
- be notified in writing to the person against whom the assignor could enforce the assigned rights (the third party).
Legal assignments by way of security
There has been much case law on what "absolute" means. An assignment will not be absolute if it is conditional, or of part of a debt. However, a security assignment can qualify (provided it is not "by way of charge"): the fact the assignor has an equity of redemption under a security assignment does not of itself prevent the assignment from being "absolute". Security assignments sometimes use the term "absolute" to make clear they are intended to be legal assignments. However, the terminology used is not decisive. An assignment will not be "absolute" unless the third party can then deal with the assignee alone in respect of the assigned rights. The assignee owes an obligation to the assignor to reassign the rights on discharge of the secured liability. But the third party can continue to deal with the assignee until it receives notice of that reassignment.
In practice, this usually presents a considerable stumbling block to taking security by way of a legal assignment. Security assignments often allow the assignor to continue to deal with the third party, which commercially suits assignor, assignee and third party alike. However, such an assignment will not be "absolute" and so will take effect in equity only, even if the security document claims to effect a legal assignment.
The recent case of Ardila Investments NV v. ENRC NV and another 1 highlighted this. The judge accepted that the assignment clause in the document used "the words of a legal assignment". However, he pointed to other clauses in the assignment document which suggested the parties had intended it to take effect in equity rather than law. One of these clauses obliged the assignor to "pursue its rights" under the assigned contracts, which is clearly inconsistent with an absolute assignment.
Legal or equitable – does it matter?
Often not. A notified equitable assignment has as strong a priority against other interests in the assigned rights as a legal assignment.
One advantage of a legal assignment is that a legal assignee can sue the third party without the assignor's involvement. Received wisdom used to be that an equitable assignee could not sue alone and the assignor (as owner of the legal interest) must be joined in as party to proceedings (either as co-plaintiff if willing, or as co-defendant if not).
In Ardila the judge held that the assignment took effect in equity and that both assignor and assignee should join in the proceedings as co-claimants. As it happened, when the hearing took place, the assignor had been joined as co-claimant anyway. In other cases, an equitable assignee has been able to sue the third party alone. As a purely practical matter, even if the assignor does need to be joined into proceedings this is unlikely to be more than an inconvenience.
Could a security assignment be "floating" security?
Could there be another, more unpalatable, result of control remaining with the assignor following a security assignment? In Re Spectrum Plus 2 , the House of Lords of course held that a charge over a debt will be floating, not fixed, if the security holder fails to exercise control over the debt proceeds. Is a security assignment of a debt or similar contractual right also at risk of being recharacterised in this way? This is far from a settled point, but these obiter comments from Lord Scott in Re Spectrum Plus (at paragraph 107) suggest so:
" Suppose, for example, a case where an express assignment of a specific debt by way of security were accompanied by a provision that reserved to the assignor the right, terminable by written notice from the assignee, to collect the debt and to use the proceeds for its (the assignor's) business purposes, ie, a right, terminable on notice, for the assignor to withdraw the proceeds of the debt from the security. This security would, in my opinion, be a floating security notwithstanding the express assignment. "
There is some logic in this approach. If it were possible to "solve" Re Spectrum Plus by renaming all charges over debts as security assignments, the case would not have taken on the significance that it has. The risk of this type of recharacterisation is most obvious in a UK insolvency, where there is a clear distinction between the application of fixed and floating recoveries. In this context, at least, the "fixed/floating" distinction is likely to be more of a concern to a lender than whether its security assignment is "legal" rather than "equitable".
1. [2015] EWHC 1667 (Comm) (11 June 2015)
2. [2005] UKHL 41.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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Title transfer
| ’s Glossary
Sometimes called outright transfer , title transfer is when one merchant sells (or gives) something outright to another, the first thereby abandoning all its claim, interest and colour of right whatsoever to that thing. To be contrasted with a pledge or an assignment by way of security . Outright title transfer is a special, delicate thing — it has accounting, risk transfer, tax and legal implications that are quite different to giving mere possession over an asset by way of surety with a contingent right to repossess the very same asset back once the debt is discharged. With title transfer, once you part with an asset, it is gone for ever: your expectation is to the redelivery of one just like it, These differences may make little practical sense to the person on the Clapham omnibus, who just wants to know a debt is collateralised, but the distinctions forge long, lucrative careers for those in accounting and legal professions, and the JC would be lying if he did not allow that some of his long, inglorious career, had been devoted to getting this rather tendentious distinction right, and being righteously indignant that his colleagues in operations and collateral management seem dispositionally unable to. The title transfer 1995 CSA is carefully designed to create a true sale (hence references to redelivery of “ Equivalent Credit Support ” and not just return of posted assets). Modifications to the CSA (even by side letter or other agreement) which allow any counterparty to retain control over the Credit Support Balance held by the other party may prejudice the true sale analysis. This is what is fondly known as a title transfer collateral arrangement , about which disclosure is required thanks to Article 15 of that most excellent piece of EU doggerel, the Securities Financing Transactions Regulation . The twain between NY law and English law CSAs: pledge v title transferThis feels as good a time as any to raise the great subject of title transfer and pledge . Under a 1994 NY CSA one transfers 2016 VM CSA by means of pledge . Under a English law CSA one transfers 2016 VM CSA by title transfer . What is the difference? Under a “ title transfer collateral arrangement ” one party transfers collateral to the other outright and absolutely : it gives it, free of all reversionary interests, to the 2016 VM CSA . Securities delivered to 2016 VM CSA become the 2016 VM CSA ’s property absolutely. There is no custody involved: the 2016 VM CSA owns them outright, and not to 2016 VM CSA ’s order. The 2016 VM CSA has only an obligation to redeliver an “ equivalent ” security — ie one that is fungible with the 2016 VM CSA originally posted. There are no custody/client asset regulatory issues, and nor does it make sense to talk about the 2016 VM CSA ’s right to “ reuse ” or “ rehypothecate ” the asset. It owns the asset outright: by definition, it can do what it wants with it. The NY law CSAs and English law CSDs are “ security financial collateral arrangements ” in that there is a 2016 VM CSA who creates a security interest in favour of the 2016 VM CSA , but retains beneficial ownership of the assets . The 2016 VM CSA delivers the assets to the 2016 VM CSA to hold in custody , subject to the security interest , for the 2016 VM CSA . 2016 VM CSA holds the assets subject to a security interest securing its payment obligation under the related transaction. There is a custody arrangement but only while 2016 VM CSA holds the security: Under the NY law CSAs, the 2016 VM CSA (by default) is entitled to sell the pledged asset absolutely, under a process known as “ rehypothecation ”. This, we believe, converts the security financial collateral arrangement into a title transfer collateral arrangement — at least from the point of rehypothecation . If so, it makes you wonder why, you know, all the fuss with security interests. “Transaction” or “Credit Support Document”?English law Credit Support Annexes are Transactions under the Master Agreement. Therefore they are not Credit Support Documents . New York law Credit Support Annexes are not Transactions . Explicitly, they are Credit Support Documents , though you should not (according to the ISDA User’s Guide) describe the parties to one as “ Credit Support Providers ”. English law Credit Support Deeds (including the 2018 English law IM CSD ) — rare birds in the Forest of Bretton — are not Transactions and, explicitly, are Credit Support Documents . This means that a failure to perform under an English law CSA Transaction is a Failure to Pay or Deliver under Section 5(a)(i) . by contrast, a failure to perform under a New York law CSA or an English law CS D is a Credit Support Default under Section 5(a)(iii) . Does this mean anything substantive? Or is the difference only formal? EnforcementBecause ownership transfers absolutely, a 2016 VM CSA under an English law CSA doesn’t have to do anything to enforce its collateral. It already owns it outright. Indeed, to the contrary, should the 2016 VM CSA that the collateral supports disappear, the 2016 VM CSA will be the creditor of the 2016 VM CSA . It is as if it were a Transaction under the ISDA where the mark-to-market exposure had flipped around. As New York law CSAs are not Transactions , they are old-fashioned security arrangements. Therefore they ' are Credit Support Documents in the labyrinthine logic of ISDA ’s crack drafting squad ™ and must be enforced. Despite its name, the 2010 GMSLA transaction is one of title transfer, as can be better explained in the articles on market terminology and the term “ equivalent ” as it is used in the GMSLA . Full title guaranteeNote also the concept of full title guarantee and limited title guarantee , as contemplated by the Law of Property (Miscellaneous Provisions) Act 1994
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Security assignment of contractual rightsPractical law uk standard document 9-508-0695 (approx. 96 pages), get full access to this document with a free trial. Try free and see for yourself how Practical Law resources can improve productivity, efficiency and response times. About Practical LawThis document is from Thomson Reuters Practical Law, the legal know-how that goes beyond primary law and traditional legal research to give lawyers a better starting point. We provide standard documents, checklists, legal updates, how-to guides, and more. 650+ full-time experienced lawyer editors globally create and maintain timely, reliable and accurate resources across all major practice areas. 83% of customers are highly satisfied with Practical Law and would recommend to a colleague. 81% of customers agree that Practical Law saves them time.
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There are two types of assignment: legal and equitable. Legal assignments by way of security involve a transfer of legal ownership, with a proviso for re-assignment on satisfaction of the secured liabilities. A legal assignment is only possible in relation to assets which already exist (this excludes future assets). A sum becoming due
This document is from Thomson Reuters Practical Law, the legal know-how that goes beyond primary law and traditional legal research to give lawyers a better starting point. We provide standard documents, checklists, legal updates, how-to guides, and more. 650+ full-time experienced lawyer editors globally create and maintain timely, reliable ...
What distinguishes a mortgage from an outright sale with a right of repurchase is that the transfer is only intended to secure the repayment of the debt. ... as security for that borrower's debts. As with any assignment, an assignment by way of security can be either legal or equitable. An assignment will be legal if it is: in writing and ...
Our security document refers to a security assignment as an "absolute assignment". Is this correct? A security assignment can and will be absolute if: a. it is of the whole of each assigned right, and not of a portion, fraction or percentage of any assigned right; b. the assignment is not conditional, because
Assignments by way of security are a type of mortgage. They involve: •. an assignment (ie transfer) of rights by the assignor to the assignee. subject to: •. an obligation to reassign those rights back to the assignor upon the discharge of the obligations which have been secured. When the obligations that have been secured have been discharged,
Lenders commonly take security over "choses in action" (such as debts or rights under contracts) by way of assignment. An assignment involves the transfer of either legal ownership (legal ...
Sometimes the transfer is outright (for instance by way of sale); and sometimes it is by way of security (for instance to secure a loan). The transfer may be effected by a statutory assignment, an equitable assignment, a charge or a trust. ... the best course is to take an assignment by way of security over a receivable where there is, or might ...
an absolute assignment, with no equity of redemption, over receivables such that there is an outright disposal of the receivable from the seller to the financier; and • in the case of secured borrowing base (BB) facilities, take security (typically an absolute assignment by way of security) over the receivables.
Background. Assignment by way of security is a concept that comes up on many construction projects; typically as a condition of providing finance a funder will require an assignment by way of security of key construction documents, including building contracts and appointments, with the intention that if the borrower defaults on the loan, the assignment will be perfected and the funder will be ...
if there is an outright assignment coupled with an entitlement to a re-assignment back once the secured obligation has been performed, it is an assignment by way of legal mortgage. Please see our separate Out-Law guide for more information on types of security. Restrictions on assignment. There are restrictions on the assignment of certain ...
An assignment by way of security is a preferred claim in the assignor's insolvency over the realised value of certain rights the assignor holds against its counterparty. It is not a direct transfer of those rights to an assignee: the counterparty is still obliged to the assignor, not the assignee, and any claim the assignee would have against ...
Summary. This chapter explores the two main conceptions of equtiable assignment as are currently found in the academic discourse, namely, a 'substitutive transfer' model, and a 'partial trust' model. The former denies that an equitable assignment operates by way of a trust, at all. The latter, however, admits taht where a legal chose in ...
What does Assignment (by way of security) mean? An assignment by way of security is a type of mortgage. It involves an assignment (ie transfer) of rights by the assignor to the assignee subject to an obligation to reassign those rights back to the assignor upon the discharge of the obligations which have been secured.
Not always. For a security assignment holder to have the right to look to enforce directly against the debtor (a ' legal assignment '), a number of legal hoops have to be jumped through. In ...
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.
83% of customers are highly satisfied with Practical Law and would recommend to a colleague. Improve Response Time. 81% of customers agree that Practical Law saves them time. End of Document. Resource ID a-015-8171.
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 ...
Legal assignments - key requirements. Lenders commonly take security over "choses in action" (such as debts or rights under contracts) by way of assignment. An assignment involves the transfer of either legal ownership (legal assignment) or equitable ownership (equitable assignment). Section 136 of the Law of Property Act 1925 dictates the ...
Assignment. The transfer of a right from one party to another. For example, a party to a contract (the assignor) may, as a general rule and subject to the express terms of a contract, assign its rights under the contract to a third party (the assignee) without the consent of the party against whom those rights are held. Obligations cannot be ...
Sometimes called outright transfer, title transfer is when one merchant sells (or gives) something outright to another, the first thereby abandoning all its claim, interest and colour of right whatsoever to that thing. To be contrasted with a pledge or an assignment by way of security.. Outright title transfer is a special, delicate thing — it has accounting, risk transfer, tax and legal ...
83% of customers are highly satisfied with Practical Law and would recommend to a colleague. Improve Response Time. 81% of customers agree that Practical Law saves them time. End of Document. What are the pros and cons of being subrogated to a person's contractual rights as opposed to receiving an outright assignment of such rights?
An equitable assignment may be made in one of two ways: The assignor can inform the assignee that he transfers a right or rights to him. The assignor can instruct the other party or parties to the agreement to discharge their obligation to the assignee instead of the assignor. Only the benefit of an agreement may be assigned.
A standard form security assignment of contractual rights, created by a company incorporated in England and Wales in favour of a single corporate lender. This standard document creates a mortgage by way of assignment over the benefit of specified contracts entered into by the company and over the benefit of specified insurance policies taken ...