deed of assignment of debt template nz

Deed of Debt

Record a loan of money or assets to protect yourself in the future..

A Deed of Debt (also known as a “Deed of Acknowledgement of Debt”) is a great way to formalise a loan of money or assets to another person. A Deed of Debt is particularly useful for recording a loan between parents and children for the purpose of purchasing a home.

Get an online Deed of Debt with Agreeable, and you’ll have a strong reference point to return to in the future. Once you’ve filled out our short questionnaire, our Agreeable team can help you edit the Deed to fully reflect your intentions.

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What is a deed of debt.

A Deed of Debt is a document for recording a loan from one person to another. The Deed helps make it clear that the person receiving the loan must pay back the money or return the property at a chosen time.

The person who loans money or property is called the Creditor, and the person who receives the loan is called the Debtor. Deeds of Debt are particularly useful when someone loans money or property to a trust or where parents help one of their children purchase their first home by loaning them money for their deposit. These types of agreements are most effective when the lending party does not intend to recover interest on the loan.

Do I need a Deed of Debt?

A Deed of Debt allows parties to document a loan. A Deed of Debt records who is involved, the amount being transferred, whether the loan is interest free, and how the loan is to be repaid.

In our experience, a Deed of Debt is an important tool where parents are wanting to help their adult child, often either married or de-facto, purchase a family home. A Deed of Debt will record the loan to the child. The Deed of Debt can then function as an effective record of the loan for any future relationship property or separation agreement between the child and their partner.

Where parents help their child purchase a home and the child is in a relationship, we recommend seeking a relationship property agreement to protect that child’s equity (and debt) by reference to the loan from his or her parents.

What are the benefits of a Deed of Debt?

If someone refuses to repay money that you have loaned to them, having a valid, enforceable legal document can make recovering a loan easier.

Things to keep in mind when getting a Deed of Debt

It is important to ensure that you fully identify the people involved, and who is giving and receiving the loan. The amount to be repaid is also crucial.

Anyone entering into a Deed of Debt should always be aware of any tax or financial consequences that may follow (for example, whether interest applies and how it is to be repaid). We recommend that you seek legal and tax advice before entering into a Deed of Debt. Agreeable would be happy to help connect you with a lawyer who could provide that advice.

We look forward to working with you!

If you’re ready to work some magic and start drafting your own Deed of Debt, get started ! If you have any questions about how the process works, feel free to give us a call on 0800 9 AGREE.

New Zealand Legal Documents

• Company sale agreements
• Selling your business
• Confidentiality agreements
• Contract variation
• Franchise agreements
• Manufacturing agreements
• Merchandising agreements
• Non competition agreements
• Sale / distribution agreements
• Sales agency agreements
• Service agreements
• Share option agreements
• Sponsorship agreements
• Tender documents
• Terms of trade
• Company formation & related
• Company power of attorney
• Partnership agreements
• Shareholder agreements
• Website design & hosting contracts
• Website privacy policies
• Website terms & conditions
• Consultancy agreements
• Directors' service contracts
• Employee warning letters
• Employment policies
• Medical records
• Secondment agreements
• Termination & redundancy
• Guarantees & indemnities
• Loan agreements
• IP sales agreements
• IP security agreements
• Trademark & copyright licences
• Matrimonial agreements
• Assign a life insurance policy
• Deed of Gifts
• Medical wishes
• Power of attorney
• Sale of car or boat
• Sale of personal property
• Shared ownership - aircraft
• Shared ownership - boats
• Shared ownership - caravans
• Shared ownership - cars & bikes
• Statutory declarations
• Building trades contracts
• Agricultural leases
• Car parking spaces
• Commercial lease agreements
• Commercial property licences
• Lease renewal & cancellation
• Option to buy agreements
• Renting to a lodger
• Shared ownership
• Tenancy agreements
• Charitable trusts
• Trust formation & maintenance

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This range of New Zealand debt documents provide for deeds of assignment, transfer of debt, forgiveness and collection.

Statutory demand form and notes: service on a company or LLP

Official statutory demand forms, examples and notes. Simple and effective debt collecting device. Complies with relevant New Zealand legislation.

recover debt from a company

How to recover a debt from a nz company, introduction.

The NZ COMPANIES ACT 1993 provides a quick procedure for ensuring payment, or at least of knowing if the payment is possible.

First, serve a "statutory demand" on the company

To recover money from a company you must serve a "statutory demand" for the debt. This demand must be in writing and should be served on the debtor company's registered office. The demand must require the company to pay the debt, or to secure the debt or settle it in some way.

The company has 15 working days after being served to comply with the notice.

What if the company disputes the debt?

If the company disputes the debt it has 10 days after being served with the statutory demand to apply to the court to have the demand set aside.

If the company does apply to have it set aside, the Court can decide at that hearing if the company should be liquidated.

What if the company hasn't paid after 15 days?

If the company hasn't paid the debt after 15 days, and it has not disputed the debt, then it is deemed unable to pay its debts, and you can therefore apply to the court for the company to be placed in liquidation.

If the company wishes to defend the liquidation, it has 14 days to file and serve a Statement of Defence.

You must advertise in the local newspaper and in the New Zealand Gazette that liquidation proceedings have been started, including the place, date and time set for the hearing. The advertisement must be published at least seven clear days before the hearing date.

The company can pay the debt any time up until the court hearing. However, costs would be paid to the party applying to place the company in liquidation.

Appointment of a liquidator

If the company's defence of your liquidation application is unsuccessful, or if it does not file a Statement of Defence, the court will appoint a liquidator to take control of the company and to try to satisfy its creditors. The liquidator must ensure that all moneys that are recoverable are in fact recovered and that the payments are made in order of preference (see the Cautionary Notes below).

For more on liquidation, see related article How to liquidate a company.

Order of preference for creditors

If you are attempting to recover a debt from a company, you should know where you are in the order of preference for creditors should the company be liquidated. The order is as follows:

• those owed wages, including holiday pay
• certain payments to the Inland Revenue Department (for example, PAYE)
• secured creditors
• unsecured creditors

Note that creditors are paid after the costs of the liquidation have been met.

Cautionary notes

• It is important to be aware of where you are in the order of preference for payments to creditors. If you are an unsecured creditor, and therefore last on the list, you should consider carefully whether it is worthwhile bringing legal proceedings to liquidate the company; it may be that bringing proceedings would lead to costs greater than the debt you are trying to recover.

recover a debt from an individual

How to recover a debt from an individual within new zealand, first, give notice of the debt.

To recover a debt from a New Zealand  individual you must first give the person notice of the debt owed, what it is owed for, and when payment is required. If the person does not pay the debt then you should proceed with court action.

Which court do I apply to recover the debt?

• If the amount is less than $15,000 and the debtor disputes the debt, you can apply to the Disputes Tribunal. The Disputes Tribunal can't be used to collect debts that the debtor doesn't dispute. If both you and the debtor agree, you can take amounts up to $20,000 to the Tribunal. (For the procedure in the Tribunal, see How to make a claim to the Disputes Tribunal.)
• Larger amounts up to $350,000 go to the District Court, with the right of appeal to the High Court, and after that the right of appeal to the Court of Appeal on a point of law.
• If the amount is over $350,000, then the initial Court is the High Court, with a right of appeal to the Court of Appeal.

How do I start proceedings in the court?

There are two procedures that can be used to obtain a court judgment for a debt:

• Standard procedure - This is begun by the creditor filing a Statement of Claim and a Notice of Proceeding. The debtor responds with a Statement of Defence and the case goes to a Court hearing.
• Summary Judgment - This is a faster and simpler procedure, available when the creditor believes that the debtor has no reasonable defence against the claim. The creditor files the same documents as with the standard procedure, plus an additional application and affidavit.

How much will it cost me to go to court?

Be aware that the costs of court action will include the court filing fees, other costs such as service fees (possibly up to $100), and solicitor's costs.

If you've used the summary judgment procedure and the debtor has not disputed your application, costs between $500 and $1,000 may be awarded by the court, and these will go towards your lawyer's fees when paid by the debtor.

What will I be awarded if the court decides in my favour?

If the judgment is in your favour then the court order will include the following:

• the original debt
• interest at either the rate agreed in the terms of trade, or at 7.5 percent (a standard rate set by legislation), or at some other rate that the court decides
• legal costs and disbursements associated with obtaining the judgment (these will not cover all your expenses)

How do I enforce the judgment if the debtor still doesn't pay?

If the debtor still does not pay after the court has given you a judgment for the debt, you can use the court to enforce payment of the debt. The most common methods of enforcement are:

• Order for Examination - This is a court order to have the debtor brought before the court Registrar and examined about his or her financial situation. If the Registrar decides the debtor can pay the debt, the Registrar will make an order for payment. Usually the Registrar will try to negotiate an arrangement for payment that suits both parties. The Registrar can also make a number of other enforcement orders (including the ones listed below).  
• Attachment Order - This instructs the debtor's employer to make regular deductions from the debtor's wages or salary (including bonuses and incentive payments). It can also order ACC or Work and Income to make deductions from ACC payments or welfare benefits. An Attachment Order can also be made against commissions and payments received as an independent contractor. An Attachment Order can't be made unless there has first been an Order for Examination  
• Distress Warrant (for personal property) - This authorises a Collections Officer from the court (a "bailiff") to seize goods from the debtor to the value of the debt. The seized goods are held for five days and then sold, usually by public auction.
• Charging Order and Writ of Sale (for land) - The registration of a charging order puts a stay on the debtor's property, preventing him or her from selling the property until the debt is satisfied; the property can be sold to satisfy the debt by a writ of sale.
• The court procedures for recovering debts are complex, and you may therefore need to obtain legal advice.
• If you've obtained judgment for the debt, note that you are responsible for pursuing the debt, not the court.
• Always be aware of the possibility that the individual may in fact be bankrupt or have no assets. In such a case it is best to seek legal advice in order to fully understand what is involved in enforcing the sale of the debtor's property in order to have the debt repaid. A bankruptcy notice and bankruptcy proceedings in the High Court is a separate set of court proceedings against the judgment debtor. The costs for such a court case in the High Court include filing fees, disbursements such as other service fees (which could be up to $150), and solicitor's costs calculated on an hourly basis. The other enforcement steps are also separate proceedings.

exercise a creditor's right of repossession

How to exercise a nz creditor's right to repossession.

In exercising a right of repossession as a New Zealand creditor you must comply with the requirements set out in the CREDIT (REPOSSESSION) ACT 1997 . The Act applies to all "credit agreements", which means hire-purchase agreements and other security instruments, such as chattel mortgages (secured loans) and security interests over motor vehicles.

The Act sets out the procedure for repossession and places restrictions on when and how you can repossess, but it does not in itself grant a right to repossess. Whether or not you have that right will be determined by the agreement itself.

Under the Act, you may not repossess unless:

• the debtor is in default under the credit agreement, or
• the goods are at risk of being removed, destroyed or damaged

Creditor must first send a pre-possession notice

Before you can take steps to repossess, you must first send the debtor a "pre-possession notice". This must be in writing; a standard form is set out in Schedule 1 of the CREDIT (REPOSSESSION) ACT 1997. The notice must:

• state the amount the debtor owes, and
• give the debtor at least 15 days to pay the amount owed

If you do not follow these requirements:

• you commit an offence and are liable for a fine of up to $3,000, and
• the debtor can apply to the court for relief (see related article How to protect a debtor's interest after repossession)

The notice must also be sent to any guarantors of the debt.

It is not necessary to send a pre-possession notice if you are repossessing because the goods are at risk.

When and how must the repossession be carried out?

The repossession must be carried out in a reasonable manner, and only between 6 am and 9 pm, Monday to Saturday. The debtor can, however, consent to the goods being repossessed outside those hours, provided the consent is given after the default in payment has occurred and before you or your agent arrive at the debtor's premises to take the goods.

The following documents must be produced when repossession takes place:

• The debtor must be given a copy of the pre-possession notice that was served on him or her.
• If your agent is repossessing the goods, he or she must produce evidence of authority to act as your agent.
• If the entry is during the prohibited hours, you or your agent must produce the debtor's written consent to this.

What if the debtor isn't home?

If the occupier of the premises isn't home when the entry takes place, you or your agent must leave a notice specifying:

• that the premises have been entered and the date of entry, and
• a list of any goods that have been taken

This notice must be accompanied by copies of the documents referred to above.

People who are disqualified from carrying out repossessions

Certain people are disqualified from carrying out repossessions, whether as agents or as the creditor:

• anyone who has been convicted in the last five years of a crime of violence or dishonesty
• anyone who has ever been sentenced to a prison term of 10 years or more, or to life imprisonment
• anyone who has been released from prison within the last year

Anyone who repossesses property in contravention of these restrictions commits an offence and is liable to a fine of up to $10,000.

Post-possession notice

Within 21 days after repossessing, you must send a "post-possession notice" to the debtor and any guarantors. The form for the notice is set out in Schedule 2 of the CREDIT (REPOSSESSION) ACT 1997. The notice states that the debtor is entitled to get back the repossessed property if, within 15 days of receiving the notice, the debtor either:

• "reinstates", which means to pay everything owed under the credit agreement, plus the costs of repossession and any storage costs, or
• "settles" the agreement, which means to completely pay off or finish the agreement

The notice must contain your estimate of the value of the goods.

If you don't send a post-possession notice, you are not entitled to recover the costs of repossession from the debtor or the guarantor.

Selling the goods

If the debtor hasn't reinstated or settled within 15 days of the post-possession notice, you may sell or dispose of the goods. You are under a positive duty to make reasonable efforts to obtain the best price.

Within 10 days after selling the goods, you must send the debtor a third notice (a "statement of account"), showing:

• the amount the goods sold for
• the costs and expenses of the sale
• the amount the debtor owed at the date of the sale
• whether there is money left over from the sale or whether the debtor still owes you money, depending on the amount the goods sold for

If there is money left over from the sale, the debtor has six months to begin court proceedings to recover the money from you.

• Especially if you run a repossession agency, it is important that you obtain advice from a lawyer so that you can ensure that your repossession practice complies with the legal requirements.
• Note that special rules apply if the repossession takes place 21 days before the debtor is adjudicated bankrupt.

recover a debt from a bankrupt

How to recover debt from a bankrupt within new zealand.

If a person who owes you money (a debtor) is adjudicated bankrupt under the NZ  INSOLVENCY ACT 1967 , you will need to work in conjunction with the Official Assignee to attempt to recover the money owed. It is the Official Assignee's role to sell the assets of the bankrupt estate and distribute the proceeds to the bankrupt's creditors.

Lodging your Proof of Debt form

If the bankrupt identifies you as a creditor, you will be notified of the bankruptcy and be sent a report outlining the bankrupt's financial position. (Bankruptcies are also advertised in local newspapers and in the New Zealand Gazette .) If payments are likely to be paid to creditors, a Proof of Debt form will be included with the report for you to complete.

It is in your best interests to complete the form correctly and include documents supporting your claim as soon as possible to avoid any later delays. This is because once the debtor is adjudicated as bankrupt the standard procedures available for recovering debt are prohibited (see How to recover a debt from a company and How to recover a debt from an individual).

If you do not receive the Proof of Debt form you should make the appropriate enquiries with the Insolvency and Trustee Service, which is part of the new Ministry of Economic Development.

What can I claim for?

The Insolvency and Trustee Service will also advise you as to what you may claim for. You may be unable to recover:

• debts incurred after the date of the bankruptcy
• interest accrued after the date of bankruptcy
• legal costs of debt recovery (unless this was provided for in your contract with the debtor)

What rights do I have as a creditor?

You as a creditor have certain rights that you are able to enforce, especially if you are concerned about your position. These are:

• the right to inspect certain documents relating to the bankruptcy (such as other Proof of Debt forms, the bankrupt's books of account and the minutes of any creditors' meetings)
• request a creditors' meeting
• inspect the Official Assignee's trust account for the bankrupt estate of which you are a creditor

In what order are the proceeds of the estate distributed?

Once the bankrupt's estate has been sold, there is an order of priority that the Official Assignee must follow when distributing the funds:

• the Official Assignee's fees and administration costs
• costs and expenses incurred by the creditor who petitioned the High Court for the adjudication of bankruptcy
• wages owing to the bankrupt's employees for the period up to four months immediately before the date of bankruptcy, and holiday pay (but there is a maximum pay-out of $6,000 for each employee)
• taxes that the Inland Revenue Department collects, such as GST and PAYE
• deferred creditors

All the money available for unsecured creditors (if any) is distributed proportionately and the debt is then discharged.

Can I appeal a decision made by the Official Assignee?

As a creditor you have the right to appeal to the High Court against a decision made by the Official Assignee.

Obtaining information on bankruptcies: the National Insolvency Database

The Ministry of Economic Development has established a National Insolvency Database that each office of the Insolvency and Trustees Service has access to. Through this you can search for:

• the bankrupt's name
• the bankrupt's address
• the bankrupt's occupation
• the date and place of bankruptcy
• the time and details of the bankrupt being discharged from bankruptcy (there is an automatic discharge after three years, although the bankrupt can seek a court order to be discharged earlier)

You can also access and search this database through the Ministry's website

The New Zealand Government website Insolvency is an additional useful guide.  Cautionary notes

• A bankrupt is usually discharged after three years but you may lodge an objection to this in the High Court. It is advisable to consult a lawyer, who can advise you as to the likely success of doing this.

Deed of assignment of debt

A deed of assignment is used to transfer the right to be paid a debt from one person to another. Complies with relevant New Zealand legislation.

Deed of assignment of debt with consent

Transfer of debt.

A deed that provides for one person to take over a debt owed by another, with the consent of the creditor, so that the debtor/ creditor relationship is replaced and the debt is owing between the creditor and replacement debtor. Complies with relevant New Zealand legislation.

Full forgiveness of debt

A deed to record a Gift by way of forgiveness of part of a debt owing from one person to another where the maker of the Gift has natural love and affection for the recipient. Complies with relevant New Zealand legislation.

Partial forgiveness of debt

Final release of balance of debt, novation agreement: transfer debt to new creditor.

Transfer the right to receive a debt repayment from creditor to his transferee. Complies with relevant New Zealand legislation.

Novation agreement: transfer debt to new debtor

Transfer a debt obligation from one party to another with the creditor's permission, for example when restructuring debt or when selling a business and its obligations. Complies with relevant New Zealand legislation.

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Buy Self-help legal documents

Statutory demand form and notes: service on a company or LLP Statutory demand form and notes: service on a company or LLP

Official statutory demand forms, examples and notes. Simple and effective debt collecting device. Complies with relevant New Zealand legislation.

Deed of assignment of debt Deed of assignment of debt

A deed of assignment is used to transfer the right to be paid a debt from one person to another. Complies with relevant New Zealand legislation.

Deed of assignment of debt with consent Deed of assignment of debt with consent

Final release of balance of debt final release of balance of debt.

A deed to record a Gift by way of forgiveness of part of a debt owing from one person to another where the maker of the Gift has natural love and affection for the recipient. Complies with relevant New Zealand legislation.

Full forgiveness of debt Full forgiveness of debt

Novation agreement: transfer debt to new creditor novation agreement: transfer debt to new creditor.

Transfer the right to receive a debt repayment from creditor to his transferee. Complies with relevant New Zealand legislation.

Novation agreement: transfer debt to new debtor Novation agreement: transfer debt to new debtor

Transfer a debt obligation from one party to another with the creditor's permission, for example when restructuring debt or when selling a business and its obligations. Complies with relevant New Zealand legislation.

Partial forgiveness of debt Partial forgiveness of debt

Transfer of debt transfer of debt.

A deed that provides for one person to take over a debt owed by another, with the consent of the creditor, so that the debtor/ creditor relationship is replaced and the debt is owing between the creditor and replacement debtor. Complies with relevant New Zealand legislation.

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Selling a Debt: The Legalities, The Contract and the Forbidden

Many businesses struggle with bad debts. Unpaid debts can financially cripple a business, and the time and/or cost of recovering that debt may exceed the value of the debt itself. Often creditors take the risk of paying lawyers and/or debt collectors a significant amount of fees without the assurance of success.

If creditors are not paid, they face paying debt collectors and/or lawyers to collect the debt. But here is an alternative, that is to both write off the debt (and get the tax advantage of doing so) and avoid legal costs (but still get all the advantages of using lawyers).

The solution is through the sale of debt to us. At 90 Nine, when we buy a debt, we engage specialist lawyers to collect the debt and use the Court process to do so. We completely fund this process at no risk to the creditor.

While a relatively new debt enforcement process for New Zealanders, debt buying has been common in Europe and the USA for a while. Debt buying is an arrangement where a debt is purchased from the original creditor by a debt buyer for a percentage of the face value of the debt, based on the potential collectability of the debt.

From a legal perspective, sale of debt is achieved through an assignment.

The assignment of debt

The idea that a contractual right cannot be transferred is an archaic view that has been rejected by equity.

In the 17th century, the English Court of Chancery recognised and enforced the assignment of a contractual right, including the right to receive a debt.

Even though a right to receive a debt is intangible, the Courts regarded a debt as property and an asset capable of being dealt with like any other asset, including being assigned.

The English laws have consequently been adopted in New Zealand and the right to assign “a thing in action” (i.e. a contractual right) is presently recognised by Subpart 5 of the Property Law Act 2007 (“ the Act ”).

Section 48 of the Act expressly confirms that the ‘thing in action’ includes a right to receive payment of a debt.

Section 50 of the Act provides that a thing in action can be subject to an absolute assignment assuming the proper method and form of assignment is satisfied. This means that personal rights to property such as the right to receive a debt may be assigned from the original creditor to the debt buyer.

When assigning a debt, all rights and remedies of the original creditor over the debt are transferred to the assignee. It is not necessary to provide valuable consideration for the assignment meaning that debts can be bought for zero dollars. Further, it is possible to assign an amount or debt that will or may be payable in the future.

The laws of equity in relation to assignment continue operating concurrently with the statutory provisions and can be of benefit in limited circumstances where the statutory requirements of assignment have not been satisfied. However, practically, enforcing an equitable assignment might be more challenging, and for this reason, it is always advisable to assign a debt through statutory assignment under the Act.

Proper method and form of assignment

Under s 50 of the Act, for an absolute assignment of a thing in action to occur, at the minimum, the assignment needs to be in writing and signed by the assignor.

In addition to the minimum requirements, we recommend the best practice is to assign a debt through a deed, to reduce risk of future challenge to the assignment. A deed is a legal document which, in accordance with s 9 of the Act, needs to:

• Be in writing;
• Be signed by all parties;
• Have signatures witnessed in accordance with the Act (unless the party is a body corporate with no fewer than 2 directors);
• Include the locality of the place of residence and the occupation or description of the witnesses.

The deed will become binding once the above is done and when it is delivered by the person to be bound by it or their agent. This can be done through physical delivery or through fax/email.

Generally, the deed should make it clear who the parties are and what it is that is being assigned with as much certainty and clarity as possible.

Pursuant to s 51 of the Act, once a debt has been assigned, the notice of assignment needs to be provided to the debtor. That means informing the debtor, preferably in writing, that the debt is now payable to the debt buyer. If actual notice is not given to the debtor and the debtor pays the debt to the original creditor, this discharges the debtor’s liability to pay to the debt buyer. Although, the original creditor must now pay those funds to the debt buyer. In the case of joint debtors, only one needs to be given actual notice of the assignment.

Rights that cannot be assigned

Some contractual rights are incapable of assignment, whether under equity or under the Act.

A common example of such right is the right pursuant to the contract which expressly prohibits the assignment, either entirely or without the consent of all parties.

Another right that cannot be assigned is the bare right to a cause of action, which is not attached to a property interest such as a debt.

The Act addresses the assignment of rights, including right to a debt, but not the assignment of the burden of obligation. Assignment of contractual liabilities is generally not possible, unless limited exceptions apply.

Assignment vs Novation in New Zealand

By Grace Holden

Updated on January 28, 2021 Reading time: 5 minutes

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

What Is an Assignment?

What is a novation, what are the differences between an assignment and a novation.

In commercial dealings, you may find yourself having to transfer a contract . There are two common ways of doing this; through assignment or novation. Although both reach the same outcome – a transfer of a contract – each process does so in a different manner and leaves you and other contracting parties in different positions. This article will elaborate on the difference between assignment and novation when transferring a contract. 

An assignment of a contract is when an individual (‘the assignor’) assigns their benefits under the agreement to a new person or business (‘the assignee’).

For example, an owner of another business might owe you a debt. In this case, you can assign the right to be paid the debt to one of your employees, by entering into a deed of assignment.

Under the assignment process, however, an individual could not assign their contractual obligations to a new person or business. This new party could inherit the right to payment for a service, but could not be assigned to provide that service. This means that the assignor may continue to be responsible for carrying out their contractual obligations even after they have assigned the contract to a new party.

For example, if the business owner is only obligated to pay this debt on the basis that you will provide them with free products, they will not have to pay until you have provided these goods. You could not assign this obligation to provide goods to your employee, even if you have assigned them the benefit of being paid the debt owed. 

Some contracts may contain a term that prohibits you from undergoing an assignment. However, it is a general rule that if a contract does not include such a term, you can undertake an assignment.

A novation is when an individual (‘the novator’) transfers its benefits, rights and obligations under a contract to a new person or business (‘the novatee’). This means that the novator no longer has to carry out any obligations under the contract. 

For example, in a novation, you could transfer the benefit of being paid the debt owed to your employee, as well as the obligation to provide goods. You would no longer be obliged to help in the provision of the goods, nor would you be entitled to be paid the debt owed. 

Essentially, a new contract has formed with the novatee and the other party to the contract. 

1. Transfer of Benefits Versus Complete Replacement

Under an assignment, you can only transfer the benefits you receive from a contract to this new person or business. In contrast, through novation, you can transfer both contractual benefits and obligations to this new party. They will completely replace you as a contracting party.

2. Liability of the Original Party

As you can only transfer your contractual benefits through assignment, the contract may require you to continue performing any obligations. 

Under a novation, this new person or business replaces you, and you cease to be a party to the contract . Hence, you no longer have an obligation to provide the goods or services that the agreement required you to supply, once a novation takes place.

This distinction is crucial if you are the ‘original party’ – either the assignor or the novator. Depending on the type of transfer you underwent, you may or may not still have obligations under that contract. 

3. Consent of the Other Party to the Contract 

Given the transfer of responsibility in a novation, it is a requirement that all contracting parties have consented to it. This allows all parties to ensure that:

• the new person or business can fulfil the contractual obligations they are inheriting; and
• the new person or business has sufficient skill to do so. 

Since a transfer cannot occur under an assignment, consent from the other parties to the contract is not always necessary. However, there may be a term in the contract that requires approval from this other party. Therefore, it is useful to ensure that you are entirely aware of your contract’s contents before engaging in an assignment. 

Key Takeaways

An assignment and a novation can transfer a contract. However, both differ in three key ways. Under an assignment, you can only transfer contractual benefits. Through novation, a new contracting party completely replaces you as a party to the contract. This means that your contractual obligations cease once a novation has occurred, yet can continue under an assignment. Therefore, consent from the other party to the contract may not always be necessary for an assignment. However, it is a requirement for a novation to take place. 

Your contract may prevent you from undergoing an assignment without the consent of the other parties involved. Alternatively, your contract may prevent an assignment altogether. Therefore, you should understand the contents of your contract. If you have any questions about assignments or novations, contact  LegalVision’s contract lawyers  on 0800 447 119 or complete the form on this page. 

Under an assignment, you transfer the benefits you receive from a contract to a third party whilst continuing to fulfil your obligations under the contract.

It is a general rule that if there is no exclusion of assignment in your contract, you may assign it. However, if there is a term that excludes assignment, you cannot do so. Likewise, if there is a term that only allows assignment with the other contract party’s consent, this must occur.

A novation is when a new person or business replaces you as a contracting party and inherits your rights and obligations under that contract.

There are three differences between an assignment and a novation. Firstly, under an assignment, you only transfer the benefits of the contract to the new party. In a novation, you transfer both your benefits and contractual obligations. Secondly, due to this complete transfer that occurs in a novation, the original party no longer has any contractual obligations. In an assignment, the original party may still have to fulfil these obligations. Thirdly, the other contracting parties are always required to consent to a novation, whilst it is only necessary for an assignment if specified in the contract.

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Deeds, Agreements & Contracts - FAQ's 101

27 October 2016

Why are some documents “Deeds”, some “Agreements” and some “Contracts”?

You may wonder why some legal documents are “Deeds”, some are called “Contracts” and others are called “Agreements” when they seem to deal with the same subject matter. Sometimes deeds are used because they are legally required for the particular situation. Sometimes deeds are used because it is traditional to do so for that situation. Deeds are also used because they have certain advantages over documents that are stated to be “agreements” or “contracts”. A “contract” is another name for a legally enforceable “agreement”.

What are the legal requirements for a Deed?

The legal requirements for Deeds are set out section 9 of the Property Law Act 2007. In summary, a Deed must be in writing, it must be signed by the party being bound by it, the signing party’s signature must be witnessed and the Deed must be delivered to the other party. This means that the Deed could be enforceable against one party even if the other party had not signed it.

If I make a promise to someone, can that person legally enforce my promise?

In simple terms, a person can only legally require you to fulfil your promise (whether it is made verbally or in writing) if he or she is giving something in return, or the promise is recorded in a Deed.

One of the requirements for a contract to be legally enforceable is that payment (or value) must be given by one party in return for a promise given by the other party. Alternatively, there may be an exchange of value. This payment or value is called “consideration”. For example, “I will lease you my farm (promise) and you will pay me $20,000 (payment)”, or “I will let you use my tractor and you will let me use your feed out wagon” (an exchange of promises).

Does a contract have to be in writing?

A contract does not necessarily have to be in writing to be legally enforceable, but in many cases it is desirable to record the terms of the contract in writing so it is clear to both parties what is being agreed. In addition, certain statutes require certain types of contracts to be in writing and meet certain formalities. Contracts relating to the sale and leasing of land and contracts of guarantee must be in writing and meet the requirements of Property Law Act. An agreement recording a couple’s ownership or division of their relationship property must be in writing and meet the other formalities of the Property (Relationships) Act 1976 (such as independent legal advice for each party). Credit contracts, door-to-door sales, contracts to purchase cars from registered dealers and contracts for building work over $30,000 must all be in writing.

What are some of the advantages of recording promises in a Deed?

Unlike a contract, a promise in a Deed is enforceable whether or not there is any payment or consideration given for it. For a legal claim based on a Deed, there may also be a longer period of time within which the claim must be filed in court than that allowed for a contract. Because there is no value or consideration given for a gift, a promise to give something is normally recorded in a deed.

It all depends…

Despite the general rules outlined in the answers to these questions, the answer to a particular problem might depend on the particular facts. Like most legal rules, there will always be exceptions. If you want a question about a particular Deed, contract or Agreement answered properly then it is advisable to take legal advice.

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Barbara McDermott

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Novation agreements

Novation agreements change the parties to a contract, transferring the benefits and obligations to another business or individual. Our agreements have been drawn for common situations where all parties to the contract (new and old) agree to the novation. Closely related to novation is assignment. You may also be interested to look at our assignment agreements .

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• Topic Overview

Novation agreement: transfer of service contract

Transfer a service contract between customers using this easy to use and effective novation contract. Although this novation agreement can be used to transfer any service contract, we have used the example of a transfer of website hosting services between hosting providers. Changes for other types of service agreement are very simple to make. The most common use for this agreement would be to change the parties to service contracts on the purchase of a business.

Novation agreement: transfer debt to new debtor

Transfer a debt obligation from one party to another with the creditor's permission, for example when restructuring debt or when selling a business and its obligations. This is an easy to use, effective novation agreement.

Novation agreement: transfer debt to new creditor

Transfer the right to receive a debt repayment from creditor to his transferee. Common uses would be one-off transfer of a debt, or when factoring debt (buying the debts or loans owed to the seller) or when buying a business that has extended credit to customers. This is an easy to use, effective novation agreement.

Novation agreement: transfer of architectural or building contract

Easy to use novation agreement for use where the customer of an architectural or construction contract changes part-way through the project (e.g. where the land and part-completed buildings are sold).

If the document isn’t right for your circumstances for any reason, just tell us and we’ll refund you in full immediately.

We avoid legal terminology unless necessary. Plain English makes our documents easy to understand, easy to edit and more likely to be accepted.

You don’t need legal knowledge to use our documents. We explain what to edit and how in the guidance notes included at the end of the document.

Email us with questions about editing your document. Use our Lawyer Assist service if you’d like our legal team to check your document will do as you intend.

Our documents comply with the latest relevant law. Our lawyers regularly review how new law affects each document in our library.

Choosing whether to novate or assign

The basic law is that ‘A’ cannot transfer his obligations to ‘C’ that he has under a contract with ‘B’, without ‘B’ agreeing.

Novation is the legal mechanism where the rights and obligations are transferred with the permission of all parties (both new and old).

When it is possible to obtain the contractual consent of all three parties, use a standard, three-sided novation agreement.

If many contracts are being transferred at the same time, such as when one business buys another including customer contracts, it may be simply not practical to ask each other party (in our example, each customer) to sign a novation agreement.

So, the parties that are transferring the contracts sign an assignment agreement and hope that the other original parties not object.

So that the original parties cannot cancel the contract if they do object, most businesses that have large numbers of contracts make sure that the terms of each contract allow them to assign the contract without permission. In that case, there is no breach of contract and the other original party cannot cancel.

If a client or customer becomes aware that his supplier has changed, and he continues to accept services from the new supplier, he will be deemed to have accepted the new contract. There is no specific time period or circumstance when you can be sure this has happened.

Why novation should not be by deed?

You may hear or read of a “deed of novation”. Many documents that can be simply signed are also referred to as deeds. This is due in part to the continued mystification of the law in some quarters.

A novation never needs to be by deed. The deed format is used where one party to a contract receives no consideration. However, a novation is invariably "for value", and as such, a deed of novation confers little additional advantage.

In the unlikely event that a party agrees to novation out of pure kindness, the consideration can be entered as “one dollar”, or a "peppercorn". The sum does not need to have any relation to the value of the debt being novated.

Novating a debt

A common misconception is that novating a debt cancels an old debt and creates a new one to the new owner. Instead, novation just changes the parties to the original contract. However, in most cases, novation is an easier option than cancelling an old agreement and drawing a new one.

• Insights & events

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

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

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

Recent cases which tell another story

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

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

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

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First Home Buyers Structuring Parental Support

Presenter: Peter Lindstrom, resident director in Pahiatua Palmy co-directors: John Mills, Michael Fennessy and Melissa Bourke Office on cnr of Rangitikei & King Streets, ph: 358 6075

50% of our business is residential conveyancing. The balance of our work includes advising on relationship property, Trusts, Wills and estates, all of which have relevance to this topic.

Independent Legal Advice

• Always get independent legal advice, from a firm that is not acting for your child
• Independent legal advice ensures a greater understanding of the risks involved, which can be dire (for e.g., loss of home, bankruptcy)
• Independent legal advice means that the advice you are given is free from the influence of anyone else’s interests; that lawyer is acting only for you
• Independent legal advice helps protects the Bank from the defences of undue influence and lack of awareness
• Lawyers have little scope to change a Bank’s documents, but what scope there is for change, is best sought by the independent lawyer
• Remember that whatever solution is decided upon, there is no material gain or upside for the parent, just risk
• Lawyers can only act for more than one client in a transaction when there is a less than negligible risk of a conflict – it is hard to see a case where independent legal advice would not be required, given what is at stake
• Outright gifting is not usually prudent
• If the gift has been applied to the child’s relationship home then their partner has a claim to half the benefit on separation
• If the home is security for the child’s business borrowings then the equity of the gift may end up in the hands of a creditor
• A gift can adversely impact upon your annual gifting limits and entitlements to residential care assistance under the current MSD asset tested and income tested policy
• Estate planning and parity between children
• Some Banks require the parents financial assistance to be a gift
• If a gift for a home has been made to a child who is in a domestic relationship or comes to be in one, it adds to the necessity of the child executing a contracting out agreement (‘pre-nup’) before the property is permitted to become the relationship home
• A contracting out agreement will protect the equity created by the gift as your child’s separate property

Deed of Acknowledgement of Debt and Agreement to Mortgage

• Preferable to a gift
• Parents can document a loan on an interest free, upon demand basis
• Should be signed by child and their partner so that it is a relationship debt
• Can be called up in the event of a separation
• Affords the ability to become a secured creditor (behind the Bank of course!)
• Can either forgiven in your Will or called up as an asset of your estate
• Some Banks will accept the Deed of Acknowledgement/Gift of Debt in Will option as satisfactory for their lending purposes
• Is the most preferable option
• The parents ‘underwrite’ the child’s debt to the Bank
• Is one of the most onerous third party Bank security arrangements there is

Features of a customary Bank Guarantee

• It has no expiry date
• It is not linked to a specific loan
• The scope of liability can be unlimited, unless negotiated otherwise with the Bank
• No party other than you has a legal responsibility to see to it’s release
• The Bank has the ability to pick and choose between the debtor and the guarantor as to which persons it will pursue in default; it does not have to pursue the debtor first
• If you have a mortgage to the same Bank then it becomes security for the debtor’s loan also; some Banks will seek a mortgage from you in any case
• If you cancel the guarantee you still have a contingent liability to the bank for the loan balance then outstanding
• Guarantors are jointly and severally liable which means that one individual can end up paying for the whole lot
• You have the right to say no, or at least limit your liability

Joint Borrowers/Co-debtors

• The parents are co-borrowers under the home loan agreement to the Bank
• The Bank has the benefit of the parent’s home as security under the lending arrangements in order to comply with the LVR rules
• The parents have a direct debtor relationship with the Bank, being equally responsible to the Bank to service the loan
• While the parents may feel that their relationship to the Bank is notional only, ultimately it is not and may hamper your freedom to deal with your own home as you otherwise might
• For example, if you wish to sell your home you may have to pay a chunk of your child’s mortgage from the sale proceeds to make sure that they stay within the LVR rules. This could be a considerable amount of money, it comes from your equity and restricts the funds that are available to you. Consider the impact of this if you wish to move to a higher value home, for example
• A Variation: Consider a parent owning a share in the property and is a joint mortgagor in the child’s home with the Bank agreeing to limit the parent’s liability to their share in the child’s property

Family Trusts

• A number of parents will have their assets owned by a Family Trust
• The Trustees ability to enter into a financially supportive arrangement for a child is curtailed by their duties to the other beneficiaries and not to put the Trust assets unduly at risk
• Accordingly, Trustees should not enter into guarantees in this context, nor should they contemplate a co-debtor arrangement
• The Deed of Acknowledgement of Debt and Agreement to Mortgage is the best arrangement for a Family Trust
• In place of a gift, a distribution of part of the Trust Assets is made and needs to be documented formally. It may entail the child waiving any future equal entitlement to the Trust Assets

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Record Your Gifting | Deed of Gift | Deed of Debt

Quite a few Kiwis that are buying their first home (or another home) are helped by parents that want to “gift” them or “loan” them some money.

Gifting Should Be Recorded

A Deed of Gift is a great way to formalise an intention to gift money or assets to someone. A Deed of Gift is particularly effective for recording a gift from parents to children for the purpose of purchasing a home.

If parents are giving one of their children money without expecting or requiring anything in return, then you will probably be making a gift.

In that case, a  Deed of Gift  is right for you.

Acknowledging A Debt

A Deed of Debt (also known as a “Deed of Acknowledgement of Debt”) is a great way to formalise a loan of money or assets to another person.

A Deed of Debt is particularly useful for recording a loan between parents and children for the purpose of purchasing a home. If parents are making a loan to their children by giving them money that they must pay back, then this is probably making a loan and a  Deed of Debt  is right for you.

In most cases a Deed of Debt is treated very much like a gift and the agreement

Is A Deed Of Debt Better Than A Gift?

A Deed of Debt (also known as a “Deed of Acknowledgement of Debt”) has some key advantages over gifting money, and would often be recommended by solicitors and mortgage advisers as a more prudent way to record any gift or loan.

In particular the advantages are:

The “debt” can be interest free and with no requirement for any repayments, so for the children and the bank it is treated in a very similar way to a gift.

If parents are wanting to help a child they may want to “gift” their child money, but have concerns that if their child and partner separated the partner will want to split the assets 50/50. The money that was gifted is effectively then the child’s money and that too would normally be part of any 50/50 split. If instead of being a gift it was a “debt” then that would need to be repaid to the parents on the sale of the property and that way it does not become part of the assets that get split.

If the property is sold for whatever reason the debt becomes due to be repaid.

Get Discounted Agreements Online Now

We have negotiated with a company called Agreeable to offer you their certified agreements.

These are agreements that you can buy online for a fraction of the normal price, fill out the short questionnaire, then the Agreeable team can help you edit the Deed to fully reflect your intentions.

You can also get a fixed fee quote if your situation is a little more complex and you require personal and professional legal advice.

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Home » Commercial Property Law » As a commercial landlord, what say do I have over who my tenant sells their business to?

As a commercial landlord, what say do I have over who my tenant sells their business to?

23 May, 2012 | Wade Hansen

If you are the landlord of a commercial property, and your tenant is selling their business, you may want to know what say you have as to who the new tenant might be.  The transfer to a third party of the tenant’s rights to use the property is known as assignment.

The rights of landlords and tenants mainly depend on two things:

• the terms of any written lease signed by the parties and;
• part 4 of the Property Law Act 2007 (“PLA 2007”).

If you do not have a written lease, pursuant to section 210 of the PLA 2007, the tenant has no right to assign.  Further, if you do not have a written lease, either party may terminate the tenancy at will, giving only 20 working days notice. This is why we strongly recommend you have a lawyer draft a written lease to give you security.  A written lease locks the tenant in for an agreed period of time and gives the tenants the security of tenure for the term or period of the lease.

If you have an existing written lease, then a close examination of the wording surrounding any rights to assign the lease should be undertaken.  A lot of leases are based on the standard form Auckland District Law Society (“ADLS”) lease, which includes as a standard term the tenant’s right to assign the lease, subject to obtaining the landlord’s written consent to the assignment. However, the landlord shall give that consent if the following conditions are fulfilled:

a) the tenant proves to the satisfaction of the landlord that the assignee is respectable, responsible and has the financial resources to meet the commitments under the lease;

In order to satisfy this condition, it is reasonably standard practice that the landlord requests the following types of information from the proposed assignee:

• previous business experience relating to the business they will be conducting from the premises;
• details of their previous landlord(s) for the purpose of reference checks;

a list of assets and liabilities of the proposed assignee and/or any proposed guarantor of the assignee (see d) below).

b) all rent and other moneys owing under the lease have been paid and there is not any subsisting breach of any of the tenant’s covenants. An example of a subsisting breach may be if the tenant has made alterations to the premises without obtaining the landlord’s consent.  Then the landlord can require that the tenant reinstate the premises to the original state before the assignment will be consented to.

c) a deed of covenant in customary form is executed and delivered to the landlord; There is a standard ADLS deed of assignment (deed of assignment and deed of covenant can be used interchangeably) that is often used, which ties the assignee into the terms of the existing lease and more importantly, records that the current tenants is still liable under the deed of lease, should the assignee default.

d) if the assignment is to a company, then a guarantee from the principal shareholders of the company be executed and delivered to the landlord;

A guarantee is necessary if the proposed assignee is a company because if the company goes into receivership or is put into liquidation, then you want to secure another avenue whereby you can recoup any outstanding rental payments. Be mindful to ask for a list of assets of the guarantors in their personal names. If all of the guarantor’s assets are held in a family trust, you would be better to obtain a guarantee from the trust itself. Again, in the standard ADLS deed of assignment, the guarantors are a party to the document and if they sign this, they do not need to sign a separate guarantee document.

e) the tenant pays the landlords reasonable legal costs in respect of the proposed assignee.

The tenant is required to pay the landlord’s reasonable legal costs irrespective of whether or not the assignment proceeds.If your lease follows the standard form ADLS lease, you do have some say as to who takes on the assignment of the lease, but clause 45.1(k) states that you cannot unreasonably withhold your consent. If a reasonable landlord would be satisfied with the information the proposed assignee has provided, then you must grant consent.

How much control you have over who the new tenant is depends on the exact wording of your lease.  In rare cases, your lease may include the right for the tenant to assign the lease to someone else, but might not stipulate what conditions have to be met first.  The wording of leases does vary, and it is important that you understand exactly what rights your particular lease provides to you as the landlord.

Remember, even if as landlord you agree to the assignment of the lease, this does not always mean that the original tenant’s obligations under the lease are immediately terminated. You may still be able to fall back on original tenant and/or the original guarantor if assignee defaults. As always, it is determined by the wording of the lease and any other documents signed at the time of assignment.

If you have are in this situation we recommend that you consult your lawyer to understand exactly what your rights and obligations are under your current lease.  If you do not have a written lease in place with your current tenant, we strongly recommend that you instruct a lawyer to draft a lease recording the current terms of the lease immediately.

For assistance with a tenant assigning their lease or any commercial property matters, contact expert commercial property lawyer Wade Hansen  on  09 837 6885  or at  [email protected]

Is your tenant looking to assign their lease.

Ensure your investment is protecting through this transition – contact expert Commercial Property Lawyer, Wade Hansen today to set up an appointment.

+64 9 837 6885

About the author

Born and bred in the West, Wade has a keen interest in developing the community and assisting businesses grow to their full potential. His experience in Property & Commercial Law, along with his common sense and level headed business knowledge Read More »

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Conveyancing / Buying & Selling Property

Commercial Leases

Deed of Settlement

A Deed of Settlement can be used in all types of undisputed debt recovery to help in the resolution of a matter and avoid unnecessary legal action. Both parties are tied into an agreement for a fraction of the price of legal action while securing the interests of both parties.

What is it?

A Deed of Settlement is a document that both parties agree to sign containing a Payment Plan that the debtor must adhere to. If the debtor does not make payments as per the agreement, there are consequences. Because of these consequences, our clients can be more lenient when it comes to the timeframe of repayment dates.

A Deed of Settlement can benefit both sides.

As a creditor, its benefits include:

• Security over the debt.
• A personal guarantee from the Director of a company.
• A charge over the debtor’s assets.
• Acceptance of the debt on the debtor’s part. This ensures the debt cannot be disputed at a later date.
• Interest on overdue payments.

As a debtor, its benefits include:

• More flexibility when it comes to repayment proposals as each payment is set to a specific date.
• Allowance to forecast dates they will pay and work towards those dates.
• Peace of mind. A deed can stop a creditor proceeding with legal action against a debtor and also put an end to any further legal action occurring if it has begun (if legal action has commenced, a clause can be put in place to finalise those proceedings as long as the arrangement is kept).
• No Credit Default being placed against them while there is an active Deed of Settlement.
• A confidentiality clause that stands if the debt is repaid.

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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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About this document

This is an important Document for you to complete when you are setting up a Trust and transferring assets to that Trust.

What this Deed of Acknowledgement of Debt from Trust does is to confirm that the Trust owes the Donor (which is normally the Settlor/s) the amount in dollar value that it is receiving from the Donor and will continue to owe until the Debt repayment is either forgiven by the Donor (which is normally what happens), or is repaid in terms detailed in this Document.

Before you begin, make sure you have the following information at hand:

1. The name of your Trust;

2. The date of your Trust Deed;

3. The full name/s, city they live in and occupation for all Settlor/s

4. The full names, city they live in and occupation for all the Trustees of your Trust;

5. The total amount/value of all the Assets that you are transferring to your Trust.

Answering all these questions should only take you around 10 – 15 minutes to complete.

This interview will generate a document based on the information provided by you. It does not and is not intended to represent legal advice or the practice of law (even if the information you input is based on suggestions or tips provided by us). 

Please note: if you want professional assurance that this template and your interpretation of it is appropriate to your particular situation, we recommend that you consult with a lawyer authorised to practice law in your jurisdiction.

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