equitable assignment ireland

• Practical Law

Equitable assignment

Practical law uk glossary 2-107-6540  (approx. 3 pages).

• 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.
• General Contract and Boilerplate
• Breach of Lease Covenants
• Security and Quasi Security

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Out-law / your daily need-to-know.

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.

• Construction Contracts
• Construction
• Government and public sector
• Real Estate
• Technology, Science & Industry
• United Kingdom

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Borrower's Undertaking Creates Equitable Assignment of Investment Proceeds

The High Court ( Court ) had to determine whether proceeds from two investments in the estate in the bankruptcy of Bernard McNamara ( McNamara ) were payable to NALM under its security package, or whether they should be retained in the estate in the bankruptcy of McNamara for the benefit of creditors generally ( substantive question ).

While McNamara was discharged from bankruptcy in March 2014, his estate remained vested in the plaintiff trustees ( Bankruptcy Trustees ). The defendant, NALM, was the successor in title to Anglo Irish Bank ( Anglo ), which had loaned sums to McNamara in 2007. Before his bankruptcy, McNamara had made two separate investments: (i) shares in a UK property fund ( UK Property Fund) and (ii) an investment known as the German Geared Commercial Property Investment ( GGCP Investment ) (collectively “the Investments “). Signature Capital (or its related entities) managed the Investments. In January 2014, the Bankruptcy Trustees received two payments from Signature Capital relating to the investments ( Investment Proceeds ). NALM argued that the Investment Proceeds were captured by its security package.

Jurisdiction & applicable law

Before addressing the substantive question, the Court considered whether it had jurisdiction in the case.

The UK was part of the EU when McNamara was adjudicated bankrupt, so the governing rules were the EU Insolvency Regulation (1346/2000) ( Regulation ) – since replaced by EIR Recast (Regulation 2015/848) – which applies to insolvency proceedings (including bankruptcies) commenced before June 2017.

The general rule under the Regulation is that insolvency proceedings are governed by the law of the state where the proceedings were opened. However, certain rights in rem (rights against things) can be the subject of another law where, when the proceedings opened, those rights were situated in another member state. Under the Regulation, rights in rem include the right to dispose of assets and obtain satisfaction of security (e.g., lien/ mortgage) from the proceeds.

The key question, according to the Court, was whether NALM’s alleged security over the Investment Proceeds were rights in rem. After considering various factors, the determining factor for the Court was that if, as a matter of Irish law, it found there was an assignment/ charge in favour of Anglo over the Investment Proceeds, then NALM had a right a rem. Ultimately (see below), the Court was satisfied that the rights were rights in rem.

On the jurisdiction point, the Court also noted that a deed of charge upon which NALM was principally relying was expressly governed by Irish law, and there was an exclusive jurisdiction clause selecting the Irish courts.

The security

NALM relied on three forms of security:

• Deed of charge between Anglo and McNamara ( Deed of Charge ).
• The deposit of a share certificate and a loan note certificate ( Loan Note Cert ) relating to the GGCP Investment.
• Two letters of undertaking ( Undertakings ) relating to the Investments signed by McNamara, Signature Capital and SF Capital, undertaking to remit all distributions under the Investments to Anglo.

Court’s ruling on security

The Court held that the Deed of Charge did not create security over the income derived from the charged shares, such as dividends or other distributions, because:

• The charging clause referred to “all shares in the capital of First UK Commercial Property plc…” It did not refer to any rights associated with those shares, such as dividends and other distributions.
• Signature Capital confirmed that the proceeds received by the Bankruptcy Trustees “were from funds following the sale of the remaining properties held in the fund…” i.e. they were not proceeds from the sale of the shares themselves.

The Court held that the deposit of the Loan Note Cert did not create an enforceable equitable mortgage over the proceeds of the related loan. It did not consider the deposit of the share certificate as the proceeds received related to the “repayment of a Loan Note”. The Court considered whether the deposit of the Loan Note Cert had the same effect as the deposit of a share certificate insofar as the creation of an equitable security interest is concerned. It found:

• Unlike a share certificate, the Loan Note Cert did not evidence ownership or impede the transfer of the related loan payment.
• The Court could not confirm there was, in fact, a loan note in existence.

The Court held that the legal effect of the Undertakings was to create an equitable assignment by McNamara to Anglo over all distributions received in respect of both investments for the following reasons:

• The assignor (McNamara) directed an obligor (Signature Capital) to pay out distributions to NALM under the Undertakings.
• The Undertakings contained a written “instruction” to Signature Capital that was “irrevocable”.
• A prior agreement to grant the Undertakings as “security” was referenced in the relevant facility letter.
• A right of redemption existed, a classic characteristic of a security interest, pursuant to the Undertakings.
• The rights assigned by the Undertakings were existing, not future choses in action – the existing right to future payments immediately vested in the assignee.
• Reliance on UK and Irish case law as authority for the position that where a borrower, or obligor on the borrower’s instructions, undertakes to pay a receivable to a bank, the bank obtains a security interest in that receivable.
• The creation of equitable assignments is not confined to undertakings given by solicitors.

After concluding that it had jurisdiction under the Regulation, the Court found that NALM had valid security over the Investment Proceeds. Accordingly, the Court ordered that NALM was beneficially entitled to the Investment Proceeds.

The judgment is of note because of the invocation of the rights in rem exception to the general jurisdiction rules in the Regulation. Its principal significance, however, is that it confirms that undertakings given by a borrower, or parties on its behalf, can be effective in creating an equitable assignment, if they are properly instructed and authorised to give it. To date, equitable assignments have been found to exist based on solicitors’ undertakings, but this judgment confirms that security interests over receivables are not limited to solicitors’ undertakings.

Filed under

• European Union
• Insolvency & Restructuring
• William Fry
• Insolvency Regulation (1346/2000) (EU)

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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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Lending & Secured Finance Laws and Regulations Ireland 2024

ICLG - Lending & Secured Finance Laws and Regulations - Ireland Chapter covers common issues in lending and secured finance laws and regulations – including guarantees, collateral security, financial assistance, syndicated lending and LIBOR replacement.

Chapter Content Free Access

1. overview, 2. guarantees, 3. collateral security, 4. financial assistance, 5. syndicated lending/agency/trustee/transfers, 6. withholding, stamp and other taxes; notarial and other costs, 7. judicial enforcement, 8. bankruptcy proceedings, 9. jurisdiction and waiver of immunity, 10. licensing, 11. libor replacement, 12. esg trends, 13. other matters.

1.1        What are the main trends/significant developments in the lending markets in your jurisdiction?

The Irish lending market has experienced numerous challenges both nationally and internationally in recent months.  The emergence from the COVID-19 pandemic and the Russian invasion of Ukraine prompted a persistent period of high inflation and significantly higher interest rates across the Eurozone and globally which have continued throughout 2023.  Currently, interest rates have exceeded 4% and are at their highest rate in over 20 years.  In response, the Irish pillar banks have also increased their interest rates on variable and fixed rate loans for both commercial and consumer borrowers which has escalated the cost of funding.  As a result, there has been a marked reduction in new money lending activity in Ireland in 2023, especially in the commercial real estate finance space, although activity levels in financing for residential housing developments (and social and affordable housing in particular) remain strong.   

Despite the obstacles, the outlook for 2024 looks promising and the lending market remains competitive given the presence of leading Irish banks, international banks and financial institutions and a strong slate of non-bank lenders.

Additionally, there continues to be an active tertiary market where the funds that acquired portfolios of non-performing loans in the 2012–2015 period are exiting their positions.

Green finance remains an area of very significant interest for lenders and is growing in importance year on year.  The Irish pillar banks green bond issuances have continued to increase under their green bond frameworks.

1.2        What are some significant lending transactions that have taken place in your jurisdiction in recent years?

Transactions levels were robust, both domestically and cross-border, across multiple asset classes in 2022.  Real estate finance continued to be an area of very considerable activity and Dillon Eustace acted on transactions with an aggregate value exceeding €2 billion again last year.  The activity spanned multiple sectors, including residential, hospitality and leisure, office development and retail, despite the residual impact of the pandemic and broader economic headwinds. 

With Ireland’s established reputation as a home for investment funds, fund finance activity was also very strong in 2023, with the Dillon Eustace team acting on transactions with an aggregate value in excess of US$3 billion. 

Leveraged/acquisition finance activity was another notable performer, particularly for businesses in the logistics, medtech, healthcare and pharma sectors.  Dillon Eustace acted on a number of very significant transactions in the course of 2023 for both our lender and borrower clients.

2.1        Can a company guarantee borrowings of one or more other members of its corporate group (see below for questions relating to fraudulent transfer/financial assistance)?

Yes; however, this is subject to the corporate benefit rule (discussed at question 2.2 below), to certain provisions of the Companies Act 2014 (as amended) (the “ Act ”) relating to the provision of financial assistance (discussed at question 4.1 below) and to certain provisions of the Act relating to transactions with directors which require, among other things, that both the guarantor and the borrower fall within the concept of “group” companies for the purposes of the Act. 

2.2        Are there enforceability or other concerns (such as director liability) if only a disproportionately small (or no) benefit to the guaranteeing/securing company can be shown?

Although not specifically addressed in the Act, it is generally accepted that Irish companies must derive some form of corporate benefit from transactions into which they enter.  Accordingly, prior to authorising the provision of a guarantee/security to a third party, directors should consider, and document such considerations of, the commercial benefit that will accrue to the company as a result of providing such security.  Directors who authorise a transaction that does not benefit the company may be liable for breach of their statutory and fiduciary duties.  In the context of a guarantee of or the provision of security for the borrowings of another corporate group member, it is often possible to establish sufficient corporate benefit if the provision of the guarantee/security would benefit the group as a whole.  For example, a holding company that guarantees the obligations of its subsidiary could feasibly expect to benefit from the success of that subsidiary through increased dividends.

2.3        Is lack of corporate power an issue?

Generally no, as the doctrine of ultra vires has been abolished by the Act and accordingly an Irish company limited by shares has, subject to all applicable laws, the same capacity as an individual.  However, the Act introduced a new type of private company – a Designated Activity Company (“ DAC ”) – which must (similar to a public limited company) have an objects clause which sets out the specific powers of the company.  If it is not specifically stated in the objects clause of such a company that it has the power to issue a guarantee or grant security, then any such action by the company could be subject to challenge.  While this in itself should not impact the validity or enforceability of the guarantee/security, there is a risk that the third-party lender may become indirectly involved in a dispute.  In addition to this, any liquidator appointed to a company, which has granted security in breach of its objects clause may, in certain circumstances, have clawback rights under the Act, which could potentially result in the security being set aside (see question 8.2 below). 

2.4        Are any governmental or other consents or filings, or other formalities (such as shareholder approval), required?

Generally no, subject to the provisions of the Act relating to financial assistance and transactions with directors.  However, if the company is regulated or subject to the supervision of the Central Bank of Ireland (“ CBI ”) or some other regulatory authority, additional consents may be required.  For example, an Irish regulated fund cannot give “guarantees” to support the obligations of a third party (which may include another sub-fund within the same umbrella fund structure).  While the term “guarantees” when used in this context is not defined, it is generally accepted that this term includes any security provided to support the obligations of a third party.  In terms of formalities, a guarantee must be in writing and must be executed as a deed.  Execution as a deed is important for a number of reasons; for example, to remove any concerns about the adequacy of the consideration passing to the guarantor.

2.5        Are net worth, solvency or similar limitations imposed on the amount of a guarantee?

Generally no; however, contractually agreed limitations are typically enforceable.  

2.6        Are there any exchange control or similar obstacles to enforcement of a guarantee?

No; however, in certain circumstances a guarantee may be set aside as an unfair preference or due to the insolvency of the company (see question 8.2 below).  

3.1        What types of collateral are available to secure lending obligations?

In principle, all assets of an Irish company are available to secure lending, subject to any contractual restrictions to which a company might be bound.  The most common forms of security taken by a lender are:

• Mortgage : there are essentially two types of mortgage: a legal mortgage; and an equitable mortgage.  A legal mortgage involves the transfer of legal title to an asset by a debtor, by way of security, upon the express or implied condition that legal title will be transferred back to the debtor upon the discharge of its obligation.  An equitable mortgage, on the other hand, involves the transfer of the beneficial interest in the asset to the mortgagee with legal title remaining with the debtor and, as such, creates an equitable security interest only.  Mortgages are commonly taken over shares, aircraft and ships.
• Charge : this represents an agreement between a creditor (chargee) and a debtor (chargor) to appropriate and look to an asset and its proceeds to discharge indebtedness.  The principal difference between a mortgage and a charge is that a charge need not involve the transfer of ownership in the asset.  A charge may be fixed (i.e. security attaches to a specific asset) or floating (i.e. security floats over the asset leaving the chargor free to deal with it until, upon the occurrence of certain defined events, the charge crystallises into a fixed charge) in nature.  A fixed charge can be created by a company or an individual, whereas a floating charge can only be created by a company.  It is also worth noting that a floating charge ranks behind certain preferential creditors, such as the Irish Revenue Commissioners (“ Revenue ”) and employees of the chargor in respect of unpaid wages, etc.
• Assignment : this is akin to a mortgage in that it transfers the legal or beneficial ownership in an asset to the creditor upon the understanding that ownership will be assigned back to the debtor upon discharge of the secured obligation owing to the creditor.  Assignments are most commonly utilised in the context of intangible assets, such as receivables, book debts and other choses in action.  Assignments to a creditor are sometimes referred to as security assignments to distinguish them from absolute assignments where the ownership is being assigned by way of sale for value.  In order to be a valid and effective legal assignment, as opposed to an equitable assignment, there must be absolute assignment (although it can be stated to be by way of security), it must be in writing under hand of the assignor, and express notice in writing must be given to the third party from whom the assignor would have been entitled to receive or claim the right that is assigned.
• Others : to include a pledge, lien, chattel mortgage, bill of sale and retention of title.   

3.2        Is it possible to give asset security by means of a general security agreement or is an agreement required in relation to each type of asset? Briefly, what is the procedure?

Security over all, or substantially all, of a company’s assets usually takes the form of an “all-assets” debenture, which is a single security document entered into by a company in favour of the secured party(-ies) to create security (e.g. a combination of mortgages, assignments and/or fixed and floating charges) over the borrower’s assets.  The debenture will usually include: (i) a fixed charge over specific assets which are identifiable and can be controlled by the lender (e.g. buildings, restricted accounts, intellectual property assets); (ii) a floating charge over fluctuating and less identifiable assets (e.g. inventory); (iii) an assignment of any interest in receivables, contracts, insurance policies and bank accounts; and (iv) a mortgage and/or charges over real estate and shares.  

3.3        Can collateral security be taken over real property (land), plant, machinery and equipment? Briefly, what is the procedure?

Yes.  Security over real property, plant, machinery and equipment is most commonly taken by way of a fixed charge (and security over Irish real estate must be taken by way of charge).  Where security is created over real estate that is registered in the Property Registration Authority of Ireland (“ PRAI ”), an additional prescribed form is also required to validly create the security. 

3.4        Can collateral security be taken over receivables? Briefly, what is the procedure? Are debtors required to be notified of the security?

Security over receivables most commonly takes the form of a legal assignment and is permitted so long as the underlying contract creating the receivable does not contain a prohibition on assignment.  In order to be a valid legal assignment, certain requirements (as outlined in question 3.1 above) must be adhered to, including the provision of written notice to the third party from whom the assignor would have been entitled to receive or claim the assigned right (the “ Underlying Debtor ”).  An assignment not meeting these criteria is deemed an equitable assignment.  One of the disadvantages of an equitable assignment is that the rights of the assignee will be subject to any equity (such as rights of set-off) already vested in the Underlying Debtor.  In addition, should the Underlying Debtor pay off a debt due to the assignor and claim a good discharge of this debt, in circumstances where no notice of the assignment was given to the Underlying Debtor, then the assignee would be solely reliant on the assignor passing this payment on.

3.5        Can collateral security be taken over cash deposited in bank accounts? Briefly, what is the procedure?

Yes.  This can take the form of a security assignment, fixed charge or floating charge.  Taking a fixed charge over a “blocked” account would generally be considered the most effective form of security a lender could take.  A blocked account is one where the chargor is prohibited from withdrawing, transferring or otherwise dealing with the account without the prior consent of the chargee.  Given that commercial borrowers generally need ready access to their bank accounts for normal trading purposes, it is more usual that the chargee will accept a floating charge over the trading bank account, which allows the chargor to retain control over the cash until such time as a trigger event (e.g. an event of default under the loan documents) causes the floating charge to crystallise.

For a security assignment, a notice of assignment must be served on the account-holding bank informing them that the account has been assigned in order to create a legal security interest.  In some instances, the secured party(-ies) and the account-holding bank may agree an account control agreement or similar document regarding the operation of the assigned account. 

A notification in relation to book debts should also be filed with Revenue, under s.1001(3) of the Taxes Consolidation Act 1997, within 21 days of the creation of the charge to put it on notice of the creation of the charge and to protect the chargee’s interests should the chargor default on certain tax obligations in the future.  

3.6        Can collateral security be taken over shares in companies incorporated in your jurisdiction? Are the shares in certificated form? Can such security validly be granted under a New York or English law-governed document? Briefly, what is the procedure?

Security can be taken over shares issued by an Irish company.  There are two main types of security over shares: a legal mortgage; and an equitable mortgage.  An equitable mortgage – which does not transfer legal ownership and as such does not require the lender to be registered in the company’s share register as owner of the shares – is the most common.  This is effected by delivery of share certificates and signed but undated share transfer forms, irrevocable proxies and various other deliverables which authorise the lender to complete the undated stock transfer form and any formalities required to become the legal holder of the shares if the security becomes enforceable.  Prior to the security becoming enforceable, all voting rights, dividends and any communication regarding the shares will remain with the chargor.  It is common for a lender to also take a fixed charge over shares issued by an Irish company.  This is commonly taken alongside an equitable mortgage.

Shares may be issued in certificated or uncertificated form; however, ordinarily in the case of a private limited company (which includes a DAC), shares will be issued in certificated form.  A public limited company whose shares are listed on a Stock Exchange will issue shares in uncertificated form (which will be held in a clearing system). 

While Irish law does not strictly require that share security be granted under an Irish law-governed document, it is almost always the case that Irish law-governed security is taken over shares in an Irish incorporated company, given that Irish law is likely to govern the validity and perfection requirements of the security. 

3.7        Can security be taken over inventory? Briefly, what is the procedure?

Yes, this typically takes the form of a floating charge given that the chargor trading company must retain sufficient freedom to deal with inventory in the ordinary course of business.

3.8        Can a company grant a security interest in order to secure its obligations (i) as a borrower under a credit facility, and (ii) as a guarantor of the obligations of other borrowers and/or guarantors of obligations under a credit facility (see below for questions relating to the giving of guarantees and financial assistance)?

Yes, subject to certain provisions of the Act relating to transactions with directors and the prohibition on the provision of financial assistance (discussed at question 4.1 below), the corporate benefit rule (discussed at question 2.2 above) and solvency considerations (see question 8.2 below).  

3.9        What are the notarisation, registration, stamp duty and other fees (whether related to property value or otherwise) in relation to security over different types of assets?

Subject to certain exceptions set out in the Act, particulars of charges created by an Irish company over its assets must be registered at the Irish Companies Registration Office (“ CRO ”) in the form prescribed within 21 days of its creation.  This does not apply to security over certain financial assets, such as cash and shares.  Failure to do so will render the charge void against any liquidator or creditor of the company.  A filing fee of €40 is payable to the CRO in respect of each security registration.  As mentioned in question 3.5 above, where security comprises a fixed charge over book debts, a notification should be made to Revenue within 21 days of the creation of the charge.  No fee is incurred in respect of such notification.

Security over real property must be registered at the PRAI and security over certain other assets, such as IP, ships and aircraft, must be registered at applicable registries.  There are no notarisation requirements for security documents under Irish law.

See section 6 regarding stamp duty. 

3.10      Do the filing, notification or registration requirements in relation to security over different types of assets involve a significant amount of time or expense?

Generally no, as prescribed forms are provided in most instances and filing fees are nominal.  However, the filing requirements (for example of the CRO and PRAI) are very prescriptive and any errors in the forms can cause delays, extra expense and in the worst case may render the security void, necessitate an application to court for an order rectifying the particulars, or require the parties to put new security in place. 

3.11      Are any regulatory or similar consents required with respect to the creation of security?

Generally no, assuming the underlying contracts do not require any such third-party consents.  See also question 2.4 above in relation to regulated entities.  Regulated entities may be restricted from creating security over certain assets.

3.12      If the borrowings to be secured are under a revolving credit facility, are there any special priority or other concerns?

Generally no, provided the security is properly perfected at the time it was granted and the underlying security documents stipulate that any repayment under the facility does not serve to extinguish the security, which should be expressed to secure all amounts owing from time to time.

3.13      Are there particular documentary or execution requirements (notarisation, execution under power of attorney, counterparts, deeds)?

In general, Irish law security documents are executed as deeds to remove any concerns regarding the adequacy of the consideration.  Other guidelines should be considered, such as Law Society of Ireland practice notes and recent case law in relation to virtual completion and signing; for example, the decision in the English case of R (on the application of Mercury Tax Ltd) v Revenue and Customs Commissioners [2008] EWHC 2721.  It is generally accepted in Ireland that a previously executed signature page from one deed may not be transferred to another deed, even where the documents in question are simply updated versions of the same deed. 

4.1        Are there prohibitions or restrictions on the ability of a company to guarantee and/or give security to support borrowings incurred to finance or refinance the direct or indirect acquisition of: (a) shares of the company; (b) shares of any company that directly or indirectly owns shares in the company; or (c) shares in a sister subsidiary?

• Shares of the company: Yes, s.82(2) of the Act creates a general prohibition on the provision by a company (either directly or indirectly) of financial assistance – whether in the form of loans, guarantees, the provision of security or otherwise – for the purpose of the acquisition of its own shares or the shares in its holding company.  There are exceptions and s.82(5) allows financial assistance where the company’s principal purpose in giving the assistance is not for the purpose of the acquisition or where it is incidental in relation to some larger purpose and the assistance is given in good faith.  S.82(6) also provides a list of exemptions to the prohibition, including the carrying out of a “Summary Approval Procedure”, which allows an otherwise prohibited transaction to proceed.
• Shares of any company that directly or indirectly owns shares in the company: Yes, s.82 of the Act applies in respect of the acquisition by a company of shares in its holding company.
• Shares in a sister subsidiary: No – this is not applicable.

5.1        Will your jurisdiction recognise the role of an agent or trustee and allow the agent or trustee (rather than each lender acting separately) to enforce the loan documentation and collateral security and to apply the proceeds from the collateral to the claims of all the lenders?

Yes.  Syndicated lending arrangements involving the appointment of a security agent to hold any security on trust for the benefit of all lenders and any other parties entitled to benefit from the security are common in the Irish lending market.  However, it is worth noting that under Irish law it is usually the receiver appointed by the lender/security agent over the secured assets who realises the same on behalf of the secured parties.  The Irish security document will usually provide for the appointment of a receiver and will usually provide that the receiver is the agent of the borrower rather than the lender(s)/security agent – this is noteworthy as it means that the lender/security agent is protected against any potential claims arising from the actions of the receiver as part of the enforcement.

5.2        If an agent or trustee is not recognised in your jurisdiction, is an alternative mechanism available to achieve the effect referred to above, which would allow one party to enforce claims on behalf of all the lenders so that individual lenders do not need to enforce their security separately?

This is not applicable in Ireland.

5.3        Assume a loan is made to a company organised under the laws of your jurisdiction and guaranteed by a guarantor organised under the laws of your jurisdiction. If such loan is transferred by Lender A to Lender B, are there any special requirements necessary to make the loan and guarantee enforceable by Lender B?

Secured debts can be assigned, transferred or novated under Irish law.  As the security provider must be provided with notice of the assignment, it is not unusual for the security provider to be a party to the transfer or novation.

6.1        Are there any requirements to deduct or withhold tax from (a) interest payable on loans made to domestic or foreign lenders, or (b) the proceeds of a claim under a guarantee or the proceeds of enforcing security?

• Interest payable on loans made by domestic or foreign lenders: A company making a payment of yearly interest from an Irish source is required to withhold Irish income tax from that interest at a rate of 20%.  For these purposes, yearly interest is taken to be interest on a debt, the duration of which is at least one year, or is capable of lasting for a year or more.  Interest will have an Irish source if it is paid by an Irish company or branch or the debt is secured on Irish land or buildings. Notwithstanding the above, there are extensive exemptions under Irish tax legislation from the obligation to withhold tax where interest is paid to domestic or foreign lenders such that, in many circumstances, Irish withholding tax does not apply.  These domestic exemptions include where the relevant lender is tax resident in another EU Member State or in a territory that has signed a double taxation treaty with Ireland (assuming relevant conditions are met).  In addition, an exemption may be available under the terms of a double taxation treaty itself.  In this regard, Ireland has a comprehensive double taxation treaty network with 76 countries (74 currently in effect), many of which provide for an exemption from Irish withholding tax on interest payments to foreign lenders. As part of the OECD’s BEPS project, Irish tax rules have recently been introduced whereby, in certain very limited circumstances, the above exemptions from Irish withholding tax on interest payments to foreign lenders can be disapplied.  Furthermore, the new legislation can also result in Irish withholding tax applying to short interest (i.e. interest payments on debt with a term of less than 12 months).  In order for these rules to apply, the interest must be paid to an associated entity and that associated entity must be resident in a specified territory (essentially, a territory that is not an EU Member State and that is either (i) on the EU list of non-cooperative jurisdictions, or (ii) a zero-tax territory).  Even to the extent these conditions are met, there are several exceptions/exclusions which may be applicable.  These new rules are effective for interest payments made on or after 1 April 2024 or 1 January 2025 (the latter date being applicable to the extent the relevant debt instrument was in place on or before 19 October 2023).
• Proceeds of a claim under a guarantee or the proceeds of enforcing security: From relevant case law in the area, it is not clear as to whether a payment made under a guarantee should constitute an interest payment (i.e. the guarantor being deemed to step into the shoes of the borrower) or, alternatively, whether it should be considered a payment derived from a separate and distinct legal obligation.  If the former, the analysis at (a) above should apply.  Conversely, if the latter applies (such that the payment is not considered interest), Irish withholding tax should generally not apply. With regard to the proceeds of enforcing security, to the extent that the security being disposed of is Irish lands or buildings or shares deriving their value from Irish land or buildings, there is a requirement for the purchaser to withhold tax at the rate of 15% from the proceeds.  This withholding tax can be avoided if (i) the proceeds from the sale do not exceed €500,000 (€1 million, in the case of the disposal of residential property), or (ii) assuming certain conditions are met, the vendor applies for and obtains a CGT Clearance Certificate from Revenue and the vendor provides this certificate to the purchaser. Where security is enforced, tax must be paid by the vendor on any gains arising in priority to any secured liability.  

6.2        What tax incentives or other incentives are provided preferentially to foreign lenders? What taxes apply to foreign lenders with respect to their loans, mortgages or other security documents, either for the purposes of effectiveness or registration?

There are no tax incentives provided preferentially to foreign lenders and no taxes generally apply to their loans, mortgages and security documents for the purposes of effectiveness or registration.

No Irish stamp duty arises on the origination or novation of a loan.  However, in very limited circumstances, stamp duty might arise on the acquisition of a loan by way of assignment. 

6.3        Will any income of a foreign lender become taxable in your jurisdiction solely because of a loan to, or guarantee and/or grant of, security from a company in your jurisdiction?

Pursuant to general Irish tax rules, unless otherwise exempt, any foreign lender in receipt of Irish source interest income would be liable to Irish income tax.  Notwithstanding this, Irish domestic tax legislation provides for exemptions from such income tax where the lenders are resident in EU Member States or in a territory that has signed a double taxation agreement with Ireland.  In addition, an exemption may be available under a double taxation agreement itself.

Based on current Revenue guidance, a gain arising on the disposal by a foreign lender of a loan secured on Irish land or buildings may be subject to Irish capital gains tax.  In addition, there may be a requirement for the purchaser to withhold tax at the rate of 15% on the proceeds (please refer to question 6.1 above and the discussion there regarding withholding tax on the proceeds of enforcing security).  This is a highly technical area and, where applicable, specialist advice should be sought. 

6.4        Will there be any other significant costs that would be incurred by foreign lenders in the grant of such loan/guarantee/security, such as notarial fees, etc.?

No, see question 3.9 above.

6.5        Are there any adverse consequences for a company that is a borrower (such as under thin capitalisation principles) if some or all of the lenders are organised under the laws of a jurisdiction other than your own? Please disregard withholding tax concerns for the purposes of this question.

In certain cases, interest paid to a foreign lender that owns 75% or more of the shares in the relevant Irish borrower could be regarded as a distribution and, therefore, would not be tax deductible for the borrower.  Notwithstanding this, there are various circumstances where these rules are disapplied, including where the lender is resident in an EU Member State, the UK (post-Brexit) or pursuant to the provisions of a double taxation agreement.

In addition, as part of the implementation of the EU’s Anti-Tax Avoidance Directives (“ ATAD ”), anti-hybrid rules have been introduced into Irish tax legislation, including rules relating to reverse hybrid mismatches.  Broadly speaking, these rules are intended to prevent arrangements that exploit differences in the tax treatment of a financial instrument or an entity under the tax laws of two or more jurisdictions to generate a tax advantage.  The rules apply to cross-border arrangements between associated enterprises and to certain “structured arrangements”.  In the case of reverse hybrid mismatches, the rules generally only apply where (i) an Irish entity is treated as tax transparent under Irish tax law (e.g. an Irish limited partnership) while being treated as tax opaque in the territory of a “relevant participator” (broadly defined as those participators that hold directly or indirectly, along with associated entities, rights to at least 50% of the entity’s profits or at least 50% of the ownership rights or voting power in the entity), and (ii) some or all of the profits or gains of the entity that are attributable to the relevant participator are subject to neither Irish nor foreign tax.  Depending on the circumstances, various exemptions may be applicable.

7.1        Will the courts in your jurisdiction recognise a governing law in a contract that is the law of another jurisdiction (a “foreign governing law”)? Will courts in your jurisdiction enforce a contract that has a foreign governing law?

The Irish courts will, as a general rule, respect and recognise the governing law chosen by the parties.  Regulation (EU) No. 593/2008 (“ Rome I ”) governs the position with respect to contracts relating to civil and commercial matters involving EU Member States (except Denmark) and provides that, subject to certain limitations, a contract will be governed by the law chosen by the parties.  Under Rome I, Ireland recognises choice of law clauses, regardless of whether the applicable law is that of another EU Member State or of a “third country” such as the US and the UK post-Brexit (Rome I has been incorporated into UK domestic law by the European Union (Withdrawal Act) 2018).  The choice of law in contract disputes falling outside of Rome I will be determined by common law, unless there is a specific law or convention that deals with the particular contract in question.  The common law recognises and enforces the choice of governing law provided for in the contract, subject to certain qualifications, such as where there are public policy issues.  The Irish courts can enforce a contract that has a foreign governing law.  However, the party seeking to rely on the foreign law will need to prove to the satisfaction of the Irish courts what the foreign law is.  Generally speaking, the Irish courts will not research the foreign law.

7.2        Will the courts in your jurisdiction recognise and enforce a judgment given against a company in New York courts or English courts (a “foreign judgment”) without re-examination of the merits of the case?

Yes, where certain criteria are met.  The recognition and enforcement of foreign judgments in Ireland is determined by international conventions and treaties.  Foreign judgments fall broadly within one of three categories, being: (a) judgments from courts of EU Member States; (b) judgments from countries that are a party to the Lugano Convention or the Hague Convention on Choice of Courts Agreements of 2005 (“ Hague 2005 ”) or the Hague Judgments Convention (Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters done at the Hague on 2 July 2019) (“ Hague 2019 ”); and (c) judgments from all other countries to which (a) and (b) do not apply.  Irrespective of which category of jurisdiction a judgment falls within, an application can be made to the Irish courts to have the foreign judgment recognised in Ireland without having to re-litigate the facts of the case.

Hague 2019 came into force in Ireland on 1 September 2023 through the enactment of the European Union (Hague Judgments Convention) Regulations 2022.  Hague 2019 allows for a streamlined procedure for the recognition and enforcement of civil and commercial judgments within the scope of the convention from courts of contracting states by the Irish High Court without the need to rely on enforcement under common law principles.  The EU (excluding Denmark), and Ukraine were the first two states to ratify or accede to Hague 2019.  Several other countries have signed the Hague 2019 convention but are still to ratify it, including the US.  In November 2023 the UK Government confirmed that the UK will sign Hague 2019 as soon as practicable.

Pending ratification of Hague 2019 by the US, a judgment of the New York courts falls within category (c) in the first paragraph above.  In order for the judgment to be recognised and enforceable in Ireland, the Irish courts will have to be satisfied that: (i) the court in which the judgment is made had competent jurisdiction; (ii) the judgment is for a definite sum of money; (iii) the judgment is final and conclusive; and (iv) it is not contrary to public policy in Ireland.  As to whether the application for judgment before the New York court was contested or not (i.e. granted in default) will also be a factor that the Irish courts will consider.

As regards the Irish courts’ recognition of a judgment of the English courts, given the terms of the UK’s departure from the EU on 31 December 2020, the position, as things currently stand, is less clear. 

For judgments given in proceedings which began in the UK courts by 31 December 2020, Regulation (EU) No. 1215/2012 (“ Brussels I Recast ”) will apply and those judgments will, in effect, fall within category (a) in the first paragraph above, and, by virtue of Brussels I Recast, should be treated as a judgment made by a court in Ireland.  Similarly, it will only be possible for UK judgment creditors to continue to use the European Enforcement Order relating to uncontested money judgments where an European Enforcement Order (“ EEO ”) certificate was applied for by 31 December 2020.  For judgments obtained in English proceedings commenced after 1 January 2021, the recognition and enforcement in Ireland, as within the other remaining EU Member States, has become more complicated.

The UK had applied to join the Lugano Convention in April 2020; however, its accession was formally blocked by the EU in late June 2021.  The UK and EU are signatories to Hague 2005.  Under Hague 2005, Ireland should, subject to certain exceptions, recognise and enforce judgments made in the English courts where those judgments were made pursuant to an agreement that contains a choice of court provision granting the English courts exclusive jurisdiction.  The protections afforded by Hague 2005 to a UK judgment creditor before the Irish courts are much more limited than under Brussels I Recast.  There are also a number of uncertainties regarding the protections of UK judgment creditors under Hague 2005, particularly whether Hague 2005 applies to contracts entered into before 1 January 2021 when the UK rejoined independently of the EU.

Until such time as the UK becomes a contracting state to Hague 2019, judgments granted by the English courts that do not fall within the ambit of Brussels I Recast or Hague 2015, the recognition and enforcement of judgment of the English courts by the Irish courts will be considered in the same way as a judgment of, for example, the New York courts and the four criteria for enforcement referred to above will apply. 

7.3        Assuming a company is in payment default under a loan agreement or a guarantee agreement and has no legal defence to payment, approximately how long would it take for a foreign lender to (a) assuming the answer to question 7.1 is yes, file a suit against the company in a court in your jurisdiction, obtain a judgment, and enforce the judgment against the assets of the company, and (b) assuming the answer to question 7.2 is yes, enforce a foreign judgment in a court in your jurisdiction against the assets of the company?

Where the Irish courts have jurisdiction to determine the matter, the timing for obtaining a judgment on foot of a debt outstanding pursuant to a loan agreement or guarantee will firstly depend on the monetary amount for which the creditor is seeking judgment, as the court system is divided into a number of courts, with each having different monetary jurisdiction.  Each of the courts also has its own distinct rules but each has a special procedure available to creditors to recover a debt or liquidated amount.  Furthermore, obtaining judgment will depend on whether the debtor enters an appearance to the proceedings or not.  In broad terms, where debt proceedings are brought against a company for a debt owing to a foreign lender of over €75,000 and the company does not enter an appearance to the proceedings, judgment may be obtained within six to nine months of the proceedings issuing.  However, there is a Commercial division of the High Court in Ireland which can fast-track commercial cases.  Upon proceedings issuing, an application can be made to the Commercial Court for a case to be heard by it and, if a case is transferred to the Commercial Court list, this will likely significantly reduce the time within which judgment would be obtained.  There is no automatic entitlement for a case to be heard in the Commercial Court.  Commercial disputes, where the value of the claim is more than €1 million and where there has not been undue delay in applying to have the case heard, are the types of cases that are admitted to be heard by the Commercial Court.

There are a number of options with respect to post-judgment enforcement or execution.  If a debtor company owns immoveable property/real estate, a foreign lender can register the recognised judgment as a judgment mortgage over any real estate owned by the Irish company in Ireland.  This will entitle the foreign creditor, as the judgment mortgagee, to the proceeds of sale after all prior encumbrances on the real estate have been discharged.  In relation to movable property, an enforcement order can be obtained, pursuant to which assets of the company may be seized.  A foreign creditor with a recognised judgment can also make an application to court for the appointment of a receiver by way of equitable execution.  Where a court finds it just and convenient to do so, it can order the appointment of an equitable receiver over the assets held or income to be received by the debtor company to pay down the debts owing to the foreign creditor via the equitable receiver.  If it is believed that the Irish company is insolvent, a foreign lender who has obtained judgment for more than €10,000 (this minimum amount has been temporarily increased to €50,000 with respect to one or more in aggregate creditors as part of the COVID-19 emergency measures which have been extended until 31 December 2023) can issue a statutory demand to the debtor company calling on it to discharge the amount due pursuant to the judgment within 21 days.  Where that 21-day statutory demand is not met, there is a presumption that the debtor company is insolvent and a petition can be brought by the foreign creditor to have the company wound up by the Irish courts and have all assets liquidated to attempt to satisfy all creditors of the Irish company.  It may take two to three months following the expiry of the 21-day demand letter for a liquidator to be appointed over the Irish company.

In terms of the time period for enforcing a foreign judgment, as noted in the answer to question 7.2 above, that will depend on the jurisdiction in which the judgment has been obtained.  Where the judgment has been given in an EU Member State, Brussels I Recast and/or Hague 2019 applies and the judgment against the Irish company is essentially enforceable as if it were a judgment made by an Irish court, meaning that the enforcement procedures, as described above, can be invoked.

In relation to judgments made by courts of non-EU Member States, an application must be made to the Irish courts before the judgment can be enforceable.  The application for recognition or enforcement of a judgment of a court of a contracting country to the Hague 2019 convention is reasonably straightforward.  Where the judgment has been given in a court of a contracting country to the Hague 2019 Convention or the Lugano Convention an application is made to have the foreign judgment recognised and enforced by the Irish courts.  It may take one to two months to have the application for recognition and enforcement heard and, in the case of an application under Hague 2019 an enforcement order granted, following which it can be enforced against a company as set out above.  In relation to judgments from non-EU, non-Hague 2019 and non-Lugano Convention members or contracting countries, which currently includes the UK with respect to any judgment proceedings not issued before the UK courts on or before 31 December 2020, an application can be made to have the foreign judgment recognised in Ireland.  However, unlike a judgment from a country which is a party to either the Hague 2019 Convention or the Lugano Convention, the application to have the judgment recognised is made on notice to the judgment debtor, which brings with it practical issues, such as serving the proceedings.  Furthermore, the judgment debtor, being on notice of the application, may attend and oppose the application to have the judgment recognised.  Therefore, whilst the application may get a first return date within one to three months from the date of issuing proceedings, the application may not proceed on the first return date if it is opposed, as the judgment debtor will be given the opportunity to challenge the application, and the foreign judgment holder could be significantly delayed in having the judgment recognised, depending on the extent of the challenge.  Once the judgment has been declared enforceable or is recognised by the Irish courts, it can be enforced as set out above.

7.4        With respect to enforcing collateral security, are there any significant restrictions that may impact the timing and value of enforcement, such as (a) a requirement for a public auction, or (b) regulatory consents?

The circumstances in which a lender can enforce its security under Irish law are largely dependent on the type of security the creditor holds and the terms of the underlying security documents.  The most common method of enforcement by the holder of a legal fixed or floating charge over the assets of a corporate debtor is by way of the appointment of a receiver.  The appointment of a receiver, or receiver and manager, is a reasonably straightforward process.  The appointment can be effected by way of a deed or instrument of appointment between the secured creditor and receiver at any time after the enforcement powers have become enforceable under the terms of the collateral security and at law.  S.439 of the Act provides that in selling the property of a company, a receiver must exercise all reasonable care to obtain the best price reasonably obtainable for the property as at the time of sale.  This may involve recourse to expert opinions and valuations of company property which, depending on the circumstances, could lead to a recommendation that a public auction is necessary in order to achieve the best available price for the respective property.  This would have a consequent effect on the timing of any enforcement.  The timing of enforcement could also be impacted by the appointment of an examiner (see question 7.6 below).

Where the collateral security held is in the form of a pledge, lien or equitable/possessory security, the creditor’s entitlement is to possession only of the asset until the obligations for which the asset are held are discharged.  If the holder of equitable security wishes to be able to force the sale of the asset to pay down its debt, an application must be brought to court to have the security converted to legal security and then often an order of the court for the sale of the asset is also required.  These applications can take up to two to three years to complete.

While not necessarily resulting in a significant restriction impacting on the timing and value of enforcement, collateral security holders of certain asset classes may be impacted by any specific regime applicable to those assets.  As an example, Ireland had adopted Alternative A of Article XI of the Aircraft Protocol of the Cape Town Convention on International Interests in Mobile Equipment.  The regime creates an aircraft-specific international framework for the formation, registration (through an international registry), protection and enforcement of certain international interests in airframes, aircraft engines and helicopters.

7.5        Do restrictions apply to foreign lenders in the event of (a) filing suit against a company in your jurisdiction, or (b) foreclosure on collateral security?

No.  Foreign lenders are subject to the same statutory limitation periods within which a claim must be brought and the same rules of court as those imposed on Irish lenders seeking to file suit against a company and enforce security through the courts. 

7.6        Do the bankruptcy, reorganisation or similar laws in your jurisdiction provide for any kind of moratorium on enforcement of lender claims? If so, does the moratorium apply to the enforcement of collateral security?

Yes.  Irish companies may enter examinership, which is a court-enforced moratorium on creditor action which allows a certain period during which a company can be restructured.  This process almost always results in creditor balances being reduced, while assets of the company are protected, investment is obtained and the company can continue to trade.  The examiner is typically appointed for 100 days or thereabouts, during which time the lender will not be permitted to take any enforcement action against the debtor company, save in respect of a security financial collateral arrangement as defined in the Financial Collateral Arrangement Regulations.  Pursuant to the recast EU Insolvency Regulations, this moratorium is also ineffective in relation to rights in rem of creditors or third parties by way of security in assets situated outside of Ireland and does not affect the right of creditors to exercise their right of set-off against the claims of a debtor.  A lender’s rights against a guarantor of the debtor company are also preserved if the lender complies with certain strict requirements.

There is another statutory corporate restructuring process in Ireland being a scheme of arrangement under Part 9 of the Act.  A scheme of arrangement in Ireland is similar to a scheme of arrangement in England and Wales.  Although there is no automatic stay on enforcement action, an application can be made to court (almost always by the debtor company that is proposing the restructure) for a stay on court proceedings issuing as part of the scheme of arrangement process.  An order of the Irish court made in these circumstances could temporarily prevent certain secured creditor enforcement action by way of court proceedings.  However, a secured creditor would not be prevented from enforcement of its collateral security by way of appointment of a receiver (see question 7.4 above). 

Small and micro companies, as defined in the Act, may also avail of the Small Company Administrative Rescue Process (commonly referred to as “ SCARP ”) as established by the Companies (Rescue Process for Small and Micro Companies) Act 2021.  The SCARP takes heavy influence from the examinership process; however, it is primarily conducted as an administrative process which seeks to bypass the courts to the greatest extent possible.  The SCARP was enacted with the aim of offering a cost-efficient method of restructuring for small and micro companies, i.e., companies that satisfy two or more of the following requirements in a single financial year: (i) turnover not exceeding €12 million; (ii) balance sheet total not exceeding €6 million; and (iii) the average number of employees not exceeding 50.

The SCARP involves the appointed insolvency practitioner, called the process advisor, producing a rescue plan for the company which may provide for a writing-down of the company’s debt and/or a cross-class cram down.  Whilst such a rescue plan is prepared, it is possible for eligible companies to obtain a temporary moratorium on proceedings from creditors or to restrain further proceedings against the eligible company for a certain period.  There is no automatic stay on enforcement action; the designated process advisor must apply to the court for a protection order and the relevant court must deem such an order necessary for the survival of the company.

In addition to the above, there are certain other laws and codes that apply in the context of lending to natural persons and/or small- or medium-sized enterprises (“ SMEs ”) (and the enforcement of such loans), many of which must be adhered to by foreign lenders lending into Ireland. 

7.7        Will the courts in your jurisdiction recognise and enforce an arbitral award given against the company without re-examination of the merits?

Yes, subject to certain conditions being satisfied.  Ireland ratified the New York Arbitration Convention under s.24 of the Arbitration Act 2010.  The Arbitration Convention provides for the recognition and enforcement of domestic and international arbitral awards.  Pursuant to s.23 of the Arbitration Act 2010, an award made by an arbitral tribunal under an arbitration agreement shall be enforceable in this jurisdiction either by action or leave of the Irish High Court.  For enforcement of foreign arbitral awards, the award must be in writing and be signed by the arbitrator or arbitrators.  In arbitral proceedings with more than one arbitrator, the signatures of the majority of the tribunal will suffice, provided the reason for any omitted signature is set out.  The award should also state its date and the place of arbitration.

8.1        How does a bankruptcy proceeding in respect of a company affect the ability of a lender to enforce its rights as a secured party over the collateral security?

In Ireland, bankruptcy proceedings in respect of a company are called liquidations.  The capacity of a lender to enforce its rights as a secured party over collateral security is not affected by liquidation proceedings being entered into by a company.  Should the enforcement of collateral security fail to discharge the total debt owed to the lender, the balance may be an unsecured claim of the secured party in the liquidation process.  However, the rights of a secured lender will be affected where the company has entered examinership proceedings, as discussed in the answer to question 7.6. 

8.2        Are there any preference periods, clawback rights or other preferential creditors’ rights (e.g., tax debts, employees’ claims) with respect to the security?

Yes.  Pursuant to s.597 of the Act, a floating charge will be invalidated where it has been created within 12 months of the company entering into insolvency proceedings unless it is proven that the company was solvent immediately after the creation of the charge.  This period will be extended to two years where the floating charge has been created in favour of a connected person.

The Act also provides for certain clawback rights where a fraudulent or unfair transfer of company property has occurred.  For example, pursuant to s.604 of the Act, any transfer of company property to a creditor will be invalidated where such transfer was made with the dominant intention of securing a preference over other creditors in the company and was made within six months of the insolvency of the company (the period will be extended to two years where the transfer was made to a connected person).

With regard to preferential creditors, the expenses relating to an examinership or liquidation, together with certain taxes, rates and employee claims have priority over floating charge security holders.  The Companies (Accounting) Act 2017 has clarified that security created as a floating charge cannot be converted to a fixed charge, such that the floating charge holder can claim priority ahead of the preferential creditors.

8.3        Are there any entities that are excluded from bankruptcy proceedings and, if so, what is the applicable legislation?

The Irish courts have jurisdiction to place the following into liquidation proceedings under Irish company law: Irish registered companies; entities to which the recast EU Insolvency Regulation applies and whose centre of main interests or establishment is in Ireland; foreign-registered companies with sufficient connection to Ireland; and certain types of investment vehicles such as Irish Collective Asset-management Vehicles.  While not excluded from liquidation proceedings per se , the Irish insolvency regime has been tailored in certain sectors, such as insurance, banking, credit institutions and investment services.  Specific provisions relating to the insolvency of businesses in these sectors are contained in the Act, related EU regulations and in sectoral-specific regulatory conventions or regimes.  The objective of these modified sectoral regimes is primarily to prevent, as opposed to necessarily exclude, insolvencies because of the systemic or societal impact that could result. 

8.4        Are there any processes other than court proceedings that are available to a creditor to seize the assets of a company in an enforcement?

Secured creditors may exercise set-off rights and appoint receivers without recourse to court proceedings.  Unsecured creditors cannot seize secured assets of a company without a court order authorising them to do so.  However, unsecured creditors may be able to repossess goods/assets which have not been paid for in full by the debtor company where the goods/assets supplied are subject to a valid retention of title clause in the supply documentation.

9.1        Is a party’s submission to a foreign jurisdiction legally binding and enforceable under the laws of your jurisdiction?

Generally speaking, yes.

9.2        Is a party’s waiver of sovereign immunity legally binding and enforceable under the laws of your jurisdiction?

10.1      What are the licensing and other eligibility requirements in your jurisdiction for lenders to a company in your jurisdiction, if any? Are these licensing and eligibility requirements different for a “foreign” lender (i.e., a lender that is not located in your jurisdiction)? In connection with any such requirements, is a distinction made under the laws of your jurisdiction between a lender that is a bank versus a lender that is a non-bank? If there are such requirements in your jurisdiction, what are the consequences for a lender that has not satisfied such requirements but has nonetheless made a loan to a company in your jurisdiction? What are the licensing and other eligibility requirements in your jurisdiction for an agent under a syndicated facility for lenders to a company in your jurisdiction?

Until recently, commercial lending was not a regulated activity in Ireland and, unless the lender was a bank, there was generally no requirement to obtain a licence.  However, the regulatory regime in Ireland has been the subject of significant debate in recent years leading, most recently, to the enactment of the Consumer Protection (Regulation of Credit Servicing) Act 2018 (the “ 2018 Act ”).  While not imposing any additional licensing requirements, the 2018 Act does require unregulated entities (other than securitisation special purpose vehicles, which are exempt) that hold legal title to loans to Irish consumers or SMEs and/or control the overall strategy or key decisions relating to such loans to be authorised and regulated by the CBI. 

In addition, lenders may also be subject to various other reporting and regulatory requirements, such as:

• the Credit Reporting Act 2013, which requires that lenders – both regulated and unregulated – collect and report to the CBI certain information relating to credit advanced to non-consumer borrowers, which includes companies, limited liability partnerships, etc.; and
• lenders are typically required to comply with the CBI statistical reporting requirements.

Lenders (including unregulated lenders) providing certain services, which are already obliged to comply with Irish anti-money laundering and counter-terrorist financing obligations even though they are not authorised or licensed by the CBI, are required – unless they qualify for an exemption – to register with the CBI by virtue of the legislation passed to transpose the Fourth Anti-Money Laundering Directive into Irish law.

In addition, many lenders may find that they fall within the scope of regulation by virtue of other activities carried out by them; for example, taking deposits.  Any lender in Ireland that provides banking services, which includes the taking of deposits, is required, on application to the CBI, to obtain a licence from the European Central Bank.  Carrying on a banking business in Ireland without a licence is a criminal offence.  Banks licensed in another EU Member State may also be required to passport into Ireland in order to carry on a lending activity in Ireland that would otherwise be unregulated.

There are no specific licensing requirements that apply to a security agent under a syndicated facility.  However, such an agent would be subject to regulation if it carries on any regulated activities; for example, accepting deposits.  Any person or entity carrying on the business of a trustee of a trust or a “Company Service Provider” (as defined in the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended)) may be required to obtain an authorisation to do so from the CBI (if it is a subsidiary of a credit or financial institution) or the Minister for Justice and Equality (in all other cases). 

As regards the position of a foreign lender, if lending to persons in Ireland, they would generally be subject to the same conduct of business rules as an Irish lender, and are also required to hold the appropriate licence/authorisation if carrying on a regulated activity (albeit their regulatory status in their home country may have a bearing on the latter, e.g., passporting rights if carrying on passportable activities).  

11.1      Please provide a short summary of any regulatory rules and market practice in your jurisdiction with respect to transitioning loans from LIBOR pricing.

There are no specific regulatory rules relating to the transition away from LIBOR pricing and arrangements are a matter for contractual agreement between lender and borrower.  Lenders are adopting Loan Market Association models in many cases; however, more simplified approaches are also prevalent, particularly where the loan in question only has a short period to maturity.

12.1      Do you see environmental, social and governance (ESG) or sustainability-related debt products in your jurisdiction?  If yes, please describe recent documentation trends and the types of debt products (e.g., green bonds, sustainability-linked loans, etc.).

ESG has continued to grow rapidly in importance for both lenders and borrowers over the course of the last 12 months and it is clear that the focus on ESG will only become sharper in the coming months, particularly for those entities which will be required to report under the initial implementation of the EU’s Corporate Sustainability Reporting Directive.  While there have been both green loans and green bonds completed in the Irish market, sustainability-linked loans and sustainability-enabled loans remain the most common.  The Loan Market Association’s various publications in this space, but particularly their Green Loan Principles (and guidance) and Sustainability-Linked Loan Principles (and guidance) play a central role in shaping documentation, as does their model provisions for sustainability-linked loans.  With the adoption of the EU Green Bond Regulation by the European Parliament and the EU Council in October 2023, that legislation looks set to become directly effective in Ireland very shortly. 

12.2      Are there any ESG-related disclosure or diligence requirements in connection with debt transactions in your jurisdiction?  If yes, please describe recent trends and any impact on loan documentation and process.

There are no legally required ESG-related disclosure or diligence requirements for the origination of debt transactions in Ireland.  That said, lenders are requiring ever increasing levels of ESG due diligence prior to origination, mindful of their own impending obligations under relevant EU legislation, such as the EU Corporate Sustainability Reporting Directive and the EU Sustainable Finance Disclosure Regulation.  Lenders’ requirements, both prior to origination and for reporting during the lifetime of a loan, are often a key driver in ensuring that borrowers pay the requisite attention to their own obligations in this area. 

13.1      Are there any other material considerations that should be taken into account by lenders when participating in financings in your jurisdiction?

Notwithstanding the measures referred to at question 10.1 above, the regulatory regime in Ireland relating to lending largely focuses on lending to natural persons and SMEs at present and there is various legislation, regulations and codes of which lenders would need to be cognisant if originating loans to such persons or to SMEs (or acquiring loans originated to such persons or to SMEs).

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Contributors

Conor Keaveny Dillon Eustace

Jamie Ensor Dillon Eustace

Richard Lacken Dillon Eustace

Shona Hughes Dillon Eustace

Dillon Eustace

Paul McMahon Parties

Assignment of Contract Rights

A person cannot assign or off load his contractual obligations. He may be entitled to sub-contract his obligations, depending on the terms and type of contract involved.

A party to a contract may be able to assign or transfer certain rights such as money receivable, under it.  The assignee cannot be in any better position than the assignor. If the debtor (or the equivalent the other party to the original contract) has a defence to the assignor’s claim, the assignee takes it subject to such defence.

When a debt or payment receivable under a contract is assigned by the creditor to an assignee, notice of the assignment must be given to the debtor in order to allow the assignee to enforce the debt directly. If this is not done the assignee is entitled to the benefit of the debt (assuming a valid assignment by contract) but the debt may only be enforced by the original debtor for the benefit of the assignee. The assignee may be able to compel the original debtor to enforce

Burden not Assignable

The burden of a person’s obligations under a contract may not be transferred without the other party’s consent. This is a very fundamental principle. A person who has contracted with another cannot lose the benefit that other’s full faith and credit and the implicit backing of all of the other party’s assets, unless the first party consents.

The discharge of the first party may arise in the context of novation or some other release of contractual rights.

It may be possible for a person to sub contract his obligations. The contractor is still responsible. It is a matter of interpretation of the contract whether and to what extent subcontracting is allowed.

The contract may expressly forbid sub-contracting. The identity of the performing party may be critical. If the contract is one to provide a personal service, it may not be capable of being subcontracted.

Personal Contract Not Usually Assignable

Where a contract between two parties requires personal skill or confidence, the contract cannot be assigned so as to be performed by another. A contractual obligation cannot be offloaded or assigned. This is a fundamental principle.

It may or may not be possible to sub-contract some of a party’s contractual obligations. Even where this is permitted, the original contracting party remains responsible. Otherwise, a party could get out of his contract. The only method by which an obligation can be released from his obligations is with the consent of the other party. This is novation; See below.

Benefit usually Assignable

In contrast to the burden, the benefit of a contract is commonly assignable. Where the performance of the other party is the obligation to pay a sum, provide something or perform a service that does not involve any personal element and it inconvertibly due, then the benefit of it may be presumptively assigned

A debt which is clear and undisputed is generally freely assignable.  Other uncontested obligations may be assignable. In contrast assignments of personal claims such as for personal injuries or defamation, are not assignable.

Where the law accepts that there is a legitimate interest in the assignment of the right, such as the assignment of rights regarding structural defects in the case of sale of property, the assignment is generally legitimate.

Where the contract prohibits assignment, the prohibition is will generally effective, at least between the original parties.  Where there has been an assignment in breach of the contract in beach of the prohibition, the assignor may be entitled to recover damages for breach of contract for the benefit of the assignee. The assignor would hold what he recovers for the benefit of the assignee.

Choses in Action

A “chose in action” is a class of legal right that can be given ultimate expression, only through legal action.  There is no method of taking physical possession of it or asserting it directly.  A contractual right in itself is a chose an action.

The principle of assignment applies generally to many rights that may be enforced by a legal claim. These rights are known as “choses in action” and include such things as bank accounts, debts, financial products, insurance policies, shares, bonds, intellectual property rights and many other categories of intangible right.

A chose in action is assigned by giving notice to the counterparty. If notice is not given to that party, the assignment is binding as between the assignor and assignee. This is an equitable assignment. The assignee will generally be able to require that the assignor enforces the contract for his benefit.

Proprietary Aspects of Chose in Action

Contractual rights and other “choses in action” have many of the characteristics of property rights.  In the market economy, the law favours assignment and transferability of property rights including choses in action, to the extent reasonably possible.

As in other areas, the common law courts were more rigid and less adapted to the market economy, than the courts of equity.  A chose in action could not be assigned so as to entitle the assignee to enforce it in its own name in the common law courts. The assignee obtained a right against the assignor, but no independent right against the third-party obligor.  If legal action was required, it was requiring to be brought in the name of the assignor.

The chancery courts were always particularly concerned in relation to property matters. They more readily recognised that an assignment of a quasi-property right should be effective and binding on the conscience of the assignor.  Once there was an intention or agreement to assign contractual rights, the courts of equity required the assignor to do all necessary to implement that intention.

Position between Assignor and Assignee

As between the assignor and the assignee, no formality or notice is required.  However, notice must be given to the obligor, in order that the assignment is effective as against him.  This accords with common sense.

Assignments of contractual rights may be absolute or they may be by way of security.  An absolute assignment is an outright transfer or sale.  A security assignment of an asset requires the asset to be re-assigned upon repayment of the assignor’s debt or obligation to the assignee.  See generally the articles on mortgages and charges

There may be an outright assignment, which is in the nature of a mortgage.  A charge is not an outright assignment. It is a proprietary right to be paid from a particular fund.

Legal and Equitable Assignments

The law distinguishes between legal choses in action and equitable choses in action.  The former was enforceable at common law and included most contract rights.  Equitable choses of action were rights enforceable in equity, such as the rights of beneficiaries under a trust or fiduciary relationship.  Such rights are almost always associated with some kind of property.

An outright assignment of an equitable chose in action is fully effective and allows the assignee to bring legal action in its own name.  An assignment which is not absolute but which amounts to an equitable assignment does not entitle the assignee to sue and enforce in his own name.  He must join the assignor as a party to the litigation.  This is considered reasonable because the obligor must know whom he must pay.

A non-absolute assignment of a legal chose in action does not give the assignee the right to sue in his own name.  He must join the assignor.  In the latter cases, he may be joined as co-plaintiff, if he is prepared to co-operate.  If he is not, he may be sued as a defendant, such as if for example, he disputes the effectiveness of the assignment.

Uncompleted / Equitable Assignments

There may be a contract for the assignment of a chose in action between the assignor and assignee.  If there is no contract, the assignment will be effective only if it is a   completed gift.  The courts of equity do not enforce an uncompleted gift.  This reflects the principle that equity “does not aid a volunteer”.  There must be some valuable consideration so that equity, as a court of conscience, can require the assignor to assign.

Technically, an equitable assignment is effective without notice.  However, in the absence of notice to the obligor, the assignee is bound by payments made by the obligor to the assignor.  The obligor has no means of knowledge without notice of the assignment. The assignee’s rights to the intangible asset, are not perfected without notice.  This is because the assignor may make other assignments to assignees which might first notify the obligor and obtain priority.

The assignee takes subject to all rights and defences which the obligor e.g. debtor has against the assignor.  The debtor’s position and rights cannot be prejudiced by the unilateral act of assignment by the assignor.

Mere Right to Claim Unassignable

Certain rights may not be assigned. The assignee must have a genuine commercial interest in taking the assignment and enforcing it for his benefit. A bare right to take a claim is not assignable.  There is a public interest against trading in another person’s litigation. It is a civil wrong to support another person’s litigation and such arrangements are invalid

The assignment of a so called bare “right to litigate”, as opposed to one attached to a property interest is not deemed legitimate.  Consistent with the civil wrong of champerty and maintenance, it reflected a policy of discouraging the financing of litigation by a third party.  This was seen as potentially multiplying litigation, by allowing parties to trade in another’s claim.

In 1982, the UK House of Lords relaxed the principle and allowed for an assignment of a right to litigate in some limited cases.  An assignment may be valid if the assignee has a genuine commercial interest in the subject matter of the assignment.  A bare right to litigate by itself may not be assigned.

The principle prevents most litigation financing arrangements. A third party may not finance litigation in return for a share of what is recovered. The assignment of the right to litigate is inconsistent with the proper administration of justice.

Novation is where a party to a contract is substituted. The consent of all parties to the contract is required.  The other party to the contract consents to the substitution of the new party and the release of the original party.  It will not matter that the contract involves personal skill or confidence. It is, in reality, a new contract.

Novation in effect involves a new contract.  Instead of A and B being in a contractual relationship, B may release A and substitute C as a new party with the rights and obligations of A.  The obligation is now between B and C and A is discharged. The terms of the original contract may be agreed or implied in the circumstances.

A necessary part of the arrangement is that the old contract is agreed to be released in substitution.  This differs from an assignment.

A novation does not involve the transfer of a chose in action.  This may be significant in the context of restrictions on the transfer of property and in some cases, stamp duty.

Negotiable Instruments

Negotiable instruments are a category of obligation that are very freely transferable. Negotiable instruments include cheques, promissory notes bearer instruments and a wider category of unconditional financial obligations.

Negotiable instruments are recognised as freely assignable by commercial custom and statute.  They must be in such a form that they can be freely assigned by the delivery without anything more.

In some cases, the person transferring the negotiable instrument can obtain a better t entitlement than the person who transferred it. Where there is a default, there are rules in relation to the order in which persons who have signed and assigned the negotiable instruments can be enforced against.

Bill of Lading

The bill of lading has special characteristics. Its assignability is supported by statute. This enables it to become one of the key instruments in international trade.

Every Consignee of the goods named in a Bill of Lading, and every endorsee of a Bill of Lading to whom the property in the goods mentioned in it shall pass, upon or by reason of such consignment or endorsement, has transferred to and vested in him all rights and is subject to the same liabilities in respect of such goods as if the contract contained in the Bill of Lading had been made with himself.

The bill of lading is said to be a negotiable document of title.  They are not negotiable documents in the full legal sense, but they have some of the relevant legal characteristics, such as transferability by endorsement They are transferable.

The bill of lading represents the goods and therefore its transfer has the same effect as a transfer of what it represents. Possession of a bill of lading has the same effect as possession of the goods.

References and Sources

Irish Textbooks and Casebooks

Clark, R. Contract Law in Ireland 8th Ed. (2016)

Friel, R. The Law of Contract 2nd Ed, (2000)

McDermott, P.  Contract Law (2001) 2nd Ed (2017)

Enright, M. Principles of Irish Contract Law (2007)

Clark and Clarke Contract Cases and Materials 4th Ed (2008)

English Textbooks and Casebooks

Poole, J. Casebook on contract law. (2014) 12th edition

Stone and Devenney,  The Modern Law of Contract 10th Ed  (2015)

McKendrick,  Contract Law 10th Ed  (2013)

Chen-Wishart,  Contract Law 5th Ed  (2015)

Anson, Reynell, Beatson, J., Burrows, Cartwright, Anson’s law of contract. 29th Ed (2010)

Atiyah and Smith, Atiyah’s introduction to the law of contract. 6th Ed.

Chen-Wishart, M. (2015) Contract law. 5th Ed.

Cheshire, Fifoot and Furmstons, Furmstons and Fifoot Cheshire, Fifoot and Furmston’s law of contract. OUP.

Duxbury, Robert (2011) Contract law. 2nd Ed.

Halson, Roger (2012) Contract law. 2nd Ed.

Koffman & Macdonald’s Law of Contract. 8th Ed. (2014)

O’Sullivan, Hilliard, The law of contract. 6 th  Ed. (2014)

Peel, and Treitel, The law of contract. 13th Ed. (2011).

Poole, J.Casebook on contract law. 12th Ed. (2014).

Poole, J.  Textbook on contract law. 12th Ed. (2014)

Richards, P Law of contract. 10th Ed. (2011)

Stone, R.  The Modern law of Contract. 10th Ed. (2013)

Treitel, G. H.  An outline of the law of contract. 6th Ed (2014).

Turner, C Unlocking contract law. 4th Ed. (2014).

Upex, R. V., Bennett, G Chuah, J, Davies, F. R. Davies on contract. 10th Ed. (2008).

UK Casebooks

Stone,Devenney, Text, Cases and Materials on Contract Law 3rd Ed (2014)

McKendrick, Contract Law Text, Cases and Materials 6th Ed (2014)

Stone, R, Devenney, J Cunnington, R Text, cases and materials on contract law. 3rd Ed (2014)

Burrows, A. S.  A Casebook on Contract. 4th Ed.

Beale, H. G., Bishop, W. D. and Furmston, M. P. Contract: cases and materials. 5th ed. (2008)

Blackstone’s Statutes on Contract, Tort & Restitution 2017 (Blackstone’s Statute Series)

UK Practitioners Texts

Chitty on Contracts 32nd Edition, 2 Volumes & Supplement (2016)

The above are not necessarily the atest edition.

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SUPREME COURT OF JUDICATURE ACT (IRELAND) 1877

Interpretation..

11 & 12 Vict. c. 78.

13 & 14 Vict. c. 69.

21 & 22 Vict. c. 72.

3. In the construction of this Act, unless there is anything in the subject or context repugnant thereto, the several expressions herein-after mentioned shall have, or include, the meanings following; (that is to say,)

“High Court of Chancery” and “Court of Chancery” respectively shall mean the High Court of Chancery in Ireland, and shall include the Lord Chancellor.

“Court of Queen’s Bench” shall mean the Court of Queen’s Bench in Ireland.

“Court of Common Pleas” shall mean the Court of Common Pleas in Ireland.

“Court of Exchequer” shall mean the Court of Exchequer in Ireland.

“High Court of Admiralty” shall mean the High Court of Admiralty of Ireland.

“Court of Probate” shall mean the Court of Probate in Ireland.

“Court for Matrimonial Causes and Matters” shall mean the Court for Matrimonial Causes and Matters in Ireland.

“Landed Estates Court” shall mean the Landed Estates Court, Ireland.

“Court of Bankruptcy” shall mean the Court of Bankruptcy in Ireland.

“Lord Chancellor” shall include Lords Commissioners and Lord Keeper of the Great Seal of Ireland.

“The Lord Chief Justice” shall mean the Lord Chief Justice of Ireland.

“Master of the Rolls” shall mean the Master of the Rolls in Ireland.

“Lord Justice of Appeal” shall mean the Lord Justice of Appeal in Chancery in Ireland.

“Vice-Chancellor” shall mean the Vice-Chancellor of Ireland.

“High Court” shall mean Her Majesty’s High Court of Justice in Ireland established by this Act.

“Court of Appeal” shall mean Her Majesty’s Court of Appeal in Ireland established by this Act.

“Rules of Court” shall include forms.

“Cause” shall include any action suit or other original proceeding between a plaintiff and a defendant, and any criminal proceeding by the Crown.

“Suit” shall include action.

“Action” shall mean a civil proceeding commenced by writ, or in such other manner as may be prescribed by rules of Court, and shall not include a criminal proceeding by or in the name of the Crown

“Plaintiff” shall include every person asking any relief (otherwise than by way of counter-claim as a defendant) against any other person by any form of proceeding, whether the same be taken by cause action suit petition motion summons, or otherwise.

“Petitioner” shall include every person making any application to the Court, either by petition motion or summons, otherwise than as against any defendant.

“Defendant” shall include every person served with any writ of summons or process, or served with notice of, or entitled to attend any proceedings.

“Party” shall include every person served with notice of, or attending any proceeding, although not named on the record.

“Matter” shall include every proceeding in the Court not in a cause.

“Pleading” shall include any petition or summons, and also shall include the statements in writing of the claim or demand of any plaintiff, and of the defence of any defendant thereto, and of the reply of the plaintiff to any counter-claim of a defendant.

“Judgment” shall include decree.

“Order” shall include rule.

“Oath” shall include solemn affirmation and statutory declaration.

“Crown cases reserved” shall mean such questions of law reserved in criminal trials as are mentioned m the Crown Cases Act, 1848.

“Pension” shall include retirement and superannuation allowance.

“Existing” shall mean existing at the time appointed for the commencement of this Act.

“Registration of Voters Acts” shall mean the Representation of the People (Ireland) Act, 1850, and all other Acts or parts of Acts relating to the registration or qualification of persons entitled to vote at the election of members to serve in Parliament for Ireland.

“Land” shall have the same meaning as in the Landed Estates Court (Ireland) Act, 1858.

“Officers” shall include “clerks.”

Rules as to exercise of jurisdiction.

26. The jurisdiction by this Act transferred to the High Court of Justice and the Court of Appeal respectively shall be exercised (so far as regards procedure and practice) in the manner provided by this Act, or by such rules and orders of Court as may be made pursuant to this Act; and where no special provision is contained in this Act or in any such rules or orders of Court with reference thereto, it shall be exercised as nearly as may be in the same manner as the same might have been exercised by the respective Courts from which such jurisdiction shall have been transferred, or by any of such Courts.

Law and equity to be concurrently administered.

27. In every civil cause or matter commenced in the High Court of Justice law and equity shall be administered by the High Court of Justice and the Court of Appeal respectively according to the rules following:

(1.) If any plaintiff or petitioner claims to be entitled to any equitable estate or right, or to relief upon any equitable ground against any deed instrument or contract, or against any right title or claim whatsoever asserted by any defendant or respondent in such cause or matter, or to any relief founded upon a legal right, which heretofore could only have been given by a Court of Equity, the said Courts respectively, and every Judge thereof, shall give to such plaintiff or petitioner such and the same relief as ought to have been given by the Court of Chancery in a suit or proceeding for the same or the like purpose, properly instituted before the passing of this Act.

(2.) If any defendant claims to be entitled to any equitable estate or right, or to relief upon any equitable ground against any deed instrument or contract, or against any right title or claim asserted by any plaintiff or petitioner in such cause or matter, or alleges any ground of equitable defence to any claim of the plaintiff or petitioner in such cause or matter, the said Courts respectively, and every Judge thereof, shall give to every equitable estate right or ground of relief so claimed, and to every equitable defence so alleged, such and the same effect, by way of defence against the claim of such plaintiff or petitioner, as the Court of Chancery ought to have given if the same or the like matters had been relied on by way of defence in any suit or proceeding instituted in that Court for the same or the like purpose before the passing of this Act.

(3.) The said Courts respectively, and every Judge thereof, shall also have power to grant to any defendant in respect of any equitable estate or right, or other matter of equity, and also in respect of any legal estate right or title claimed or asserted by him, all such relief against any plaintiff or petitioner as such defendant shall have properly claimed by his pleading, and as the said Courts respectively, or any Judge thereof, might have granted in any suit instituted for that purpose by the same defendant against the same plaintiff or petitioner; and also all such relief relating to or connected with the original subject of the cause or matter, and in like manner claimed against any other person, whether already a party to the same cause or matter or not, who shall have been duly served with notice in writing of such claim pursuant to any rule of Court or any order of the Court, as might properly have been granted against such person if he had been made a defendant to a cause duly instituted by the same defendant for the like purpose; and every person served with any such notice shall thenceforth be deemed a party to such cause or matter, with the same right in respect of his defence against such claim as if he had been duly sued in the ordinary way by such defendant.

(4.) The said Courts respectively, and every Judge thereof, shall recognise and take notice of all equitable estates titles and rights, and all equitable duties and liabilities appearing incidentally in the course of any cause or matter, in the same manner in which the Court of Chancery would have recognised and taken notice of the same in any suit or proceeding duly instituted therein before the passing of this Act.

(5.) No cause or proceeding at any time pending in the High Court of Justice, or before the Court of Appeal, shall be restrained by prohibition or injunction; but every matter of equity on which an injunction against the prosecution of any such cause or proceeding might have been obtained, if this Act had not passed, either unconditionally or on any terms or conditions, may be relied on by way of defence thereto: Provided always, that nothing in this Act contained shall disable either of the said Courts from directing a stay of proceedings in any cause or matter pending before it if it shall think fit; and any person, whether a party or not to any such cause or matter, who would have been entitled, if this Act had not passed, to apply to any Court to restrain the prosecution thereof, or who may be entitled to enforce, by attachment or otherwise, any judgment decree rule or order, contrary to which all or any part of the proceedings in such cause or matter may have been taken, shall be at liberty to apply to the said Courts respectively, by motion in a summary way, for a stay of proceedings in such cause or matter, either generally, or so far as may be necessary for the purposes of justice; and the Court shall thereupon make such order as shall be just.

(6.) Subject to the aforesaid provisions for giving effect to equitable rights and other matters of equity in manner aforesaid, and to the other express provisions of this Act, the said Courts respectively, and every Judge thereof, shall recognise and give effect to all legal claims and demands, and all estates titles rights duties obligations and liabilities existing by the Common Law or by any custom, or created by any Statute, in the same manner as the same would have been recognised and given effect to, if this Act had not passed, by any of the Courts whose jurisdiction is hereby transferred to the said High Court of Justice.

(7.) The High Court of Justice and the Court of Appeal respectively, in the exercise of the jurisdiction vested in them by this Act, in every cause or matter pending before them respectively, shall have power to grant, and shall grant, either absolutely or on such reasonable terms and conditions as to them shall seem just, all such remedies whatsoever as any of the parties thereto may appear to be entitled to in respect of any and every legal or equitable claim properly brought forward by them respectively in such cause or matter, so that, as far as possible, all matters so in controversy between the said parties respectively may be completely and finally determined, and all multiplicity of legal proceedings concerning any of such matters avoided.

Cases of conflict not enumerated.

28. [Recital.]

1.) In the administration by the Court of the assets of any person who may die after the commencement of this Act, and whose estate may prove to be insufficient for the payment in full of his debts and liabilities, and in the winding up of any company under the Companies Acts, 1862 and 1867, whose assets may prove to be insufficient for the payment of its debts and liabilities and the costs of winding up, the same rules shall prevail and be observed as to the respective rights of secured and unsecured creditors, and as to debts and liabilities provable, and as to the valuation of annuities and future and contingent liabilities respectively, as may be in force for the time being under the law of bankruptcy with respect to the estates of persons adjudged bankrupt in Ireland; and all persons who in any such case would be entitled to prove for and receive dividends out of the estate of any such deceased person, or out of the assets of any such company, may come in under the decree or order for the administration of such estate, or under the winding up of such company, and make such claims against the same as they may respectively be entitled to by virtue of this Act.

(2.) No claim of a cestui que trust against his trustee for any property held on an express trust, or in respect of any breach of such trust, shall be held to be barred by any Statute of Limitations. This provision, however, is not to affect the enactments contained in the tenth section of the Real Property Limitation Act, 1874, when the same shall come into effect:

(3.) An estate for life without impeachment of waste shall not confer or be deemed to have conferred upon the tenant for life any legal right to commit waste of the description known as equitable waste, unless an intention to confer such right shall expressly appear by the instrument creating such estate.

(4.) There shall not, after the commencement of this Act, be any merger by operation of law only of any estate the beneficial interest in which would not be deemed to be merged or extinguished in equity.

(5.) A mortgagor entitled for the time being to the possession or receipt of the rents and profits of any land as to which no notice of his intention to take possession or to enter into the receipt of the rents and profits thereof shall have been given by the mortgagee, may sign and cause to be served notices to quit, determine tenancies, or accept surrenders thereof and sue for such possession, or for the recovery of such rents or profits, or to prevent or recover damages in respect of any trespass or other wrong relative thereto, in his own name only, unless the cause of action arises upon a lease or other contract made by him jointly with any other person; and such action suit or proceeding shall not be defeated by proof that the legal estate in the lands the possession of which is sought to be recovered, or in respect of which the rents or profits are sought to be recovered, or in respect to which the trespass or other wrong has been committed, is vested in such mortgagee: Provided always, that a mortgagor shall not be at liberty to exercise any of the powers hereby conferred if an express declaration that they shall not be exercised is contained in the mortgage.

(6.) Any absolute assignment, by writing under the hand of the assignor (not purporting to be by way of charge only), of any debt or other legal chose in action, of which express notice in writing shall have been given to the debtor trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed,) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor: Provided always, that if the debtor, trustee, or other person liable in respect of such debt or chose in action shall have had notice that such assignment is disputed by the assignor or any one claiming under him, or of any other opposing or conflicting claims to such debt or chose in action, lie shall be entitled, if he think fit, to call upon the several persons making claim thereto to interplead concerning the same, or he may, if he think fit, pay the same into the High Court of Justice under and in conformity with the provisions of the Acts for the relief of trustees.

(7.) Stipulations in contracts, as to time or otherwise, which would not before the commencement of this Act have been deemed to be or to have become of the essence of such contracts in a Court of Equity, shall receive in all Courts the same construction and effect as they would have theretofore received in equity.

(8.) A mandamus or an injunction may be granted or a receiver appointed by an interlocutory order of the Court in all cases in which it shall appear to the Court to be just or convenient that such order should be made and any such order may be made either unconditionally or upon such terms and conditions as the Court shall think just; and if an injunction is asked, either before, or at, or after the hearing of any cause or matter, to prevent any threatened or apprehended waste or trespass, such injunction may be granted, if the Court shall think fit, whether the person against whom such injunction is sought is or is not in possession under any claim of title or otherwise, or (if out of possession) does or does not claim a right to do the act sought to be restrained under any colour of title, and whether the estates claimed by both or by either of the parties are legal or equitable.

(9.) In any cause or proceeding for damages arising out of a collision between two ships, if both ships shall be found to have been in fault, the rules hitherto in force in the High Court of Admiralty, so far as they have been at variance with the rules in force in the Courts of Common Law, shall prevail.

(10.) In questions relating to the custody and education of infants the Rules of Equity shall prevail.

(11.) Generally, in all matters not herein-before particularly mentioned in which there is any conflict or variance between the Rules of Equity and the Rules of the Common Law with reference to the same matter, the Rules of Equity shall prevail.

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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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Legal and equitable assignments

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Legal Framework of Equitable Assignments in Finance

Financiers and lessors often take an assignment over debts or certain rights under contracts as part of their security package. Depending on how this is done, an assignment can either be characterised as a legal or equitable assignment under English law. Stephenson Harwood’s Dipesh Bharania explains

A key difference between a legal and equitable assignment is the ability of the assignee, be it a financier or lessor, to bring proceedings in its own name against the debtor for payment of the debt owed, or to enforce rights in the contract.

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A legal assignee has this right, but there is a question over whether an equitable assignee has this right or not.

In the case of General Nutrition Investment Company v Holland and Barrett International Ltd and another [2017] EWHC 746 Ch, the High Court held that the beneficiary of an equitable assignment did not have the right to bring proceedings in its own name, and had to do so jointly with the assignor which had assigned rights in the underlying contract.

This raises questions about the equitable assignment, as it appears to contradict other judgments which permit an equitable assignee to take proceedings in its own name. The predecessor company of General Nutrition Investment Company (GNIC) entered into a trade mark licence agreement in March 2003 with Holland and Barrett (H&B) allowing H&B to use certain trademarks in the UK.

After complex internal restructuring, the original contracting party had been dissolved and GNIC was the successor company, which as assignee had been assigned both the rights under the original trademark licence agreement, and the rights to the trademarks themselves. GNIC alleged that H&B was in breach of the licence agreement and served a number of notices of termination on H&B purporting to terminate the agreement.

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The court had to decide whether any of these notices of termination were effective, and whether GNIC had the right to serve such notices, and bring and maintain proceedings against H&B in its own name.

The formalities for a legal assignment are set out in Section 136 of the Law of Property Act 1925, including that the assignment must be:

In writing and executed by the assignor “Absolute” and unconditional, Not be expressed to be “by way of charge”, and Notified in writing to the person against whom the assignor could enforce the assigned rights – usually the other contracting party.

It can often suit the assignor, the assignee and the third party to allow the assignor to deal with the third party, for notice not to be given (certainly initially) and the assignee to remain a silent party. This method is frequently used in financing documents, with notice only being given at a later date (rather than at the time of assignment) when there is a possibility of enforcement on the horizon.

An equitable assignment tends to be created when an assignment does not meet one or more of the requirements for a legal assignment. The main differences between a legal and an equitable assignment are priority (and the established principle that the assignee who serves notice first takes priority over any other assignee (where notice is not given)) and an equitable assignee needing to join the assignor as a party in any legal proceedings it brings against the third-party debtor.

However, two recent cases have lessened the distinction in practice between the two. In the Bexhill case the Court of Appeal recognised that an equitable assignee could take action in its own name without joining in the assignor. In the Ardila case, where notice had been given to the contracting party, the High Court looked at the terms of the notice and decided that what had seemed to be a legal assignment was in fact an equitable assignment because the wording of the notice seemed to retain rights for the assignor. The court used this reasoning to declare it an equitable assignment, despite the notice having been given as required.

Returning to the case in point, after the internal reorganisation and subsequent assignment of the trade mark licence agreement to GNIC, no notices of such assignment were served on H&B by the assignor prior to the purported termination of the agreement or the issue of proceedings. GNIC maintained that as it took the place of its predecessor as the “Licensor”, it became the body entitled to exercise rights of termination under the agreement. H&B’s contention was that, as an equitable assignee, GNIC did not have the right to terminate the agreement or bring proceedings in its own name.

It is widely accepted that, until a notice of assignment is given, and (i) the third party can validly discharge its obligations under the contract to the assignor, and (ii) the third party may raise against the assignee any defence or set-off which he could have raised against the assignor (provided that the matter on which the defence is based arose before notice was received) and the contracting party and assignor can amend the terms of the contract without the assignee’s consent.

The High Court considered that previous case law on this issue was binding as it had not been overruled or materially distinguished in any subsequent cases heard, and held that notice to the contracting third party is necessary to perfect the right of the assignee. Additional weight was given to the fact that a substantive contractual right (in this case, the right to terminate the licence agreement) had been assigned rather than just the assignment of a debt. Consequently, the contractual relationship between the parties was seeking to be amended and therefore the third party was entitled to see that such change was being effected by a party which had the right to do so and whom it knew to have such rights. The Court maintained that H&B cannot be expected to accept a notice of termination from an entity which turns out to be an assignee when it had never been given notice of that assignment.

While the High Court accepted that this decision may be appealed, this has raised a question about equitable assignments and the rights of the equitable assignee under English law. In the meantime, in practice, parties will have to scrutinise what type of right they are seeking, whether in security or as a full legal assignment and opt for the method which provides the clearest outcome possible as the law stands when they take the assignment. Anyone taking an assignment of the benefit of a contract should clearly ensure that notice is served on the other contracting party if it wants to be sure it can act in its own name under that contract against the other contracting party if need be.

Otherwise, there is a risk that an equitable assignee will be unable to enforce substantive contractual rights without having to join in the assignor in proceedings. That said, it may still be commercially preferable to have an equitable assignment for particular financing and leasing structures where it is not thought difficult to join the assignor at a later date if need be. In this case it was not possible, as the assignor had been dissolved. Advice should be sought about the type of assignment to be taken in each transaction pending further clarification from the courts.

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What is the significance of an equitable assignment in the context of the assignment of future rights under a contract (or a chose in action)?

An assignment is the transfer of a right or an interest vested in one party (assignor) to another party (assignee). The effect of a valid assignment is to entitle the assignee to demand performance of a contractual obligation.

Assignments may be legal or equitable.

A legal assignment is one which meets the requirements set out in section 136(1) of the Law of Property Act 1925 (LPA 1925). It must be:

absolute and unconditional and not purport to be by way of charge only

made in writing and signed by the assignor

expressly notified in writing to the obligor

equitable assignment s may arise in the following circumstances:

where there is an intention to assign, but not all of the formalities of a legal assignment are met under LPA 1925, s 136(1), the assignment may still be valid as an equitable assignment. The formalities for an equitable assignment to be effective are far less stringent

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Related legal acts:

• Law of Property Act 1925 (1925 c 20)

Key definition:

Equitable assignment definition, what does equitable assignment mean.

assignment s can occur in equity when any of the requirements of legal assignment are not satisfied.

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Equitable Doctrines - Irish Equity

Equitable Doctrines

Fletcher v Ashburner

Money directed toward the purchase of land and land directed to be sold, are regarded by equity as that species of property into which they are directed to be converted.

Steele v Steele (Ir CA)

Where a purchaser has contracted to sell lands which he later devises in his will, it entitles the devisee to the same estate in the purchase money.

Lawes v Bennett (Rolls)

If a man possesses real estate and enters a contract to sell it and dies before the contract is complete it is personal property to him.

Reconversion

Sullivan v Sullivan (Ir CA)

The general principle of election is that where somebody takes a benefit under a will or other instrument, they must give full effect to the instrument under which they receive the benefit.

If the instrument purports to deal with something which it was beyond the power of the donor or settlor to dispose of, but to which effect can be given by the concurrence of the person benefitting, the law will impose on that person the duty to give that concurrence.

It is however, for that person alone to elect to receive the benefit or not.

Re Edwards (CA)

The essentials of election are:

there should be an intention on the part of the testator to dispose of certain property

the property should not in fact be the testator's own property

a benefit should be given by the will to the true owner of the property

Re Lord Chesham (Ch)

Election is based on the principle that a man should not be allowed to approbate and reprobate and that if he approbates he shall do all in his power to confirm the instrument which he approbates.

Wollaston v King (Eq)

The rule as to election applies as between a gift under the will and a claim dehors adverse to it – it does not apply as between two different clauses under the same will.

Sweetman v Sweetman (VC Court)

Conditions for holding a party bound to his choice election are:

he must know that the property, which the testator has chosen to give to another person, was not the testator's property and would upon the testator's decease belong to him

he must know the relative values of the properties between which he is to elect

he must know that the rule of equity exists and that he has to chose between the two estates

he must have made deliberate choice to exercise it

Satisfaction

Satisfaction of debts by legacies

Talbott v Shrewsbury (Ch)

If a debtor gives his creditor a legacy which exceeds the size of the debt it is to be taken as satisfaction of the debt.

However, if the legacy is given on a contingency the legacy will not be taken in satisfaction of the debt, even if the contingency occurs.

Buckley v Buckley

Given that the debt in this case was on a running account and the testator could not be presumed to know how much was outstanding on the account at the time of his death, he cannot be deemed to have intended the legacy in satisfaction of it without express words.

Re Keogh's Estate (Ch)

Allowing mortgagees to live on the mortgaged land after the mortgagor is not to be taken as satisfaction of the debt.

Satisfaction of portion debts by legacies

Glengall v Thynne

Equity leans in favour of a provision by will being in favour of a portion by contract, and unlike debts, a legacy can form part of the satisfaction for a portion.

Hickey v O'Dwyer (HC)

Satisfaction is the donation of a thing with the intention that it be taken in whole or in part satisfaction of some prior claim. The presumption of satisfaction traditionally has been applied where

the testator was father of, or in loco parentis to the donee

the first gift is a portion

both gifts are substantially of the same nature and in favour of the same person

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Equitable Assignment: Everything You Need to Know

An equitable assignment is one that does not fulfill the statutory criteria for a legal assignment, but is binding and upheld by the courts in the interest of equability, justice, and fairness. 3 min read updated on September 19, 2022

An equitable assignment is one that does not fulfill the statutory criteria for a legal assignment, but is binding and upheld by the courts in the interest of equability, justice, and fairness.

Equitable Assignment

An equitable assignment may not appear to be self-evident by the law's standard, but it presents the assignee with a title that is protected and recognized in equity. It's based on the essence of a declaration of trust; specifically, essential fairness and natural justice. As long as there is valuable consideration involved, it does not matter if a formal agreement is signed. There needs to be some sort of intent displayed from one party to assign and the other party to receive.

The evaluation of a righteous equitable assignment is completed by determining if a debtor would rationally pay the debt to another party alleging to be the assignee. Equitable assignments can be created by:

• The assignor informing the assignee that they transferred a right to them
• The assignor instructing the other party to release their obligation from the assignee and place it instead on the assignor

The only part of an agreement that can be assigned is the benefit. Generally speaking, there is no prerequisite for the written notice to be received or given. The significant characteristic that separates an equitable assignment from a legal assignment is that most of the time, an equitable assignee may not take action against a third party. Instead, it must rely on the guidelines governing equitable assignments. In other words, the equitable assignee must team up with the assignor to take action.

The Doctrine of Equitable Assignment in Wisconsin

In Dow Family LLC v. PHH Mortgage Corp ., the Wisconsin Supreme Court issued in favor of the doctrine of equitable assignment. The case was similar to many other foreclosure cases, except this one came with a twist. Essentially, Dow Family LLC purchased a property and the property owner insisted the mortgage on the property had been paid off. However, in actuality, it wasn't. 

Prior to the sale, the mortgage on the property was with PHH Mortgage Corp. When PHH went to foreclose on the mortgage, Dow Family LLC contested it. There was one specific rebuttal that caught the attention of the Wisconsin Supreme Court. The official mortgage on record was with MERS, an appointee for the original lender, U.S. Bank.

Dow argued that PHH couldn't foreclose on the property because the true owner was MERS. Essentially, Dow was stating that the mortgage was never assigned to PHH. Based on this argument, PHH utilized the doctrine of equitable assignment.

Based on a case from 1859, Croft v. Bunster, the court determined that the security for a note is equitably assigned when the note is assigned without a need for an independent, written assignment. Additionally, Dow contended that the statute of frauds prohibits the utilization of the doctrine, mainly because it claimed every assignment on a property must be formally recorded.

During the case, Dow argued that the MERS system, which stored the data regarding the mortgage, was fundamentally flawed. According to the court, the statute of frauds was satisfied because the equitable assignment was in accordance with the operation of law. Most importantly, the court avoided all consideration regarding the MERS system, concluding it was not significant in their decision. 

The outcome was a major win for lenders, as they were relying on the doctrine specifically for these types of circumstances.

Most experts agree that this outcome makes sense in the current mortgage-lending environment. This is due to the fact that it is still quite common for mortgages to be bundled up into mortgage-backed securities and sold on the secondary market.

Many economists claim that by not requiring mortgages to be recorded each time a transfer is completed, the loans are more easily marketed to investors. Additionally, debtors know who their current mortgage company is because the new lender must always notify the current borrower in order to receive payment. It was determined that recording and documenting the mortgage merely provides a signal to the rest of the world that the property owner secures a debt.

If you need help with an equitable assignment, you can  post your job  on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Assignments: why you need to serve a notice of assignment

Catherine phillips.

PSL Principal Associate

It's the day of completion; security is taken, assignments are completed and funds move. Everyone breathes a sigh of relief. At this point, no-one wants to create unnecessary paperwork - not even the lawyers! Notices of assignment are, in some circumstances, optional. However, in other transactions they could be crucial to a lender's enforcement strategy. In the article below, we have given you the facts you need to consider when deciding whether or not you need to serve notice of assignment.

What issues are there with serving notice of assignment?

Assignments are useful tools for adding flexibility to banking transactions. They enable the transfer of one party's rights under a contract to a new party (for example, the right to receive an income stream or a debt) and allow security to be taken over intangible assets which might be unsuitable targets for a fixed charge. A lender's security net will often include assignments over contracts (such as insurance or material contracts), intellectual property rights, investments or receivables.

An assignment can be a legal assignment or an equitable assignment. If a legal assignment is required, the assignment must comply with a set of formalities set out in s136 of the Law of Property Act 1925, which include the requirement to give notice to the contract counterparty.

The main difference between legal and equitable assignments (other than the formalities required to create them) is that with a legal assignment, the assignee can usually bring an action against the contract counterparty in its own name following assignment. However, with an equitable assignment, the assignee will usually be required to join in proceedings with the assignor (unless the assignee has been granted specific powers to circumvent that). That may be problematic if the assignor is no longer available or interested in participating.

Why should we serve a notice of assignment?

The legal status of the assignment may affect the credit scoring that can be given to a particular class of assets. It may also affect a lender's ability to effect part of its exit strategy if that strategy requires the lender to be able to deal directly with the contract counterparty.

The case of General Nutrition Investment Company (GNIC) v Holland and Barrett International Ltd and another (H&B) provides an example of an equitable assignee being unable to deal directly with a contract counterparty as a result of a failure to provide a notice of assignment.

The case concerned the assignment of a trade mark licence to GNIC . The other party to the licence agreement was H&B. H&B had not received notice of the assignment. GNIC tried to terminate the licence agreement for breach by serving a notice of termination. H&B disputed the termination. By this point in time the original licensor had been dissolved and so was unable to assist.

At a hearing of preliminary issues, the High Court held that the notices of termination served by GNIC , as an equitable assignee, were invalid, because no notice of the assignment had been given to the licensee. Although only a High Court decision, this follows a Court of Appeal decision in the Warner Bros Records Inc v Rollgreen Ltd case, which was decided in the context of the attempt to exercise an option.

In both cases, an equitable assignee attempted to exercise a contractual right that would change the contractual relationship between the parties (i.e. by terminating the contractual relationship or exercising an option to extend the term of a licence). The judge in GNIC felt that "in each case, the counterparty (the recipient of the relevant notice) is entitled to see that the potential change in his contractual position is brought about by a person who is entitled, and whom he can see to be entitled, to bring about that change".

In a security context, this could hamper the ability of a lender to maximise the value of the secured assets but yet is a constraint that, in most transactions, could be easily avoided.

Why not serve notice?

Sometimes it's just not necessary or desirable. For example:

• If security is being taken over a large number of low value receivables or contracts, the time and cost involved in giving notice may be disproportionate to the additional value gained by obtaining a legal rather than an equitable assignment.
• If enforcement action were required, the equitable assignee typically has the option to join in the assignor to any proceedings (if it could not be waived by the court) and provision could be made in the assignment deed for the assignor to assist in such situations. Powers of attorney are also typically granted so that a lender can bring an action in the assignor's name.
• Enforcement is often not considered to be a significant issue given that the vast majority of assignees will never need to bring claims against the contract counterparty.

Care should however, be taken in all circumstances where the underlying contract contains a ban on assignment, as the contract counterparty would not have to recognise an assignment that is made in contravention of that ban. Furthermore, that contravention in itself may trigger termination and/or other rights in the assigned contract, that could affect the value of any underlying security.

What about acknowledgements of notices?

A simple acknowledgement of service of notice is simply evidence of the notice having been received. However, these documents often contain commitments or assurances by the contract counterparty which increase their value to the assignee.

Best practice for serving notice of assignment

Each transaction is different and the weighting given to each element of the security package will depend upon the nature of the debt and the borrower's business. The service of a notice of assignment may be a necessity or an optional extra. In each case, the question of whether to serve notice is best considered with your advisers at the start of a transaction to allow time for the lender's priorities to be highlighted to the borrowers and captured within the documents.

For further advice on serving notice of assignment please contact Kirsty Barnes or Catherine Phillips  from our Banking & Finance team.

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.

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