a contractual obligation cannot be assigned without the consent of the other contracting party; that is, it is not possible to transfer the burden of a contract to a third party other than by novation.
When we speak of assignment we are talking about assigning the benefits as we cannot assign burdens – we can only do this by novation
NB: Linden Gardens Trust Ltd v LenestaSludge Disposals Ltd [1994] 1 AC 85 referred to – assignment of “the contract“ – we know now that it is trite law that it is impossible to assign “the contract” as a whole, in the sense that phase ie ‘including both burden and benefit’.
Under general law, a debt or other chose in action may be assigned by two methods:
legal assignment or equitable assignment.
A legal assignment is absolute if the requirements of s 12 of the Conveyancing Act have been satisfied. Several steps must be taken before s 12 of the Conveyancing Act causes an assignment of the kind it describes to be “effectual in law”.
There must be a written instrument. It must be executed by the assignor.
And express notice of the assignment must be given to the debtor.
sale of a specific loan by a lender such as a syndicated loan.
reasons:
to realise capital or take advantage of new lending opportunities;
change the dynamics of its loan portfolio ie diversifying its portfolio;
reduce its capital requirements (ie banks have to maintain a certain percentage of capital to cover for its existing loan obligations);
may wish to crystalise a loss on the loan where the borrower runs into difficulties (ie a distressed debt where there is an active market).
to insulate payments on the issued debentures from the claims of entities, including the transferor/originator of the assets, that are either unrated or have credit ratings lower than the desired credit rating on the debentures
transfer of property such as a portfolio of receivables eg. residential loans, credit card debt, aircraft leases and other types of receivables to be used to generate cash flow in a securitisation transaction (such as by the issue of debentures).
reasons:
to legally isolate the underlying assets from the insolvency of the transferor/originator of those assets, enabling purchasers of the debentures to consider the creditworthiness of the underlying assets independent of the creditworthiness of the transferor/originator.
to insulate payments on the issued debentures from the claims of entities, including the transferor/originator of the assets, that are either unrated or have credit ratings lower than the desired credit rating on the debentures.
