The use of anti-assignment clauses Sarah Paterson London School of Economics and Political Science

The wider picture Issues in other areas of finance: Loan agreements Secondary trading: distressed debt and loan-to-own investors Increased costs and tax provisions Derivatives eg ISDA Master Agreement 2002 Prohibits transfer, except in limited circumstances, to preserve mutuality for close-out and netting Permits transfer of an early termination payment resulting from the close-out Regulatory capital Securitisation Reliance placed on promises by the originator and the SPV not to enter into any assignment that might compete with the transaction in question

A definitional problem? Is the problem more significant than a definitional issue? ensure ban on prohibition on assignments for the purposes of receivables financing does not have consequences for other finance arrangements

The debtor’s concerns Avoiding risk of payment by mistake to the assignor after receipt of notice Argument in favour of ban on prohibition on assignment often made in the context of small companies May not have sophisticated finance function

Preserving rights of set off Debtor may be concerned to preserve rights of set off against contracting party Contractual and equitable set off Insolvency set off

Right to deal only with contracting party Guards against having to deal with someone debtor would not have contracted with directly May impact the debtor who needs short term accommodation in time to pay Contracting party may be more sympathetic to requests for extension/variation in payment terms Different attitudes from different financiers

Current state of the law Prohibition solely for the benefit of the debtor and should not affect transfer of property as between assignor and assignee Issues: Claim against assignor if assignor is insolvent Trust and charge Validity against debtor If expressly prohibited If prohibition only refers to assignment Even if invalid against debtor, valid as between assignee and assignor? Claim against debtor if assignor is insolvent Appoint “friendly” administrator Claim against debtor if assignor is solvent but reluctant to proceed Contractual obligation on assignor to bring proceedings for the benefit of the assignee Power of attorney for assignee to bring proceedings in the name of the assignor Vandepitte procedure (terminate trust and join trustee as defendant) Attitude of Courts (i) to drafting of the provision (ii) to the right of the beneficiary to be paid (iii) to respect for protection debtor has secured

Effect of ban on assignment Prohibition on assignment Not binding on assignee But potential damages claim against assignor for breach? Notice and collection on insolvency of assignor Notice delivered to debtor and direct collection; or Assignee continues to appoint administrator to insolvent assignor to pursue collection of receivables

A question of balance Balancing competing objectives Current state of English law Requirement for Reform; or Clarification? Survey