Are you a creditor in Queensland who is struggling with debt assignment and is looking for a way to effectively manage the assignment of their debts?
Dealing with debt can sometimes be a lot for creditors to manage. Between the multiple debts that their business will likely manage and potential problem debtors who don’t seem to want to pay their debt, debts can sometimes spiral out of control!
If this is the case for you or your business, it may be time to consider assigning your debt.
The assignment of a debt occurs when the creditor of a debt sells their debt to a third-party buyer. This process can be complicated to understand, so it is important that you perform due diligence and research before engaging in this process.
Typically seen with banks and credit card companies, creditors will sometimes package their debts into debt books or tranches and sell them, rather than collecting them.
In this article our debt recovery lawyers will discuss the basics of debt assignment in Queensland so that you, as a creditor, can better understand this process.
What is a Debt Assignment?
The first question that is to be asked about debt assignment is what it is and how it works?
A debt assignment is an agreement that transfers a debt, and all of the legal rights and responsibilities associated with it, from the creditor to a third-party purchaser.
This provides the third party with the right to collect the debt, while the creditor can no longer engage in the debt recovery process with the debt assigned.
Once an assignment of debt is verified, the rights will be transferred to the assignee and they will be the official owner of the debt, meaning that they can collect the debt for the money it is worth.
Chose in Action (Thing in Action)
The right to recover a debt is a “thing in action” or a “chose in action”.
A “chose in action” (often referred to as a “thing in action”) is a legal term that denotes a personal right without possession, or a proprietary right in personal property that is intangible and not in one’s possession, but enforceable through litigation.
Common examples of choses in action include debts, shares in a company, and other rights to receive something or have something done.
Contrast this with “chose in possession” which refers to something tangible that one can physically possess, like a book, a car, or money.
The phrase “chose in action” originates from old French and the term “chose” means “thing”.
In Queensland, the assignments of things in action are provided for in legislation, particularly at section 199 of the Property Law Act 1974 (Qld) (“the PLA”).
Section 199 of the Property Law Act
Section 199(1) of the PLA states:
(1) 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 thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice—
(a) the legal right to such debt or thing in action; and
(b) all legal and other remedies for the same; and
(c) the power to give a good discharge for the same without the concurrence of the assignor.
This part of the section means that a the right to recover a debt (being a thing in action) can be legally assigned. This assignment must be absolute and the debtor should receive a written notice, and obtaining the debtor’s consent for this assignment is not mandatory.
Section 199(2) of the PLA states:
(2) If the debtor, trustee or other person liable in respect of such debt or thing in action has notice—
(a) that the assignment is disputed by the assignor or any person claiming under the assignor; or
(b) of any other opposing or conflicting claims to such debt or thing in action;
the debtor may, if the debtor thinks fit, either call upon the persons making claim to the debt or other thing in action to interplead concerning the same, or pay the debt or other thing in action into court under and in conformity with the provisions of the Act s relating to relief of trustees.
This part of the section says that if the debtor knows of disputes or conflicting claims regarding the assignment, they can either request claimants to clarify their stance or deposit the owed amount in court as per the Act’s guidelines.
These subsections raise some further questions, namely:
- What is an “absolute debt assignment” at law?
- What is a notice of debt assignment?
We will discuss these in further detail below.
What is an “Absolute Debt Assignment” at Law?
Absolute debt assignment refers to an unconditional transfer of property or rights, leaving no interest for the original owner.
Typically, it lets a creditor transfer their right to collect a debt to a third party. The debt assignment must be complete and without conditions for the benefit of both the debtor, who knows whom to pay, and the third party, who can legally claim the debt.
In Durham Brothers v Robertson  1 QB 765, it was held that the document was not “an absolute assignment (not purporting to be by way of charge only)” and that the plaintiffs could not recover in the action. This was held because it was a charge. The Court said:
The document purports on the face of it to assign the debt, and it is not the less an absolute assignment because it contains, like any other mortgage, provisions that shew that it is only a security, and that there is a right to redeem. It is clear on the authorities that a mortgage with a power of redemption is an absolute assignment within the section.
In Clyne v Deputy Federal Commissioner of Taxation (1981) 150 CLR 1, Mason J said at :
An “absolute assignment” in the section signifies one which is unconditional.
In Austino Wentworthville Pty Limited v Metroland Australia Limited  NSWCA 59, Barrett JA said at , summarising the relevant principles emerging from the cases:
An “absolute” assignment is one that is unconditional and does not attempt to affect part only of the chose in action.
The fact that an assignment otherwise absolute is accompanied by an express proviso for redemption, an implied right of redemption or the creation of a trust in respect of future proceeds does not deprive it of its absolute character.
An assignment by way of charge is one the effect of which is to give a right of payment out of the subject matter assigned without outright transfer of that subject matter. Such an assignment occurs when, for example, there is a transfer of a right to be paid out of a particular fund or of so much of a debt as is sufficient to satisfy a future indebtedness.
The character of the assignment must be ascertained from the terms and effect of the instrument, according to the construction of it as a whole.
So, to ascertain if the assignment is an absolute assignment, reference must be made to the contract (or deed of assignment), its terms and conditions, and read in the proper context.
Another requirement for an assigned debt to be valid is that the assignee must send a notice to the debtor.
What is a Notice of Debt Assignment?
Before the debt will be able to be collected by the new creditor, a notice of debt assignment must first be issued to the debtor. But what is this and what does it mean?
A notice of debt assignment is a formal notice that is issued to the debtor when a debt is assigned to a new creditor. The new creditor, or the assignee, must issue this notice to the debtor at their last recorded or known home address.
As a debtor, it is a sudden change to have a new creditor to whom they are making payments.
There may have to be a process of them switching details and making financial or legal arrangements to begin to make payments or to manage the debt in any other way of their choosing.
They should be provided the time to understand that they now have a new creditor, as this will likely be an unexpected change, and deal with their debt in the way that they choose, as they may have had previous arrangements or discussions with their initial creditor.
The purpose of the notice is to provide the debtor with this new information and to ensure that they begin making debt payments to the new creditor, rather than continuing to pay the previous creditor.
In Walter and Sullivan Ltd v J Murphy and Sons Ltd  1 All ER 853, the court held that the following are the requirements of a valid notice of an assignment of a debt:
- The notice must be in writing.
- The notice must be signed by the assignor.
- The notice must identify the assignor and the assignee.
- The notice must identify the debt that is being assigned.
In Mango Boulevard Pty Ltd & Anor v Mio Art Pty Ltd & Ors  QCA 148, Fraser JA said at  citing the relevant authorities:
… to constitute valid notice, there must be some kind of formal notification by the assignee, or possibly by the assignor on his behalf, to the debtor in order to achieve the object described in the Walter & Sullivan case. This view is also consistent with the decision of the Court of Appeal in Talcott v John Lewis & Co Ltd  3 All ER 592, where it was held that a notice stamped by a creditor on his invoice stating that the invoice should be transferred and payment made to the assignee, was ineffective, both because it was insufficiently plain in its wording, and because it was not a notice sent by the assignee to the debtor.
Therefore, we would suggest that at a minimum, the written notice of debt assignment should include:
- A notice that it is an assignment of debt.
- The name and details of the assignor of the debt (old creditor).
- As many particulars of the original debt to enable the debtor to identify the debt to which the notice relates.
- All of the details of the assignee of the debt (new creditor).
- Direction to pay the debt to the assignee and the new payment details.
- Full particulars of the original debt amount, plus and costs and interest incurred.
- How the debtor can discharge the debt by payment.
- The assignment must be signed by the assignor.
It is important to note that the assignment does not need to be in any particular format. However, it is advisable to have a lawyer draft the assignment to ensure that it is valid and enforceable.
After you have a valid assignment contract or deed of debt assignment signed; and you have a valid notice of assignment drafted, you must now give the notice of debt assignment to the debtor.
Proper Service of the Notice of Assignment of Debt
The notice must be valid, and it is the responsibility of the assignee to ensure that the notice is valid. The notice of assignment must be absolute and in writing, and the new creditor (or old creditor) must ensure that the notice is delivered properly to the debtor.
Section 347 of the Property Law Act 1974 (Qld) sets out the general rules for serving notices under the Act. A notice may be served on a person:
- By delivering it personally to the person.
- By leaving it at the person’s usual place of abode or business.
- By posting it as a letter addressed to the person at their usual place of abode or business.
If the person is unknown or absent from the State, the notice may be served in such manner as directed by the court.
The Act also provides that a notice posted as a letter shall be deemed to have been served, unless the contrary is shown, at the time when by the ordinary course of post the notice would be delivered.
In Anning v Anning (1907) 4 CLR 1049, Griffith CJ said of the then equivalent of s 199(1) that:
The section does not say by whom the notice is to be given, but it is, I think, clear that it may be given either by the assignor or the assignee.
In Grayprop Pty Ltd v Maharaj International Pty Ltd  QSC 387, it was held that the posting of a notice to a post office box did not comply with s.347 so as to attract the deeming provisions in that section relating to receipt of the notice. In that case Philippides J referred to David Sarikaya v Victorian Workcover Authority  FCA 1372, where Black CJ held:
… a post office box is not, in my view, the “address of a place” at which a document may be “left” for a person. The ordinary notion of “post office box” is of a container at a post office into which mail that has been duly posted is placed by postal authorities for retrieval by or on behalf of the holder of the box. Whether or not such a box is, in this context, the “address of a place”, it is not the address of a place at which a document may be “left” by way of service.
In Walter and Sullivan Ltd v J Murphy and Sons Ltd  1 All ER 853, the court held that notice of an assignment of a debt must be given to a debtor in a way that is reasonably likely to bring it to their attention.
In the case, the assignor had given the debtor notice of the assignment by sending a letter to their registered office. However, the debtor had moved office and the letter was never received.
The court held that the notice was not valid because it had not been given in a way that was reasonably likely to bring it to the debtor’s attention.
Therefore, some takeaways re. service include:
- To give valid notice of an assignment of a debt, the notice must be given to the debtor in a way that is reasonably likely to bring it to their attention.
- This may involve sending the notice by registered post or delivering it in person.
- It is not enough to simply send the notice to the debtor’s registered office if the debtor has moved office and the notice is not received.
Enforcing an Assigned Debt
The debt has been assigned effectively and the notice has been delivered to the debtor. Now what?
As debts that are assigned are often somewhat problematic, as many sell problematic debts, legal action may be the choice that many take.
Commencing court proceedings and receiving and enforcing a judgement are some of the recovery options that assignees will have in the legal regard, such as enforcement warrants, bankruptcy, and issuing a statutory demand / winding up.
The recovery of an assigned debt can often raise several issues for assignees in the initial stages. There are several factors and occurrences that may cause these issues to arise, including:
- Misunderstanding of the debt assignment process by debtors, resulting in confusion or refusal to pay, as they do not understand that they are paying their debt or the same debt as before.
- As we have discussed, a debt assignment must be legal and valid. The debtor may raise a dispute regarding the validity of the assignment of debt, regardless of whether proper procedure was followed or not.
- You must be able to prove that the notice of assignment was effectively validly provided to the debtor. If you have failed to keep proper records of the formation and delivery of the notice, you may struggle to prove that it was both valid and provided.
- If the debtor had previously arranged any kind of understanding with the assignor, they may be able to take action against you for not fulfilling the arrangement, even if you were not notified about it before the sale. This, however, may constitute a breach of contract by the assignor, so you may be able to take action of your own if this turns out to be the case.
Benefits of Debt Assignment
There are several benefits for all parties involved in the assignment of debt, including;
For the Assignor:
The assignor, or the individual or party that is assigning the debt to a new creditor, benefits in several ways and circumstances by selling the debt.
For one, they will have an increased cash flow by being paid a larger piece of the debt in one payment, rather than smaller payments over an extended period, which can help them get their finances back on track or invest in their business.
They will also no longer have the risk of a debt, which may be unable to be collected due to insolvency or other reasons, mitigating risk from their business.
Furthermore, the time and resources spent dealing with the debt will no longer be required, freeing up their business resources for alternative use.
For the Assignee:
The assignee, or the new creditor of the debt, will also be privy to several benefits from the assignment of debt process.
As a debt purchaser, the chances are they will have access to resources or be experienced debt collectors who have the time and resources to focus on debt collection, increasing their chances of being paid.
They will also pay less than the debt is worth for the rights to collect it, leaving room for a large profit margin.
What to Consider in Debt Assignment
While there are many benefits that may be reaped from a debt assignment on either side of the matter, there are also some considerations that should be made. They include;
For the Assignor:
The assignor of the debt should consider if this process is the right one for them and their business. After all, if the debt was collected regularly, they would collect more money over time, rather than being paid a larger amount of the debt immediately but not the full amount at any point in time.
The suitability of assigning a debt is something that can only be decided based on the specific circumstances of the matter and of the assignor’s business, so they should take the time to consider.
If the assignor wishes to maintain a relationship with this debtor for any reason, they should also consider notifying the debtor separately.
For the Assignee:
The assignee of the debt has several considerations to make, also regarding the suitability of this process for them. They will be taking on the responsibility of collecting a debt, which can take time and resources, so this must be feasible for them to commit to.
They are also accepting the risk of not being paid the debt at all or receiving only a small amount of it, so this must be a consideration made.
There is also a process that must be followed once the debt has been assigned, as discussed, so this should be considered as something that must be completed.
Limitation Dates for Assigned Debts
An assignee of debt must ensure that they are within the limitations of actions acts for each State and Territory to legally commence recovery of the debt.
The purpose of limitations of actions acts is to limit the delay for creditors to take action against a debtor for outstanding monies.
The limitation period for a contract debt is six (6) years in Queensland, calculated from the point of breach.
Where an assignee has been assigned a debt, the point of breach will commence from the date the debt was assigned to the assignee.
However, in some circumstances, where a debtor acknowledges the debt or makes a payment in respect of the debt, the point of breach starts from the date of acknowledgement or the last payment made by the debtor.
Common Mistakes to Avoid when Assigning Debt
There are a few things that you should avoid when assigning your debt. These include:
- Not having a written agreement: It is important to have a written agreement in place when assigning debt. This agreement should clearly identify the debt being assigned, the assignor, the assignee, and the terms of the assignment.
- Not notifying the debtor: The debtor must be notified of the assignment in writing. This notice should be given to the debtor before they make any payments to the assignor.
- Assigning debt that is not assignable: Not all debts can be assigned. For example, debts that are personal in nature, such as claims for defamation or assault, cannot be assigned.
- Failing to comply with the applicable laws and regulations: There are specific laws and regulations that govern the assignment of debt. It is important to comply with these laws and regulations to ensure that the assignment is valid.
Here are some additional tips to avoid common mistakes when assigning debt:
- Have a lawyer review the assignment agreement: A lawyer can help you to draft an assignment agreement that is valid and enforceable.
- Use a registered post to send the notice of assignment to the debtor: This will help to ensure that the debtor receives the notice and that there is a record of the notice being sent.
- Keep a copy of all documentation related to the assignment: This includes the assignment agreement, the notice of assignment, and any other relevant documents.
If you have any questions about assigning debt, you should consult with a lawyer asap.
FAQ on Debt Assignment in Queensland
Navigating the intricacies of debt assignment can be complex, given its multifaceted nature and the legal implications involved.
Whether you’re an assignor looking to transfer the rights to a debt or an assignee aiming to comprehend the dynamics of your new responsibility, it’s crucial to understand the entire spectrum of the process.
What is a Debt Assignment?
A debt assignment is a legal transfer of a creditor’s right to collect a debt to a third party, known as the assignee. Once assigned, the original creditor can no longer engage in the debt recovery process.
What is a “Chose in Action”?
A “chose in action” refers to a legal right without possession, like debts or shares in a company. It contrasts with “chose in possession,” which refers to tangible items like a car or book.
What does Section 199 of the Property Law Act 1974 (Qld) discuss?
It provides the legal framework for the assignment of things in action in Queensland, specifying that for a debt assignment to be valid, a written notice must be given to the debtor.
Do I need the debtor’s consent to assign the debt?
No, the debtor’s consent isn’t mandatory. However, they should receive a written notice of the debt assignment.
What is an “Absolute Debt Assignment” at law?
It refers to an unconditional transfer of rights, meaning the original owner retains no interest. This transfer allows the third party (assignee) to legally claim the debt.
What should a Notice of Debt Assignment include?
It should provide details about the original creditor, the assignee, specifics of the debt, payment instructions, legal implications, and the dates of assignment and notice.
Why is the notice important?
It’s a legal requirement for the assignment to be effective, ensures clear communication with the debtor, protects the assignee’s rights, and prevents potential disputes.
What is a Notice of Debt Assignment?
A Notice of Debt Assignment is a formal document sent to a debtor informing them that their debt has been transferred to a new creditor (assignee). This notice ensures the debtor makes payments to the new creditor rather than the original one.
Why is a notice of assignment of debt necessary?
It allows the debtor to understand and adapt to the unexpected change in the party to whom they owe money. It also gives them time to arrange their finances or change any existing agreements made with the original creditor.
What are the requirements for a valid Notice of Debt Assignment?
Based on legal precedents for a Notice of Debt Assignment to be valid it must be in writing; It should be signed by the original creditor (assignor); and it should identify both the assignor and the assignee; and the specific debt being assigned must be detailed.
What should be included in a well-drafted Notice of Debt Assignment?
A well-drafted Notice of Debt Assignment should include a statement clarifying it as an assignment of debt; details of the assignor (original creditor) and the assignee (new creditor); comprehensive information on the original debt, including any additional costs and interest; instructions on how to make payments to the new creditor; the method to finalise the debt payment; and the signature of the assignor.
How should the notice be served to the debtor?
For effective service, the notice should be personally delivered to the debtor; or left at their usual residence or place of business; or posted as a letter to their regular address. However, precautions should be taken regarding post office boxes as they might not comply with certain legal provisions.
What are the implications if the notice isn’t properly served?
A notice must be delivered in a manner that makes it likely to come to the debtor’s attention. Improper delivery can render the notice invalid. For instance, merely sending it to a moved office or a post office box might not suffice.
Does the format of the assignment need to be specific?
No, there isn’t a mandatory format. However, having a lawyer draft the notice ensures its validity and enforceability.
Who can issue the Notice of Debt Assignment?
Either the assignor or the assignee can issue the notice.
What does it mean when a debt is assigned?
When a debt is assigned, it means the original creditor (assignor) has transferred their rights to collect the debt to a new creditor (assignee). This transfer requires a formal notice to be given to the debtor.
After a debt has been assigned, who is responsible for collecting it?
The assignee, or the new creditor, is now responsible for collecting the debt. They can choose any legal collection method, which might include court proceedings.
What issues might arise after the assignment of a debt?
Issues can arise from misunderstandings by the debtor, challenges to the validity of the assignment, lack of proper documentation to prove the notice was provided, or previous agreements with the assignor that were not known by the assignee.
How does the assignor benefit from assigning a debt?
Assignors can benefit from an immediate influx of cash, reduction in the risk of non-collection, and a decrease in time and resources spent on collection efforts.
How does the assignee benefit from purchasing an assigned debt?
Assignees typically purchase debts at a reduced rate, giving them a chance for a higher profit margin upon collection. Additionally, experienced debt collectors might have the resources and expertise to effectively recover debts?
Are there any considerations to be made before assigning or accepting a debt?
Yes. Assignors should evaluate if debt assignment is suitable for their business situation and consider notifying the debtor separately. Assignees must weigh the commitment of resources against the potential risk of non-collection and ensure they understand and follow the necessary post-assignment processes.
Is there a time limit for the assignee to take action on a debt?
Yes. The limitation period for a contract debt is typically six years from the point of breach. However, this might vary if the debtor acknowledges the debt or makes a payment.
Are there common mistakes made during debt assignments?
Some common pitfalls include not having a written agreement, failing to notify the debtor, assigning non-assignable debts, and not adhering to relevant laws and regulations.
How can I ensure that the assignment process goes smoothly?
It’s advisable to consult with a lawyer, use registered post for notices, and keep thorough documentation of every step in the process.
Can all debts be assigned?
No. Some debts, especially those personal in nature like claims for defamation or assault, cannot be assigned. Always check the nature of the debt and legal stipulations before proceeding.