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Assignment of insurance policies and claims | Practical Law

Assignment of insurance policies and claims

Practical law uk practice note w-031-6021  (approx. 19 pages).

• Business Law

Assignment of a claim or cause of action

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• Home News and Insights Assignment of claims by officeholders – a future regulatory storm for insolvency practitioners

Assignment of claims by officeholders – a future regulatory storm for insolvency practitioners

9th June 2022

The recent decision by the Court of Appeal in Re Edengate Homes (Butley Hall) Limited (in Liquidation) 2022 has focused many practitioners’ minds on the issues and potential pitfalls concerning the assignment of causes of action by officeholders to litigation funders.

The role of an officeholder is to realise an estate’s assets for the benefit of all stakeholders, including in particular the general body of creditors. For several years now officeholders have been able to assign not only any causes of action that vest in the estate directly, but also officeholder claims.

At the same time we are also seeing an increasingly competitive market, with increasing numbers of entrants to the litigation funding marketplace.

Whilst there can be no doubt that litigation funding can be of invaluable use to insolvency practitioners, since often there are little or no funds within an estate to pursue or investigate causes of action, the concern is that too often situations arise where insolvency practitioners have assigned a cause of action for a relatively modest lump sum that is invariably used to meet fees.  This is often combined with an entitlement to a  limited share of any net recoveries, but often in the writer’s experience the insolvency practitioner’s file does not clearly record what other alternatives were considered, or what steps were taken to maximise returns for the general body of creditors.

The decision in Re Edengate concerned a challenge to the validity of an assignment of a cause of action by an officeholder. While the challenge in Edengate was unsuccessful, on the facts of that particular case certain findings of the Court of Appeal could be subject to further appeal. One also must consider from an insolvency practitioner’s perspective how a regulator would view actions taken by an insolvency practitioner when assigning a cause of action.

Re Edengate Homes (Butley Hall) Limited (in Liquidation)

On 28 April 2022 the Court of Appeal handed down a judgment in respect of Edengate. This concerned an appeal by Adele Lock (‘Mrs Lock’), a former creditor and former director of Edengate. The appeal concerned Edengate being placed into liquidation, and its only asset was a cause of action against Mrs Lock and members of her family.

Mrs Lock sought to challenge the validity of the assignment of the claim to a litigation funder, Manolete Partners plc (‘Manolete’), primarily on the basis that her and her family were not given an opportunity to purchase the cause of action.

Mrs Lock was unsuccessful both at first instance, before the Business & Property Courts in Manchester in November 2021, and before the Court of Appeal.

Mrs Lock sought to challenge the assignment of the cause of action, and it ought to be borne in mind the corresponding similar provisions in other types of insolvency appointment, pursuant to s168(5) Insolvency Act 1986 which provides that:

“If any person who is aggrieved by any act or decision of the Liquidator, that person may apply to the court, and the court may confirm, reverse or modify the act or decision complained of, and make such order in the case as it thinks just.”

In the correct circumstances s168 Insolvency Act 1986 provides the court with the ability to set aside an assignment to a litigation funder.

On 26 November 2015 Edengate was placed into creditors voluntary liquidation.  Whilst not revealed in the statement of affairs, there were monies owing to Edengate in respect of directors’ loans, and from connected debtors, estimated at approximately £2m. Mrs Lock was shown as a creditor in the statement of affairs for approximately £2m.

Although the company had been placed into creditors voluntary liquidation, a trade creditor petitioned for the compulsory winding-up of the company, and a winding-up order was made on 15 March 2016. The liquidator appointed following the making of the compulsory winding-up order was of the view that the company had substantial claims against Mrs Lock, her husband, her parents, and her parents’ company based upon transaction at an undervalue, preference and misfeasance. The value of those claims was estimated at £1.2m, and were disputed by Mrs Lock and her family. On 1 February 2018 solicitors instructed to act on behalf of the liquidator asserted claims against Mrs Lock’s parents, but not (for reasons unknown)  against Mrs Lock for the lesser sum of £1,198,222.

This resulted in discussions taking place between Mrs Lock and the liquidator in relation to threatened proceedings. Although disputed, Mrs Lock in evidence before the court suggested that on 8 February 2018 she discussed the possibility of taking an assignment of the cause of action from the liquidator, but accepted that no formal offer was made to take an assignment.

In the absence of a settlement being reached the liquidator had little or no funds within the appointment to pursue the claims. The liquidator considered alternative funding possibilities, and sought the views of the majority trade creditor who was not prepared to provide funding or to take an assignment of the cause of action.

The liquidator also considered instructing solicitors pursuant to a CFA agreement, combined with an ATE insurance policy (notwithstanding that the premium could be insured), but formed the view that this was unlikely to be practical.

As a result the liquidator sought to assign the cause of action to a litigation funding company, and an offer was received from Manolete in April 2019 for £20,000 together with a percentage of net recoveries.

Following receipt of this offer the liquidator’s solicitors wrote to Mrs Lock’s parents putting them on notice that they were considering assigning the cause of action, and in the absence of settlement being reached within a period of time the cause of action would be assigned to the litigation funder.

This letter, it is accepted, was forwarded to Mrs Lock by her parents. In Edengate therefore Mrs Lock was aware that the cause of action would be assigned to Manolete, and that she had been put on notice of the proposed assignment.

No offer was made to settle the claims at that point in time, and the assignment to Manolete was ultimately progressed on 24 September 2019. The sum of £30,000 was paid on assignment, and an improved percentage of net recoveries was agreed with Manolete.

Up to and including the date of the assignment, whilst a cause of action had been intimated against Mrs Lock’s parents, no formal claim had been asserted against Mrs Lock or her husband. The definition of the ‘ Claim ’ in the assignment to Manolete was very broad, and included any causes of action against Mrs Lock and her husband.

Following the issue of a letter before action in early 2020, proceedings were issued on 19 January 2021. Proceedings were issued against Mrs Lock, her husband, her parents, and her parents’ company. Following preliminary steps, trial was listed to take place in December 2021. The claim was disputed.

On 18 February 2021 Mrs Lock issued an application to set aside the assignment of the cause of action to Manolete, which was heard on 28 October 2021. It is not clear why an application to set aside the assignment was not made prior to the issue of proceedings when Mrs Lock was on notice of the assignment.

Requirements of s168(5) Insolvency Act 1986

To succeed in a challenge pursuant to this section of the insolvency legislation an applicant must not only demonstrate whether it falls within the category of persons entitled to make such an application (i.e. any person aggrieved), but must also demonstrate that it has “ an underlying legitimate interest in the relief sought “.

In this instance Mrs Lock was a creditor, although she would not be entitled to claim set-off in respect of the cause of action against her, and therefore prima facie she was a member of the class of persons entitled to seek to challenge the validity of the assignment.

The court held that Mrs Lock’s claim as a creditor however had to be aligned with the interests of the class of general body of creditors – namely with a view to maximising recoveries for the estate from the assigned claims.

In addition, adopting the criteria laid down by the court in Re Edennote Ltd, any applicant pursuant to s168 Insolvency Act 1986 would have to demonstrate that, in this instance, the liquidator’s decision to assign the cause of action was ‘ perverse ’.

In summary to succeed on a challenge the applicant must demonstrate that:

• They form part of the category of persons entitled to make the application under the relevant section – in this instance a creditor
• The liquidator’s decision was perverse, namely that it was “ so utterly unreasonable and absurd that no reasonable man would have done it “.

Standing to make the application

A creditor, in order to form part of the class of applicant entitled to make an application, must be a ‘substantial creditor’ – i.e. a creditor who is owed more than a minimal amount. The fact that the creditor who issues the application is also a defendant does not mean that they cannot issue such an application.

In Re Edennote Ltd it was held that “any person aggrieved” as set out in s168(5) Insolvency Act 1986, by reference to s20 Bankruptcy Act 1869, included “any creditor, debtor or other person aggrieved”. Re Edennote Ltd confirmed that an outsider to a liquidation had no standing to make such an application, from which it follows that if for example another litigation funder had submitted an unsuccessful competing offer they could not bring an application.

The Court of Appeal in Edengate found that, in addition to being a creditor, the interests of the applicant had to be aligned with the interests of the class of the general body of creditors. The purpose of seeking a challenge to set aside must not be, for example, to ‘stifle a claim’. The applicant must demonstrate that the purpose of the application is to maximise realisations for the benefit of the general body of creditors.

Logically this involves an analysis of whether the applicant (or indeed potentially a third party if a regulatory complaint were to be made) would have offered a greater amount than ultimately a litigation funder had taken the assignment of the relevant cause of action for.

In Edengate Mrs Lock was notified of potential claims prior to assignment, and effectively given an opportunity to put forward an offer by way of settlement or to take an assignment of the cause of action.  She was notified of the proposed assignment of the causes of action before they were assigned to Manolete. That, however, is not the case in other instances where insolvency practitioners have simply assigned a cause of action to a litigation funder. In Edengate there was no suggestion that Mrs Lock would be willing, or had ever been willing, to match or beat the offer made by Manolete.

In circumstances, where claims have not been intimated at all, and where the proposed defendants are creditors for more than a minimal amount, simply assigning a cause of action without notification of any proposed claim, and/or putting the defendants on notice of the proposed assignment, it is submitted entails potential regulatory and financial risks for assignor office-holders.

The Court of Appeal confirmed in Re Edennote Ltd that the court would only interfere with the act of an officeholder where the officeholder had “ done something so utterly unreasonable and absurd that no reasonable man would have done it “. The Court of Appeal held that whilst it may be sensible, or good practice, to give a defendant an opportunity to submit an offer to acquire or settle a cause of action prior to assignment, failure to do so was not necessarily perverse.

Whether an assignment is perverse will depend upon a scrutiny of all the facts of any particular case. Re Edennote Ltd contains several important features that were not present in Edengate, namely:

• In Re Edennote Ltd (the dispute concerned Terry Venables, Lord Alan Sugar, and Tottenham Hotspur plc) the liquidator had incorrectly believed that he could not assign a cause of action to a proposed defendant (such assignment can take place as confirmed in both Re Edennote Ltd and Re GMEL ).
• The liquidator failed to take advice as to the effects of assignment regarding security for costs.
• The judgment in Edengate cites the following passage from the judgement of Lord Justice Nourse in Re Edennote Ltd :

“ It is certainly possible for the liquidator to do something so utterly and unreasonably absurd that no reasonable man would have done it … simply by selling an asset … without taking into account the possibility that a third party may well have made a far better offer to whom it was sold … “.

• At first instance in Edengate the judge criticised the liquidator for not advising Mrs Lock directly that the cause of action was to be assigned to Manolete, but did not go as far as to suggest that that failure was ‘perverse’.

The test as to whether an assignment is perverse is objective. The Court of Appeal in Edengate ruled that the decision was not perverse because Mrs Lock never followed up her suggestion made at a meeting with the liquidator in late February 2018 that she might be interested in buying the claims i.e. She did not make an offer, and her parents did not respond to the letters advising that the claims were to be assigned. The court was not satisfied that Mrs Lock would have made an offer, she had an opportunity to do so, and the court was not satisfied that a third party would offer a greater amount of the cause of action.

The relief following inter alia s168 Insolvency Act 1986 is discretionary. In a situation where an application to set aside the cause of action is made late in the day, the court will not readily assign a cause of action and delay trial.

Is an assignment of a cause of action to a litigation funder capable of assignment?

Notwithstanding that the appeal in Edengate was unsuccessful, the writer’s view is that an assignment of a cause of action to a litigation funder is capable of being set aside subject to being able to demonstrate that:

• the applicant would have submitted a greater bid for the cause of action
• The applicant was in a position financially to submit a greater bid than that accepted upon assignment
• The applicant had not been given notice of a potential claim, or at the very least put on notice of the intention to assign the cause of action to a third party, prior to the assignment taking place
• The offer accepted for the cause of action was ‘perverse’.

The definition of what constitutes perverse is capable of challenge.

The concern is that there have been instances where insolvency practitioners have simply assigned causes of action for a modest amount, together with perhaps a percentage of recoveries, and yet the market has not been tested, and there is no suitable file note as to why the assignment has taken place.

The lump sum payment received on completion is often used to meet the insolvency practitioner’s fees, and does not result in a return for the general body of creditors. In cases that involve a percentage of net recoveries, there may also be realisations for the estate in the final analysis. However, what if there isn’t, and how can a licensed insolvency practitioner say that the assignment is in the best interests of the general body of creditors if the market has not been tested?

Misfeasance and paragraphs 73 & 74 Schedule B1 Insolvency Act 1986

There is a risk that if an insolvency practitioner assigns a cause of action without taking the appropriate steps, and preparing a suitable file note to explain the rationale for any assignment, they could be subject to scrutiny from inter alia creditors and their regulatory body.

Creditors could progress proceedings by misfeasance in a liquidation, challenge the administrator’s conduct pursuant to paragraphs 73 & 74 Schedule B1 of the Insolvency Act 1986, or in bankruptcy an application pursuant to ss303 & 304 Insolvency Act 1986. The aforementioned involve a claim for financial redress against the officeholder.

Why should the general body of creditors suffer financially if an officeholder has not taken the correct steps prior to assigning a cause of action? As the litigation funding market continues to develop, invariably there will be greater scrutiny on insolvency practitioners arising due to the assignment of causes of action.

Regulatory implications

In addition to the risk of a challenge pursuant to inter alia s212 Insolvency Act 1986, there is significant concern that going forwards regulators will be asked to scrutinise an officeholder’s conduct when assigning a cause of action.

A regulator would consider not primarily consider whether an assignment is capable of being challenged, which is a matter for the court, but primarily whether the office-holder’s actions meet the requisite duties of care and standards expected.

Well-advised persons aggrieved by an assignment of a cause of action it is submitted would in the first instance complain to the regulator through the gateway, as opposed to simply challenging an assignment at court, as this would not place them at risk on costs.

Suggested steps to be taken by an insolvency practitioner prior to assigning a cause of action

Insolvency practitioners ought to consider the Official Receiver’s guidance in relation to assigning causes of action, which is useful. The summary of the steps to be taken by the Official Receiver before considering an assignment of a cause of action are as follows:

• Identify the cause of action that is capable of assignment, and the extent to which it falls within the estate and is capable of assignment either as a legal estate claim or as an officeholder claim;
• Identify the merits of the cause of action, and whether the same is frivolous or vexatious;
• If the claim is frivolous or vexatious it ought not to be assigned;
• If a claim is not frivolous or vexatious, and assignment is not barred by (for example) contractual conditions, an assignment ought not to be made without testing the market;
• When testing the market, the cause of action to be assigned ought to be offered inter alia to the defendant in accordance with the principles established in Re GMEL and Re Pennyfeathers . All potentially interested parties, including the defendant, should be given an opportunity to submit an offer for the cause of action that is offered for assignment; &
• A cause of action ought not to be assigned if any offer received is derisory.

The Official Receiver’s technical manual contains  ‘good guidance’ that ought to be considered by all officeholders. The writer however would go further and suggest the following steps that it is submitted ought to be taken prior to assigning a cause of action. The suggested steps below ought to be recorded in a full file note that is maintained on file prior to assigning any cause of action:

• With the assistance of solicitors if appropriate, identify what causes of action the company or the officeholders have, and as against whom;
• Discount any causes of action that are frivolous or vexatious, which ought not to be assigned;
• Consider how any potential claim can be investigated further, and funded;
• Instructing solicitors pursuant to a CFA or DBA agreement;
• Seek funding from majority creditors;
• How to meet the costs of putting in place ATE insurance if appropriate, to include the self-insuring option; &
• The risk of a successful application for security for costs, considering the principles established inter alia in D’Jan of London
• Once a cause of action has been identified, write to the proposed defendants putting them on notice of the potential cause of action, attaching core documentation, and inviting them to put forward proposals. This need not necessarily be, in the first instance, a pre-action protocol letter before action;
• To explore all avenues of funding the claim, to establish which is likely to achieve the greatest return for the general body of creditors, and which are not capable of being progressed.
• If appropriate, invite offers from litigation funders. We would suggest inviting offers from at least two or three litigation funders, so that offers received can be compared and the best offer accepted in principle;
• At the same time invite offers from all interested parties (to include proposed defendants, and majority creditors) to take an assignment of the causes of action;
• Compare all offers received. In the event that the best offer is received from a litigation funder, who will be in a position to fully fund proceedings, notify the proposed defendants that an offer has been received from a litigation funder and afford them a final opportunity of (say) 21 days to put forward offers of settlement or to take an assignment of the cause of action, failing which the proposed defendants are expressly put on notice that the claim will be assigned without further notice;
• Limiting the definition of “ the Claim ” to be assigned – the definition in most assignments is so wide that it encompasses any potential claim that may exist and vest in the estate or that can be progressed by the insolvency practitioners. To avoid future criticism, limit the definition of the cause of action to be assigned to specifically the claims identified, and no others.
• Increase the scope of the indemnity – when negotiating with a litigation funder always seek to increase the standard indemnity in any assignment so that it includes not only the matters usually covered, but also specifically an indemnity in respect of a challenge to the assignment, any misfeasance claim, and any claim pursuant to paragraph 74 Schedule B1 Insolvency Act 1986.

Whilst there is nothing perverse in assigning causes of action to litigation funders, and the emphasis must always be on maximising recoveries for the general body of creditors, it is suggested that the steps suggested above ought to be taken so as not to expose assignor office-holders to financial and regulatory risk. A full file note should be kept in order to explain the rationale for any assignment. In the writer’s opinion offering causes of action to proposed defendants is key, since it could generate greater returns for the general body of creditors as a well-advised defendant may be advised to submit a higher offer than a third party whose objective is to generate a profit.

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How do I assign a claim or cause of action?

Published by a lexisnexis dispute resolution expert.

This Practice Note considers how you may assign a claim or cause of action in law or in equity , including the specific issues to consider when drafting the assignment, such as recoverable losses and costs liability post-assignment.

For guidance on when you may assign a claim or cause of action, see Practice Note: In what circumstances can you assign a claim or cause of action?

Note : in this Practice Note, we refer to the assignment of both causes of action and claims. We define a cause of action as ‘...a factual situation the existence of which entitles one person to obtain from the court a remedy against another person’ ( Letang v Cooper ) and a claim as the formal assertion of a cause of action by a claimant against a defendant. In the authorities , the phrases 'assigning a cause of action' and 'assigning a claim' are sometimes used interchangeably. For the purposes of this Practice Note, unless the context indicates otherwise, we refer to:

assigning ‘causes of action’ when

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Key definition:

Equity definition, what does equity mean.

Capital that is used to finance companies in the form of ordinary share capital as opposed to debt finance. The term is also sometimes used to describe preference shares or subordinated loan capital contributed by equity investors (commonly known as quasi-equity) to distinguish it from third party debt.

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FAC Number: 2024-05 Effective Date: 05/22/2024

Subpart 32.8 - Assignment of Claims

32.800 scope of subpart..

This subpart prescribes policies and procedures for the assignment of claims under the Assignment of Claims Act of1940, as amended, ( 31 U.S.C.3727 , 41 U.S.C.6305 ) (hereafter referred to as "the Act").

32.801 Definitions.

Designated agency , as used in this subpart, means any department or agency of the executive branch of the United States Government (see 32.803 (d)).

No-setoff commitment , as used in this subpart, means a contractual undertaking that, to the extent permitted by the Act, payments by the designated agency to the assignee under an assignment of claims will not be reduced to liquidate the indebtedness of the contractor to the Government.

32.802 Conditions.

Under the Assignment of Claims Act, a contractor may assign moneys due or to become due under a contract if all the following conditions are met:

(a) The contract specifies payments aggregating $1,000 or more.

(b) The assignment is made to a bank, trust company, or other financing institution, including any Federal lending agency.

(c) The contract does not prohibit the assignment.

(d) Unless otherwise expressly permitted in the contract, the assignment-

(1) Covers all unpaid amounts payable under the contract;

(2) Is made only to one party, except that any assignment may be made to one party as agent or trustee for two or more parties participating in the financing of the contract; and

(3) Is not subject to further assignment.

(e) The assignee sends a written notice of assignment together with a true copy of the assignment instrument to the-

(1) Contracting officer or the agency head ;

(2) Surety on any bond applicable to the contract; and

(3) Disbursing officer designated in the contract to make payment.

32.803 Policies.

(a) Any assignment of claims that has been made under the Act to any type of financing institution listed in 32.802 (b) may thereafter be further assigned and reassigned to any such institution if the conditions in 32.802 (d) and (e) continue to be met.

(b) A contract may prohibit the assignment of claims if the agency determines the prohibition to be in the Government’s interest.

(c) Under a requirements or indefinite quantity type contract that authorizes ordering and payment by multiple Government activities, amounts due for individual orders for $1,000 or more may be assigned.

(d) Any contract of a designated agency (see FAR 32.801 ), except a contract under which full payment has been made, may include a no-setoff commitment only when a determination of need is made by the head of the agency , in accordance with the Presidential delegation of authority dated October 3,1995, and after such determination has been published in the Federal Register. The Presidential delegation makes such determinations of need subject to further guidance issued by the Office of Federal Procurement Policy. The following guidance has been provided:

Use of the no-setoff provision may be appropriate to facilitate the national defense ; in the event of a national emergency or natural disaster; or when the use of the no-setoff provision may facilitate private financing of contract performance. However, in the event an offeror is significantly indebted to the United States , the contracting officer should consider whether the inclusion of the no-setoff commitment in a particular contract is in the best interests of the United States . In such an event, the contracting officer should consult with the Government officer(s) responsible for collecting the debt(s).

(e) When an assigned contract does not include a no-setoff commitment , the Government may apply against payments to the assignee any liability of the contractor to the Government arising independently of the assigned contract if the liability existed at the time notice of the assignment was received even though that liability had not yet matured so as to be due and payable.

32.804 Extent of assignee’s protection.

(a) No payments made by the Government to the assignee under any contract assigned in accordance with the Act may be recovered on account of any liability of the contractor to the Government. This immunity of the assignee is effective whether the contractor’s liability arises from or independently of the assigned contract.

(b) Except as provided in paragraph (c) of this section, the inclusion of a no-setoff commitment in an assigned contract entitles the assignee to receive contract payments free of reduction or setoff for-

(1) Any liability of the contractor to the Government arising independently of the contract; and

(2) Any of the following liabilities of the contractor to the Government arising from the assigned contract:

(i) Renegotiation under any statute or contract clause .

(ii) Fines.

(iii) Penalties, exclusive of amounts that may be collected or withheld from the contractor under, or for failure to comply with, the terms of the contract.

(iv) Taxes or social security contributions.

(v) Withholding or nonwithholding of taxes or social security contributions.

(c) In some circumstances, a setoff may be appropriate even though the assigned contract includes a no-setoff commitment ; e.g.-

(1) When the assignee has neither made a loan under the assignment nor made a commitment to do so; or

(2) To the extent that the amount due on the contract exceeds the amount of any loans made or expected to be made under a firm commitment for financing.

32.805 Procedure.

(a) Assignments.

(1) Assignments by corporations shall be-

(i) Executed by an authorized representative;

(ii) Attested by the secretary or the assistant secretary of the corporation; and

(iii) Impressed with the corporate seal or accompanied by a true copy of the resolution of the corporation’s board of directors authorizing the signing representative to execute the assignment.

(2) Assignments by a partnership may be signed by one partner, if the assignment is accompanied by adequate evidence that the signer is a general partner of the partnership and is authorized to execute assignments on behalf of the partner-ship.

(3) Assignments by an individual shall be signed by that individual and the signature acknowledged before a notary public or other person authorized to administer oaths.

(b) Filing. The assignee shall forward to each party specified in 32.802 (e) an original and three copies of the notice of assignment, together with one true copy of the instrument of assignment. The true copy shall be a certified duplicate or photostat copy of the original assignment.

(c) Format for notice of assignment. The following is a suggested format for use by an assignee in providing the notice of assignment required by 32.802 (e).

Notice of Assignment

To: ___________ [ Address to one of the parties specified in 32.802 (e) ].

This has reference to Contract No. __________ dated ______, entered into between ______ [ Contractor’s name and address ] and ______ [ Government agency, name of office, and address ], for ________ [ Describe nature of the contract ].

Moneys due or to become due under the contract described above have been assigned to the undersigned under the provisions of the Assignment of Claims Act of1940, as amended, ( 31 U.S.C.3727 , 41 U.S.C.6305 ).

A true copy of the instrument of assignment executed by the Contractor on ___________ [ Date ], is attached to the original notice.

Payments due or to become due under this contract should be made to the undersigned assignee.

Please return to the undersigned the three enclosed copies of this notice with appropriate notations showing the date and hour of receipt, and signed by the person acknowledging receipt on behalf of the addressee.

Very truly yours,

__________________________________________________ [ Name of Assignee ]

By _______________________________________________ [ Signature of Signing Officer ]

__________________________________________________ [ Titleof Signing Officer ]

__________________________________________________ [ Address of Assignee ]

Acknowledgement

Receipt is acknowledged of the above notice and of a copy of the instrument of assignment. They were received ____(a.m.) (p.m.) on ______, 20___.

__________________________________________________ [ Signature ]

__________________________________________________ [ Title ]

__________________________________________________ On behalf of

__________________________________________________ [ Name of Addressee of this Notice ]

(d) Examination by the Government. In examining and processing notices of assignment and before acknowledging their receipt, contracting officers should assure that the following conditions and any additional conditions specified in agency regulations, have been met:

(1) The contract has been properly approved and executed.

(2) The contract is one under which claims may be assigned.

(3) The assignment covers only money due or to become due under the contract.

(4) The assignee is registered separately in the System for Award Management unless one of the exceptions in 4.1102 applies.

(e) Release of assignment.

(1) A release of an assignment is required whenever-

(i) There has been a further assignment or reassignment under the Act; or

(ii) The contractor wishes to reestablish its right to receive further payments after the contractor’s obligations to the assignee have been satisfied and a balance remains due under the contract.

(2) The assignee, under a further assignment or reassignment, in order to establish a right to receive payment from the Government, must file with the addressees listed in 32.802 (e) a-

(i) Written notice of release of the contractor by the assigning financing institution;

(ii) Copy of the release instrument;

(iii) Written notice of the further assignment or reassignment; and

(iv) Copy of the further assignment or reassignment instrument.

(3) If the assignee releases the contractor from an assignment of claims under a contract, the contractor, in order to establish a right to receive payment of the balance due under the contract, must file a written notice of release together with a true copy of the release of assignment instrument with the addressees noted in 32.802 (e).

(4) The addressee of a notice of release of assignment or the official acting on behalf of that addressee shall acknowledge receipt of the notice.

32.806 Contract clauses.

(1) The contracting officer shall insert the clause at 52.232-23 , Assignment of Claims , in solicitations and contracts expected to exceed the micro-purchase threshold , unless the contract will prohibit the assignment of claims (see 32.803 (b)). The use of the clause is not required for purchase orders . However, the clause may be used in purchase orders expected to exceed the micro-purchase threshold , that are accepted in writing by the contractor, if such use is consistent with agency policies and regulations.

(2) If a no-setoff commitment has been authorized (see 32.803 (d)), the contracting officer shall use the clause with its AlternateI.

(b) The contracting officer shall insert the clause at 52.232-24 , Prohibition of Assignment of Claims , in solicitations and contracts for which a determination has been made under agency regulations that the prohibition of assignment of claims is in the Government’s interest.

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When Assigning the Right to Pursue Relief, Always Remember to Assign Title to, Or Ownership in, The Claim

• Posted on: Oct 4 2016

Whether a party has standing to bring a lawsuit is often considered through the constitutional lens of justiciability – that is, whether there is a “case or controversy” between the plaintiff and the defendant “within the meaning of Art. III.” Warth v. Seldin, 422 U.S. 490, 498 (1975). To have Article III standing, “the plaintiff [must have] ‘alleged such a personal stake in the outcome of the controversy’ as to warrant [its] invocation of federal-court jurisdiction and to justify exercise of the court’s remedial powers on [its] behalf.” Id. at 498–99 (quoting Baker v. Carr , 369 U.S. 186, 204 (1962)).

To show a personal stake in the litigation, the plaintiff must establish three things: First, he/she has sustained an “injury in fact” that is both “concrete and particularized” and “actual or imminent.” Lujan v. Defenders of Wildlife , 504 U.S. 555, 560 (1992) (internal quotation marks omitted). Second, the injury has to be caused in some way by the defendant’s action or omission. Id . Finally, a favorable resolution of the case is “likely” to redress the injury. Id . at 561.

When a person or entity receives an assignment of claims, the question becomes whether he/she can show a personal stake in the outcome of the litigation, i.e. , a case and controversy “of the sort traditionally amenable to, and resolved by, the judicial process.’” Sprint Commc’ns Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 285 (2008) (quoting Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 777–78 (2000)).

To assign a claim effectively, the claim’s owner “must manifest an intention to make the assignee the owner of the claim.” Advanced Magnetics, Inc. v. Bayfront Partners, Inc. , 106 F.3d 11, 17 (2d Cir. 1997) (internal quotation marks and brackets omitted). A would-be assignor need not use any particular language to validly assign its claim “so long as the language manifests [the assignor’s] intention to transfer at least title or ownership , i.e., to accomplish ‘a completed transfer of the entire interest of the assignor in the particular subject of assignment.’” Id. (emphasis added) (citations omitted). An assignor’s grant of, for example, “‘the power to commence and prosecute to final consummation or compromise any suits, actions or proceedings,’” id. at 18 (quoting agreements that were the subject of that appeal), may validly create a power of attorney, but that language would not validly assign a claim, because it does “not purport to transfer title or ownership” of one. Id.

On September 15, 2016, the New York Appellate Division, First Department, issued a decision addressing the foregoing principles holding that one of the plaintiffs lacked standing to assert claims because the assignment of the right to pursue remedies did not constitute the assignment of claims.  Cortlandt St. Recovery Corp. v. Hellas Telecom., S.à.r.l. , 2016 NY Slip Op. 06051.

BACKGROUND :

Cortlandt involved four related actions in which the plaintiffs – Cortlandt Street Recovery Corp. (“Cortlandt”), an assignee for collection, and Wilmington Trust Co. (“WTC”), an indenture trustee – sought payment of the principal and interest on notes issued in public offerings. Each action alleged that Hellas Telecommunications, S.a.r.l. and its affiliated entities, the issuer and guarantor of the notes, transferred the proceeds of the notes by means of fraudulent conveyances to two private equity firms, Apax Partners, LLP/TPG Capital, L.P. – the other defendants named in the actions.

The defendants moved to dismiss the actions on numerous grounds, including that Cortlandt, as the assignee for collection, lacked standing to pursue the actions. To cure the claimed standing defect, Cortlandt and WTC moved to amend the complaints to add SPQR Capital (Cayman) Ltd. (“SPQR”), the assignor of note interests to Cortlandt, as a plaintiff. The plaintiffs alleged that, inter alia , SPQR entered into an addendum to the assignment with Cortlandt pursuant to which Cortlandt received “all right, title, and interest” in the notes.

The Motion Court granted the motions to dismiss, holding that, among other things, Cortlandt lacked standing to maintain the actions and that, although the standing defect was not jurisdictional and could be cured, the plaintiffs failed to cure the defect in the proposed amended complaint. Cortlandt St. Recovery Corp. v. Hellas Telecom., S.à.r.l. , 47 Misc. 3d 544 (Sup. Ct., N.Y. Cnty. 2014).

The Motion Court’s Ruling

As an initial matter, the Motion Court cited to the reasoning of the court in Cortlandt Street Recovery Corp. v. Deutsche Bank AG, London Branch , No. 12 Civ. 9351 (JPO), 2013 WL 3762882, 2013 US Dist. LEXIS 100741 (S.D.N.Y. July 18, 2013) (the “SDNY Action”), a related action that was dismissed on standing grounds.  The complaint in the SDNY Action, like the complaints before the Motion Court, alleged that Cortlandt was the assignee of the notes with a “right to collect” the principal and interest due on the notes. As evidence of these rights, Cortlandt produced an assignment, similar to the ones in the New York Supreme Court actions, which provided that as the assignee with the right to collect, Cortlandt could collect the principal and interest due on the notes and pursue all remedies with respect thereto. In dismissing the SDNY Action, Judge Oetken found that the complaint did not allege, and the assignment did not provide, that “title to or ownership of the claims has been assigned to Cortlandt.” 2013 WL 3762882, at *2, 2013 US Dist. LEXIS 100741, at *7. The court also found that the grant of a power of attorney (that is, the power to sue on and collect on a claim) was “not the equivalent of an assignment of ownership” of a claim. 2013 WL 3762882 at *1, 2013 US Dist. LEXIS 100741 at *5. Consequently, because the assignment did not transfer title or ownership of the claim to Cortlandt, there was no case or controversy for the court to decide ( i.e. , Cortlandt could not prove that it had an interest in the outcome of the litigation).

The Motion Court “concur[red] with” Judge Oeken’s decision, holding that “the assignments to Cortlandt … were assignments of a right of collection, not of title to the claims, and are accordingly insufficient as a matter of law to confer standing upon Cortlandt.”  In so holding, the Motion Court observed that although New York does not have an analogue to Article III, it is nevertheless analogous in its requirement that a plaintiff have a stake in the outcome of the litigation:

New York does not have an analogue to article III. However, the New York standards for standing are analogous, as New York requires “[t]he existence of an injury in fact—an actual legal stake in the matter being adjudicated.”

Under long-standing New York law, an assignee is the “real party in interest” where the “title to the specific claim” is passed to the assignee, even if the assignee may ultimately be liable to another for the amounts collected.

Citations omitted.

Based upon the foregoing, the Motion Court found that Cortlandt lacked standing to pursue the actions.

Cortlandt appealed the dismissal. With regard to the Motion Court’s dismissal of Cortlandt on standing grounds, the First Department affirmed the Motion Court’s ruling, holding:

The [IAS] court correctly found that plaintiff Cortlandt Street Recovery Corp. lacks standing to bring the claims in Index Nos. 651693/10 and 653357/11 because, while the assignments to Cortlandt for the PIK notes granted it “full rights to collect amounts of principal and interest due on the Notes, and to pursue all remedies,” they did not transfer “title or ownership” of the claims.

The Takeaway

Cortlandt limits the ability of an assignee to pursue a lawsuit when the assignee has no direct interest in the outcome of the litigation. By requiring an assignee to have legal title to, or an ownership interest in, the claim, the Court made clear that only a valid assignment of a claim will suffice to fulfill the injury-in-fact requirement. Cortlandt also makes clear that a power of attorney permitting another to conduct litigation on behalf of others as their attorney-in-fact is not a valid assignment and does not confer a legal title to the claims it brings. Therefore, as the title of this article warns: when assigning the right to pursue relief, always remember to assign title to, or ownership in, the claim.

Tagged with: Business Law

• Insights & events

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

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

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

Recent cases which tell another story

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

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

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

Contact our experts for further advice

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31 U.S. Code § 3727 - Assignments of claims

In subsection (a)(1), the words “or share thereof” and “whether absolute or conditional, and whatever may be the consideration therefor” are omitted as surplus. In clause (2), the word “authorization” is substituted for “powers of attorney, orders, or other authorities” to eliminate unnecessary words.

In subsections (b) and (c), the word “official” is substituted for “officer” for consistency in the revised title and with other titles of the United States Code.

In subsection (b), the words “Except as hereinafter provided” are omitted as unnecessary. The words “read and” are omitted as surplus. The words “to the person acknowledging the same” are omitted as unnecessary. The text of 31:203(1st par. last sentence) is omitted as superseded by 39:410. The words “Notwithstanding any law to the contrary governing the validity of assignments ” and the text of 31:203(last par.) are omitted as unnecessary.

In subsection (c), before clause (1), the words “bank, trust company, or other . . . including any Federal lending agency” are omitted as surplus. The words “of money due or to become due under a contract providing for payments totaling at least $1,000” are substituted for “in any case in which the moneys due or to become due from the United States or from any agency or department thereof, under a contract providing for payments aggregating $1,000 or more” to eliminate unnecessary words. The text of 31:203(2d par. proviso cl. 1) is omitted as executed. In clause (1), the words “in the case of any contract entered into after October 9, 1940 ” are omitted as executed. In clause (2)(A), the words “payable under such contract” are omitted as surplus. In clause (3), the words “true” and “instrument of” are omitted as surplus. The words “department or” are omitted because of the restatement. The words “if any” and “to make payment” are omitted as surplus.

In subsection (d), before clause (1), the words “During a war or national emergency proclaimed by the President or declared by law and ended by proclamation or law” are substituted for “in time of war or national emergency proclaimed by the President (including the national emergency proclaimed December 16, 1950 ) or by Act or joint resolution of the Congress and until such war or national emergency has been terminated in such manner” to eliminate unnecessary words. The words “ Department of Energy (when carrying out duties and powers formerly carried out by the Atomic Energy Commission)” are substituted for “Atomic Energy Commission” (which was reconstituted as the Energy Research and Development Administration by 42:5813 and 5814) because of 42:7151(a) and 7293. The words “other department or . . . of the United States . . . except any such contract under which full payment has been made” and “of any moneys due or to become due under such contract” before “shall not be subject” are omitted as surplus. The words “A payment subsequently due under the contract (even after the war or emergency is ended) shall be paid to the assignee without” are substituted for “and if such provision or one to the same general effect has been at any time heretofore or is hereafter included or inserted in any such contract, payments to be made thereafter to an assignee of any moneys due or to become due under such contract, whether during or after such war or emergency . . . hereafter” to eliminate unnecessary words. The words “of any nature” are omitted as surplus. In clause (1), the words “or any department or agency thereof” are omitted as unnecessary. In clause (2), the words “under any renegotiation statute or under any statutory renegotiation article in the contract” are omitted as surplus.

Subsection (e)(1) is substituted for 31:203(4th par.) to eliminate unnecessary words.

In subsection (e)(2), the words “person receiving an amount under an assignment or allotment” are substituted for “assignees, transferees, or allottees” for clarity and consistency. The words “or to others for them” and “with respect to such assignments , transfers, or allotments or the use of such moneys” are omitted as surplus. The words “person making the assignment or allotment” are substituted for “assignors, transferors, or allotters” for clarity and consistency.

English law assignments of part of a debt: Practical considerations

United Kingdom |  Publication |  December 2019

Enforcing partially assigned debts against the debtor

The increase of supply chain finance has driven an increased interest in parties considering the sale and purchase of parts of debts (as opposed to purchasing debts in their entirety).

While under English law part of a debt can be assigned, there is a general requirement that the relevant assignee joins the assignor to any proceedings against the debtor, which potentially impedes the assignee’s ability to enforce against the debtor efficiently.

This note considers whether this requirement may be dispensed with in certain circumstances.

Can you assign part of a debt?

Under English law, the beneficial ownership of part of a debt can be assigned, although the legal ownership cannot. 1  This means that an assignment of part of a debt will take effect as an equitable assignment instead of a legal assignment.

Joining the assignor to proceedings against the debtor

While both equitable and legal assignments are capable of removing the assigned asset from the insolvency estate of the assignor, failure to obtain a legal assignment and relying solely on an equitable assignment may require the assignee to join the relevant assignor as a party to any enforcement action against the debtor.

An assignee of part of a debt will want to be able to sue a debtor in its own name and, if it is required to join the assignor to proceedings against the debtor, this could add additional costs and delays if the assignor was unwilling to cooperate. 2

Kapoor v National Westminster Bank plc

English courts have, in recent years, been pragmatic in allowing an assignee of part of a debt to sue the debtor in its own name without the cooperation of the assignor.

In Charnesh Kapoor v National Westminster Bank plc, Kian Seng Tan 3 the court held that an equitable assignee of part of a debt is entitled in its own right and name to bring proceedings for the assigned debt. The equitable assignee will usually be required to join the assignor to the proceedings in order to ensure that the debtor is not exposed to double recovery, but the requirement is a procedural one that can be dispensed with by the court.

The reason for the requirement that an equitable assignee joins the assignor to proceedings against the debtor is not that the assignee has no right which it can assert independently, but that the debtor ought to be protected from the possibility of any further claim by the assignor who should therefore be bound by the judgment.

Application of Kapoor

It is a common feature of supply chain finance transactions that the assigned debt (or part of the debt) is supported by an independent payment undertaking. Such independent payment undertaking makes it clear that the debtor cannot raise defences and that it is required to pay the relevant debt (or part of a debt) without set-off or counterclaim. In respect of an assignee of part of an independent payment undertaking which is not disputed and has itself been equitably assigned to the assignee, we believe that there are good grounds that an English court would accept that the assignee is allowed to pursue an action directly against the debtor without needing the assignor to be joined, as this is likely to be a matter of procedure only, not substance.

This analysis is limited to English law and does not consider the laws of any other jurisdiction.

Notwithstanding the helpful clarifications summarised in Kapoor, as many receivables financing transactions involve a number of cross-border elements, assignees should continue to consider the effect of the laws (and, potentially court procedures) of any other relevant jurisdictions on the assignment of part of a debt even where the sale of such partial debt is completed under English law.

Legal title cannot be assigned in respect of part of a debt. A partial assignment would not satisfy the requirements for a legal assignment of section 136 of the Law of Property Act 1925.

If an assignor does not consent to being joined as a plaintiff in proceedings against the debtor it would be necessary to join the assignor as a co-defendant. However, where an assignor has gone into administration or liquidation, there may be a statutory prohibition on joining such assignor as a co-defendant (without the leave of the court or in certain circumstances the consent of the administrator).

[2011] EWCA Civ 1083

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Following the revocation of the banking licence of Heritage Bank Plc by the Central Bank of Nigeria (CBN), the Nigeria Deposit Insurance Corporation (NDIC) said it has commenced the liquidation of the bank with immediate verification and payment of insured deposits to the bank’s depositors.

The NDIC, in a statement issued on Monday, said it commenced the liquidation process in pursuant to Section 12(2) of BOFIA, 2020, and in accordance with Section 55 sub-section 1 & 2 of the NDIC Act 2023.

To be verified, the Corporation said: “depositors of the bank that have alternate account within the industry will be paid up to the insured amount of N5 million per depositor using their Bank Verification Number (BVN) to locate their alternate account. While depositors with funds in excess of N5 million will be paid liquidation dividend upon realization of the bank’s assets and recovery of debts owed to the bank.”

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On May 2, the U.S. Court of Appeals for the Seventh Circuit affirmed a False Claims Act (FCA) trial verdict in part, holding that the judgment was not constitutionally excessive under the Eighth Amendment.

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BBS-Bioactive Bone Substitutes Plc: Claims of the complementary patent application for the ARTEBONE® product have been approved in the USA

BBS-Bioactive Bone Substitutes Plc | Company Release | June 04, 2024 at 17:45:00 EEST

Claims of the complementary patent application for the ARTEBONE® product have been approved in the USA

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• Practical Law

New: Deed of assignment

Practical law uk legal update 1-202-1081  (approx. 3 pages).

• The assignor is assigning the whole of the property demised by the lease.
• The property is not subject to any underlease(s).
• Where the assignee is paying a premium to the assignor or the assignor is paying a reverse premium to the assignee.
• Where the assignee gives an express indemnity covenant in respect of the rent and other obligations under the lease and/or in relation to matters contained in title documents affecting the property.
• Where the lease is being held over under the Landlord and Tenant Act 1954 and also where the assignor has commenced renewal proceedings.
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New Standard document and Drafting note

• Deed of assignment .
• Deed of assignment: drafting note .
• Landlord and Tenant