A recent Federal Court decision highlights the importance of those receiving an assignment of a debt to properly document that assignment and to lead evidence of the assignment if a dispute as to the assignment arises in legal proceedings.

Assignment of debts

Creditors regularly assign their rights of debt to third parties.   This can often occur when one creditor sells a debt to another party.  When this occurs the creditor becomes the assignor, the third party receiving the benefit of the debt becomes the assignee, and the transaction is referred to as an assignment.

Once an assignment is completed, the assignee should have all the same rights and obligations as the assignor had in recovering the debt.  However, the assignee must adhere to certain statutory requirements in order for an assignment to be valid at law.

These rquirements are almost identical in each state (see for example s134 of the Property Law Act (Vic) or s12 of the Conveyancing Act (NSW)) and are broadly as follows:

1. there must be an assignment;
2. the assignment must be absolute;
3. the assignment must be in writing under the hand of the assignor; and
4. express notice in writing of the assignment must be given to the debtor.

Recent Case

In the recent decision of Ozdil v Vrsecky, Justice Jessup of the Federal Court of Australia in Victoria considered the issue of whether express notice of the assignment had been given.

In prior proceedings the assignee had been awarded a default judgement against the debtor. The debtor did not pay the default judgement and a bankruptcy noticed was issued and served. The debtor did not comply with the bankruptcy notice within the required time frame which constituted an act of bankruptcy.  As a result, the Court made a sequestration order against the debtor.

The debtor (now bankrupt) sought an annulment of her bankruptcy pursuant to section 153B of the Bankruptcy Act and sought to challenged the debt on the basis that she did not receive a notice of assignment of the debt from the assignor to the assignee.  She argued that, as a result of this failure of notice, she did not owe the debt to the assignee at all.

Importantly, the only evidence before the Court was an affidavit sworn by the bankrupt personally and the lawyers for the assignee did not cross examine the debtor in relation to the matters set out in her affidavit.

The assignee did not produce evidence addressing whether the notice of assignment was given to the debtor.  As his Honour could only address what evidence was before him, as the issue of the notice had never been judicially determined, a decision was made in the debtor’s favour and the bankruptcy was annulled.

Takeaway

It is unclear why the assignee chose not to lead evidence in this case of the notice of assignment or cross-examine the debtor.  The case stands as a warning that those seeking to enforce their rights arising from an assignment of a debt should ensure that they both meet all the legal requirements of an assignment and put on evidence of matters they wish the Court to consider should the validity of the assignment be challenged in legal proceedings.

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