Category: Corporate and Commercial

In this article, Richard Gray barrister takes a brief look at the differences between a Deed of Assignment and a Notice of Assignment and the effect of the assignment on the contracting party

At the end of 2020, Elysium Law were instructed to act for a significant number of clients in relation to claims made by a company known as Felicitas Solutions Ltd (an Isle of Man Company) for recovery of loans which had been assigned out of various trust companies following loan planning entered into by various employees/contractors.

Following our detailed response, as to which please see the article on our website written by my colleague Ruby Keeler-Williams, the threatened litigation by way of debt claims seem to disappear. It is important to note that the original loans had been assigned by various Trustees to Felicitas, by reason of which, Felicitas stood in the shoes of the original creditor, which allowed the threatened action to be pursued.

After a period of inertia, Our Clients, as well as others, have been served with demand letters by a new assignee known as West 28^th Street Ltd. Accompanying the demand letters is a Notice of Assignment, by reason of which the Assignee has informed the alleged debtor of the Assignees right to enforce the debt.

Following two conferences we held last week and a number of phone call enquiries which we have received, we have been asked to comment upon the purport and effect of the Notice of Assignment, which the alleged debtors have received. Questions such as what does this mean (relating to the content) but more importantly is the ‘Notice’ valid?

Here I want to look briefly at the differences between the two documents.

There is no need for payment to make the assignment valid and therefore it is normally created by Deed.

 The creation of a legal assignment is governed by Section 136 of the Law of Property Act 1925:

136 Legal assignments of things in action.

(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;

(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:

Some of the basic requirements for a legal assignment are;

• The assignment must not be subject to conditions.
• The rights to be assigned must not relate to only part of a debt, or other legal chose in action.
• The assignment must be in writing and signed by the assignor.
• The other party or parties to the agreement must be given notice of the assignment.

Notice of assignment

To create a legal assignment, section 136 requires that express notice in writing of the assignment must be given to the other contracting party (the debtor).

Notice must be in writing

Section 136 of the LPA 1925 requires “express notice in writing” to be given to the other original contracting party (or parties).

 Must the notice take any particular form?

The short answer is no. Other than the requirement that it is in writing, there is no prescribed form for the notice of assignment or its contents. However, common sense suggests that the notice must clearly identify the agreement concerned.

Can we  challenge the Notice?

No. You can challenge the validity of the assignment assignment by ‘attacking the Deed, which must conform with Section 136. In this specific case, the Notice sent by West 28^th Street in itself is valid. Clearly, any claims made must be effected by a compliant Deed and it is that which will require detailed consideration before any right to claim under the alleged debt is considered.

Can I demand sight of the assignment agreement

On receiving a notice of assignment, you may seek to satisfy yourself that the assignment has in fact taken place. The Court of Appeal has confirmed that this is a valid concern, but that does not give an automatic right to require sight of the assignment agreement.

In Van Lynn Developments Limited v Pelias Construction Co [1969]1QB 607  Lord  Denning said:

“After receiving the notice, the debtor will be entitled, of course, to require a sight of the assignment so as to be satisfied that it is valid…”

The Court of Appeal subsequently confirmed this  stating the contracting party is entitled to satisfy itself that a valid absolute assignment has taken place, so that it can be confident the assignee can give it a good discharge of its obligations

Summary

The important document is the Deed of Assignment, which sets out the rights assigned by the Assignor. The Notice of Assignment is simply a communication that there has been an assignment. The deed is governed by Section 136 of the LP 1925. It should be possible to obtain a copy of the Deed prior to any action taken in respect of it.

For more information on the claims by West 28^th Street or if advice is needed on the drafting of a Deed, then please call us on 0151-328-1968 or visit www.elysium-law.com.

In this article Richard Gray of Elysium Law considers amendments to the Model Articles adopted by a company with a sole Director.

Elysium Law were approached recently concerning the amendment to the Model Articles adopted by a Company who only had a sole Director.

The Company had secured the offer of a mortgage, but the lender required an amendment to the articles in that the acceptance of the mortgage offer and a charge over the property could be accepted by the Sole Director.

In pursuance of that requirement, we advised upon and amended the articles in the modified form as well as drafting the Special Resolution required.

The decision in Hashmi v Lorimer-Wing [2022] EWHC 191 (Ch) has called into question whether the articles of companies which adopt or automatically incorporate the model articles for private companies must be amended if the company is to be a sole director company. The High Court considered, among other things, the proper interpretation of Model Articles 7 and 11 and held that the provisions in Model Article 11(2) should be construed as imposing a requirement for a company to have a minimum of two directors.

Article 7

“7.—(1) The general rule about decision-making by directors is that any decision of the directors must be either a majority decision at a meeting or a decision taken in accordance with article 8.

(2) If

(a) the company only has one director, and

(b) no provision of the articles requires it to have more than one director,

the general rule does not apply, and the director may take decisions without regard to any of the provisions of the articles relating to directors’ decision-making.

Article 11

11.—(1) At a directors’ meeting, unless a quorum is participating, no proposal is to be voted on, except a proposal to call another meeting.

(2) The quorum for directors’ meetings may be fixed from time to time by a decision of the directors, but it must never be less than two, and unless otherwise fixed it is two.

(3) If the total number of directors for the time being is less than the quorum required, the directors must not take any decision other than a decision

(a) to appoint further directors, or

(b) to call a general meeting so as to enable the shareholders to appoint further directors.”

Article 11, more or less replicates regulation 89, and anticipates that there must be at least two directors to form a quorum. A company as a matter of law however must have only one director.

Where only one director holds office, article 7(2) disapplies any provisions of a company’s articles relating to decision making by directors, provided the articles do not specify that at least two (or more) directors are to hold office at all times. If the articles do specify such a minimum number of directors, a sole director may only take decisions for the purposes of appointing further directors (article 17(1)(b)) or calling a general meeting to allow the shareholders to appoint further directors (article 17(1)(a)).

In Hashmi (above) the Court held that Model Article 7(2) was clear; it permitted a sole director to manage the company, where no provision of the articles required it to have more than one director. In this case, bespoke article 16.1 of the company’s articles replaced Model Article 11(2)) and required there to be multiple directors for board meetings to be quorate which the court considered also to mean that the articles required it to have more than one director. That being the case, Model Article 7(2)(a) was disapplied.

This decision indicates that it would be wise for existing private companies with model articles or articles based upon them may wish to amend them, by for example amending Model Article 11(2) by not requiring the company to have more than one director within the meaning of article 7(2)(a).

It seems that the validity of acts taken by sole directors in companies with articles based on the model articles is now likely to be called into question.

As a consequence, companies which have, or have had, a single director may also wish to consider whether, where appropriate, they should ratify some or all of the previous decisions of those directors. Note that amendments of articles will only take effect from the date of amendment, and not all companies are likely to ratify all past decisions of their sole directors.

Clearly when forming a new company bespoke articles should be filed rather than model articles. The suggestion must be that the provision of Article 11 is changed to accommodate the sole director position. A suggestion has also been made that Article 15; the recording of decisions should also be reviewed to accommodate the position.

Call us on 0151 328 1968 or email clerks@elysium-law.com for an initial discussion with one of our team.