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Loan transfers and portfolio sales

What are common ways of buying and selling loans?

Australia

Australia

Buying and selling loans is very common in Australia.

A loan may be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are novation, assignment and sub-participation, as described below.

Novation

 A novation is a full legal transfer of the party's rights and obligations. It is a tripartite arrangement between the existing parties and the transferee. It results in a fresh contract being formed between the continuing party and the transferee, with the transferor being released from its obligations.

Assignment

An assignment is a transfer of rights only, not obligations. Subject to any contractual restrictions, an assignment may occur without the debtor's consent. An assignment may be effected as either an equitable assignment or legal assignment, depending on whether certain statutory requirements have been satisfied.

Sub-participation

A sub-participation is a transfer of the economic interest in a loan without the legal relationship between the existing parties changing. Sub-participations involve the buyer taking on double credit risk, on both the borrower and the seller.

Transfer Mechanics 

The facility agreement and the security trust deed will usually include transfer mechanics. These will specify the way in which the rights and obligations of an existing lender are novated or assigned to a transferee lender and any conditions that may apply, such as consents or restrictions on the nature of the transferee. The loan transfer itself is commonly based on the Loan Market Association recommended form documents made available by the Asia Pacific Loan Market Association. For more complex transactions, a more bespoke form of sale and purchase agreement will usually be used. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Where security interests are transferred, registration may be required either on the Personal Property Securities Register or elsewhere (depending on the nature of the asset).

 

Last modified 3 Dec 2019

Austria

Austria

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are as follows.

Transfer by way of assumption/acquisition of contract (Vertragsübernahme)

A loan transfer by way of assumption/acquisition of contract is a full legal transfer of the party's rights and obligations (subject to contractual restrictions such as required prior consent). It is a tripartite arrangement between the existing parties and the transferee and results in a fresh contract being formed between the continuing party and the transferee and the transferor being released from its obligations.

Assignment

An assignment is a transfer of rights only, not obligations. Subject to any contractual restrictions, assignment could be done without the consent of the debtor (however, it is advised to inform the debtor for purposes of effective payment).

Sub-participation

A sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the buyer taking on double credit risk, both on the seller as well as the borrower.

Loan transfers are commonly documented by using standard form contracts related to documents by the Loan Market Association, (LMA) although Austrian templates deviate to some extent from the LMA standard documentation. For more complex transactions, a more bespoke form of sale and purchase agreement would tend to be used. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 6 Dec 2019

Belgium

Belgium

Buying and selling loans is not very common.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms. 

The most common ways of selling loans are:

  • Novation – A novation is a full legal transfer of the party's rights and obligations. It is a tripartite arrangement between the existing parties and the transferee and results in a fresh contract being formed between the continuing party and the transferee and the transferor being released from its obligations.
  • Cession – A cession is a full legal transfer of the party's rights. It is an arrangement whereby the existing lender transfers his rights to a transferee. The latter thus takes over the rights under the existing contract which is to be continued.
  • Sub-participation – The original lender will remain the only creditor of the borrower, and the only beneficiary of the security package. Based on the sub-participation agreement, the sub-participant has a contractual right to amounts received by the principal lender, but no direct in rem right against the borrower, nor over the security assets.
  • Belgian law LMA standard documentation – In case of large syndicated loans, it is market practice to use the LMA standard contracts, with the necessary amendments so that it can be governed by Belgian law. For the transfer of rights created thereby the transfer mechanisms provided in this documentation can be used.

Loan transfers are commonly documented using standard form contracts made available by the Loan Market Association. For more complex transactions, a more bespoke form of sale and purchase agreement would tend to be used. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 18 Dec 2019

Brazil

Brazil

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

In Brazil, there are three potential pieces of regulation that affect this market. First, there is the general rule for the assignment of rights set out in the Brazilian Civil Code. In relation to financial institutions, certain resolutions and circulars from the Central Bank of Brazil also impose restrictions on this type of activity. Finally, as most of the purchasers of this type of asset are investment funds (known as investment funds in credit rights (Fundo de Investimento em Direitos Creditórios, or FIDC)), the applicable regulation of the Brazilian Securities Commission (CVM) is also relevant.

The Brazilian Civil Code allows creditors in general to assign their rights, provided there is no limitation arising out of the nature of the credit, the applicable laws or the contractual relationship between them and the debtor. It also imposes certain formalities in relation to the transaction documentation. In this respect, an assignment is only binding as against third parties if it is executed through a public document (ie a document issued by a competent Registry) or a private instrument with the place and date of its execution indicated, the purpose of the business specified and the parties (assignee and assignor) clearly identified. Also, the agreement (or another document evidencing the assignment) has to be registered with the competent Registry of Deeds and Documents in Brazil. Finally, the Brazilian Civil Code prescribes that the assignment is only valid as against the underlying debtor that is notified of the assignment. It is important to stress that, unless otherwise provided for in the original agreement, the prior approval of the debtor is not necessary. The debtor has only to be notified of the assignment, by any means legally possible.

Brazilian Central Bank regulation also plays an important role. Central Bank Regulations are basically divided into two categories: regulations relating to situations where the assignee is another financial institution and those relating to situations where the assignee is not a financial institution. There are some important differences between the two categories. First, if the assignee is not a financial institution, the assignment may not benefit from the co-obligation of the assignee (ie the assignee is not responsible for the default of the underlying debtor). Secondly, the purchase price paid by a non-financial institution may not be in instalments. In this case, the payment has to be made with immediately available funds at the date of the financial settlement of the transaction. Finally, and maybe most importantly, the repurchase of the assigned credits is not allowed. These restrictions are generally not applicable to transactions with FIDCs.

Last modified 4 Dec 2019 | Authored by Campos Mello Advogados

Canada

Canada

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are as follows.

Novation

A novation is a tripartite arrangement among the original parties to a contract and a transferee seeking to replace the transferor to the contract. It is a full legal transfer of the transferor’s rights, benefits and obligations to the transferee. All parties to the original contract need to consent to the new contract and the non-transferring party must accept the new contract in full satisfaction of, and as substation for, the old contract.

Assignment

An assignment is a transfer of rights and benefits of the transferor only, not its obligations under the contract. Subject to any contractual restrictions, assignments generally can be done without the consent of the non-assigning party to the contract. The burden under the original contract remains with the assignor and, as such, the assignor can be held liable if the assignee fails to perform the obligations under the contract. An assignment does not replace the original contract and does not create a new contract.

Generally, loan transfers will be documented using the bank’s standard form documentation. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 2 Jan 2020

Chile

Chile

Due to the fact that loans are agreements (contracts) there are only a few legal ways to transfer (buy or sell) them.

In Chile, the transfer of loans can be conducted mainly in two ways:

  • novation – transfer of the legal rights and obligations of the debtor to a person that shall become the new debtor. It requires the acquiescence of the creditor; and
  • assignment – transfer of the contract from the creditor to another person, who becomes the new creditor. It requires a contract and the transfer of the previous contract (which contains the original loan). Unless agreed otherwise, it does not require acquiescence of the debtor.

Last modified 6 Dec 2019 | Authored by BAZ|DLA Piper

Colombia

Colombia

Loans are commonly traded in Colombia. The most common forms of loans and debt trading are as follows.

Assignment and assumption agreements

The most common form of loan trading is an assignment and assumption agreement between the original lender and the new lender.

Novation agreements

For facilities in which the lender's obligations (mainly disbursement of the loan) are pending, the substitution of one lender by another is made through a novation agreement, executed by the lender with the debtor and the substituted lender.

Last modified 20 Oct 2017 | Authored by DLA Piper Martinez Beltrán

Czech Republic

Czech Republic

Buying and selling loans is very common and loans are usually transferred separately.

The most important ways of transferring a loan under Czech law are:

  • Assignment of receivables – The assignment of receivables involves a transfer of rights, but not the related obligations, and can be done without the consent of the debtor. Rights connected with the receivables are transferred together with the main assigned receivable. This way is the most common method of transfer of a loan.
  • Assignment of a contract – Under Czech Law, the whole contract can be assigned as well. The assignor transfers its rights and obligations under the contract or part thereof to a third party (assignee) if:
    • the transferred party (the other party to the contract) agrees with such assignment;
    • the contract is not yet fulfilled; and
    • such assignment is not excluded by the nature of the contract itself.

Some contracts can also be assigned by endorsement (rubopis).

  • Novation (with the accession of a third party) – This is when the existing rights and obligations forming a contract are effectively replaced in full by a new contract. It is a tripartite agreement effecting the transfer of a loan to the third party and is entered into between the transferee and the existing parties.

There are many different forms of these kinds of contracts, however, for more complex transactions a more bespoke form of sale and purchase agreement would tend to be used.

Last modified 20 Oct 2017

Finland

Finland

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are:

  • Transfer – A transfer is a full legal transfer of the loan agreement, including all rights and obligations of the lender as well as the underlying security. It is a tripartite arrangement between the existing parties and the transferee and results in a fresh contract being formed between the continuing party and the transferee and the transferor being released from its obligations.
  • Assignment – An assignment is a transfer of lender’s rights only, not obligations. Subject to any contractual restrictions, assignment can be done without the consent of the debtor. An assignment can be effected as either an equitable assignment or legal assignment depending on whether certain statutory requirements have been satisfied.
  • Sub-participation – A sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the buyer taking on double credit risk, both on the seller as well as the borrower.
  • Securitization – In a securitization transaction the creditor/issuer creates a financial instrument by combining and repacking loans and selling the related cash flow to investors in a form of securities.

Loan transfers are commonly documented using standard form contracts made available by the Loan Market Association. For more complex transactions, a more bespoke form of sale and purchase agreement would tend to be used. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 26 Nov 2019

France

France

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are as follows.

Transfer of contract (cession de contrat)

A cession de contrat is a full legal transfer of the party's rights and obligations. It is a tripartite arrangement between the transferor (cédant), the assigned party (cédé) and the transferee (cessionnaire). To the extent the assigned party (cédé) has given its consent, the transferor (cédant) is released from its obligations for the future.

Assignment of rights (cession de créance)

A cession de créance is available to the extent the facility has been fully drawn. Subject to any contractual restrictions, a cession de créance can be done without the consent of the debtor.

Sub-participation

A sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the buyer taking on double credit risk, both on the seller as well as the borrower.

Last modified 4 Dec 2019

Germany

Germany

Buying and selling loans is very common.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling and transferring loans are:

  • Assignment and Assumption of Contract (Vertragsübernahme) – A Vertragsübernahme is a full legal transfer of a party's rights and obligations. It is a tripartite arrangement between the existing parties and the transferee and results in a continuation of the existing contract between the continuing party and the transferee and the transferor being released from its obligations.
  • Assignment – An assignment is a transfer of rights only, not obligations. Subject to any contractual restrictions, assignment can be done without the consent of the debtor. Assignments may be done on a silent basis or on a disclosed basis. If disclosed, payments by the debtor to the assignee have releasing effect.
  • Sub-participation – A sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the buyer taking on double credit risk, both on the seller as well as the borrower.

Loan transfers are commonly documented using standard form contracts in Germany based on the Federal Association of Loan Purchase and Servicing (Bundesvereinigung Kreditankauf und Servicing e.V. – BKS) standards. For more complex transactions, a more bespoke form of sale and purchase agreement would tend to be used.

Last modified 20 Oct 2017

Ghana

Ghana

The most common ways of selling loans in Ghana are by way of: 

  • assignment; and
  • novation.

Last modified 15 Jan 2020 | Authored by Reindorf Chambers

Hungary

Hungary

Buying and selling loans is not very common in Hungary.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are:

  • Transfer of contract – The transfer of the contract is a full legal transfer of the party's rights and obligations. It is a tripartite arrangement between the existing parties and the transferee and results in the transfer of the contract between the continuing party and the transferee and the transferor being released from its obligations. The debtor can grant a prior approval to such transfer.
  • Sub-participation – A sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the buyer taking on double credit risk, both on the seller as well as the borrower.

For more complex transactions, a more bespoke form of sale and purchase agreement would tend to be used. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 20 Oct 2017

Italy

Italy

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio.

The most common ways of selling loans are:

  • Assignment of contract – An assignment of contract is a full legal transfer of the party's contractual rights and obligations. It is a tripartite arrangement between the existing parties and the transferee and results the transferee becomes party to the loan agreement, with the transferee assuming all the rights and obligations arising under the agreement and the transferee and the transferor being released from its obligations.
  • Assignment of receivables – An assignment is a transfer of rights only, not obligations. Subject to any contractual restrictions, assignment can be done without the consent of the debtor but notice to the debtor is generally required in order to make such transfer opposable to vis-à-vis the relevant debtor. The assignment will result in the assignee becoming the legal owner of the receivables and being entitled to receive the relevant payments.

In the case of transfer of contracts/receivables as a pool and provided that the transferee/assignee meets certain requirements, the assignment may be made under Article 58 of the Consolidated Banking Act, so that the notice of the assignment can be performed with a publication on the Official Gazette and in the competent register of the companies registry.

Depending on the specific needs of the transaction and taking into account the requirements of the relevant investors, the receivables can be assigned to a securitization vehicle in accordance with the Italian Securitization Law, so that the purchase price of the receivables is paid by the securitization vehicle which is funded through the issuance of asset-backed securities notes. The assignment of the receivables to the securitization vehicle is made as a true sale.

Loan transfers (including in bonis or non-performing loans) are commonly documented as a bespoke sale and purchase agreement. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 22 Jan 2020

Japan

Japan

A loan can be sold on an individual basis or packaged with other loans as a portfolio grouped by certain underlying terms.

Occasionally, loans are transferred for syndication. For example, a single lender may make an initial loan due to time constraints and subsequently syndicate the loan by transferring part of the loan to other lenders.

Assignment of rights

Subject to contractual restrictions, the assignment of rights can be completed without the consent of the debtor. Partial assignments are also possible. Perfection can be accomplished through notice to or acknowledgement by the debtor on an instrument bearing a certified date (Notice or Acknowledgement).

Assignment of contractual status

Subject to the consent of the debtor, a total or partial assignment of a lender's contractual status, including any or all rights and obligations, is possible. A transfer of a revolving loan includes a transfer of the lender's obligation to lend money to the debtor and therefore cannot be accomplished only through the assignment of rights.

Novation

A novation results in the formation of a new contract between the continuing party and the transferee, while the transferor is released from all its obligations.

Sub-participation

Sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the purchaser taking on double the credit risk, being that of the seller and of the borrower. Some participation agreements have a triggering event (such as poor financial performance by the original lender) which requires a change to the sub-participation arrangements to effectively transfer the loan to avoid the new lender assuming the original lender's risk.

Loan transfers are commonly documented using standard form agreements made available by the Japan Syndicate and Loan-Trade Association and consisting of a master agreement for all transactions between the parties and an individual agreement for a specific transaction between the parties. In the case of any discrepancy between the two documents, the tailored individual agreement will prevail for the specific transaction. For more complex transactions, a more bespoke form of sale and purchase agreement is typically used. The form and content of the transfer documentation will depend on the nature of the loan assets.

Last modified 5 Dec 2019

Luxembourg

Luxembourg

Buying and selling loans is very common.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are:

  • Assignment of claims – Subject to any contractual restrictions, assignment can be done without the consent of the debtor (although it has to be notified in accordance with article 1690 of the Luxembourg Civil Code).
  • Assignment of contract – Assignment generally require the consent of the debtor (as this right be seen as a novation).
  • Novation – Under novation contracts, the parties agree to terminate the existing debt and a new debt is created. Novation can only occur in three situations under Luxembourg law:
    • substitution of debt;
    • change of debtor; and
    • change of creditor.

Loan transfers are commonly documented using standard form contracts made available by the Loan Market Association (LMA). For more complex transactions, a more bespoke form of sale and purchase agreement would tend to be used. The form and content of the transfer documentation will depend on the nature of the underlying assets being sold.

Last modified 10 Dec 2019

Mauritius

Mauritius

The most common ways of selling loans are: 

  • novation;
  • assignment; and
  • sub-participation.

Last modified 6 Dec 2019 | Authored by Juristconsult Chambers

Mexico

Mexico

Buying and selling loans is very common. A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common way of selling loans is through an assignment of all of the assignor’s rights and obligations under the corresponding loans, including any promissory notes documenting disbursements (or its substitution).

Participations in loans are also common as a way of lenders transferring an economic interest in a loan but not changing the legal relationship between the existing lender and borrower under a loan agreement.

The form and content of the transfer documentation will depend on the nature of the loans being sold. It is customary for the parties to include a template of assignment agreement as an exhibit to the loan agreement.

Last modified 5 Dec 2019

Morocco

Morocco

Assignment of receivables / assignment of contract

The assignment of a receivable as well as the assignment of a contract brings together three persons: the original creditor (the assignor), the new creditor (assignee) and the debtor, who does not change.

The debtor will have to pay his debt to the assignee and no longer to his original creditor.

Subrogation

Subrogation, which may be conventional or legal, is governed by Moroccan law. This is an amendment to the legal relationship consisting in substituting one person for another.

Novation

Novation constitutes a mechanism for the extinction of an obligation by the creation of a new obligation in substitution. In other words, novation is a contractual effect which, either not as a result of the change of creditor or as a result of the change of debtor, modifies the conditions for the performance of a contract.

Last modified 6 Jan 2020

Netherlands

Netherlands

Loan portfolios are most commonly purchased by either taking assignment of the loan receivables themselves (which can take place on a disclosed or a non-disclosed basis) or by means of a ‘transfer of entire contractual position’ (whereby both rights and obligations under the relevant loans are transferred).

The concept of novation is not known under Netherlands law and, in the event that non-Dutch law governed loan agreements are transferred by means of novation, there is a real risk that underlying Dutch security can be extinguished as, under Dutch law, the continued existence of security rights is codependent on the continued existence of the claim they purport to secure.

Last modified 6 Dec 2019

New Zealand

New Zealand

Buying and selling loans is common.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio subject to overarching terms.

The most common ways of selling loans are as follows.

Assignment

An assignment is a transfer of rights only, not obligations. Subject to any contractual restrictions, assignment may be able to be achieved without the consent of the debtor. An assignment can be effected as either an equitable assignment or legal assignment depending on whether certain statutory requirements have been satisfied.

Novation

A novation is a full legal transfer of the party's rights and obligations by agreement. It is a tripartite arrangement between the existing parties and the transferee and results in a fresh contract being formed between the continuing party and the transferee and the transferor being released from its obligations.

Sub-participation

A sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the buyer taking on double credit risk, both on the seller as well as the borrower.

Last modified 13 Dec 2019

Norway

Norway

Buying and selling loans is very common.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

Loan transfers between professionals are commonly documented using standard form contracts made available by the Loan Market Association. For more complex transactions, a more bespoke form of sale and purchase agreement would tend to be used. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Note also that lending is a strictly regulated activity in Norway and that in principle assuming a creditor position as part of a loan sale and purchase process can trigger an authorization requirement (subject to any applicable exemptions).

Last modified 20 Oct 2017

Peru

Peru

Buying and selling loans is very common in Peru.

A loan may be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are through assignment, which may be either a transfer of rights only and not obligations, or a complete transfer of a contractual position (including rights and obligations). Subject to any contractual restrictions, assignment of rights can be executed without the consent of the debtor, while assignment of a contractual position requires the consent of the debtor.

Loan transfers are commonly documented using standard form contracts proposed and negotiated by and between the financial entities. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 5 Dec 2019 | Authored by DLA Piper Pizarro Botto Escobar

Poland

Poland

Buying and selling loans is very common in Poland.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are as follows:

  • assignment – the transfer of rights only, not obligations (subject to any contractual or statutory restrictions, assignment can be done without the consent of the debtor); and
  • sub-participation – the transfer of the economic interest in a loan without changing the legal relationship between the existing parties (sub-participation involves the buyer taking on a double credit risk, both on the seller as well as the borrower).

The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 6 Dec 2019

Portugal

Portugal

A loan can be sold on an individual basis or as a portfolio. The most common ways of selling loans are as follows.

Credits Assignment

Credits assignment is a transfer of rights only and of not obligations. Subject to any contractual restrictions, credit assignments can be done without the consent of the debtor, but the contractual relationship between the debtor and the lender will continue.

Assignment of the contractual position

An assignment of the contractual position will transfer both the rights and obligations of the lender. Although consent of the debtor is required, such an assignment terminates the contractual relationship between the debtor and the former lender.

Last modified 6 Dec 2019

Puerto Rico

Puerto Rico

Buying and selling loans is very common.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are through the purchase of asset and liabilities agreements and servicing agreements. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 11 Dec 2019

Romania

Romania

Romanian law provides for various legal mechanisms for transferring rights and obligations, including those under loan agreements. The most common methods for transferring loans are as follows.

Assignment of receivables

The assignment occurs by the mere convention between the owner of certain receivables (assignor) and the buyer of those receivables (assignee), following which the assignee acquires:

  • the receivables and all rights held by the assignor in relation to the assigned receivables; as well as
  • all (assignable) security/guarantees and other rights accessory to the assigned receivables.

In principle, the consent of the assigned debtor is not required, except for cases when, depending on circumstances, the respective receivables are ‘essentially linked to the creditor (assignor)’, ie it can be enforced by the creditor only. The enforceability of the assignment of receivables against third parties, including the assigned debtor is achieved upon fulfilment of certain formalities, such as:

  • written notice of the assignment to the assigned debtor(s), or written acknowledgement of the assignment signed by the assigned debtors, bearing a certain date; and
  • registration of the assignment with the Romanian Electronic Archive for Movable Security (Arhiva Electronica de Garantii Reale Mobiliare).

Assignment of contract

This is a mechanism introduced by the Romanian Civil Code (in force as of 1 October 2011). It allows a party to a contract to be replaced by a third party in that contract provided that the initial contractual parties have not yet fulfilled all their obligations under the respective contract and the counterparty agrees to such replacement. The assignment agreement and the acceptance of the assignment by the counterparty must be concluded in the form prescribed by law for the validity of the assigned contract.

Novation

The novation option implies the extinguishment of the existing contractual relationship and the creation of a new one. The novation may be achieved in three different ways, namely:

  • The debtor undertakes a new obligation towards the creditor, which replaces and extinguishes the initial obligation.
  • A new debtor replaces the initial debtor, the latter being released from its obligations towards the creditor.
  • A new creditor replaces the initial one, the debtor being released from its obligations towards the initial creditor.

As a general principle, the security or guarantees securing the initial receivable are not maintained unless expressly agreed by the parties.

Subrogation

This mechanism operates when a third party pays instead of the debtor (eg borrower) and is subrogated to the creditor's rights against the debtor.

Last modified 20 Oct 2017

Russia

Russia

Buying and selling loans is common.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common way of selling loans in Russia is by an assignment of rights. Assignment is allowed unless otherwise stated in law. Generally, it can be done without the consent of the debtor.

Recently the Civil Code of the Russian Federation recognized the concept of an agreement transfer, which allows the transfer of all rights and obligations under an agreement to another party. However, it is not yet widely used in practice.

Last modified 5 Dec 2019

Singapore

Singapore

Buying and selling loans is common.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are:

  • Novation – A novation is a full legal transfer of the party's rights and obligations. It is a tripartite arrangement between the existing parties and the transferee and results in a fresh contract being formed between the continuing party and the transferee and the transferor being released from its obligations.
  • Assignment – An assignment is a transfer of rights only, not obligations. Subject to any contractual restrictions, assignment can be done without the consent of the debtor. An assignment can be effected as either an equitable assignment or legal assignment depending on whether certain statutory requirements have been satisfied.
  • Sub-participation – A sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the buyer taking on double credit risk, both on the seller as well as the borrower.

Loan transfers are commonly documented using standard form contracts drafted in-house by banks subject to negotiations between parties. For more complex transactions, a more bespoke form of sale and purchase agreement would tend to be used. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 20 Oct 2017

Slovak Republic

Slovak Republic

A loan can be transferred on an individual basis or packaged up with other loans and transferred as a portfolio.

The ways of transferring loans are:

  • Novation – By means of novation, the existing contract (rights and obligation) is replaced with a new contract. Transfer of a loan to the third party should be concluded as a tripartite agreement between the existing parties and the transferee, whereas the rights and obligations of the transferor shall be transferred to the transferee.
  • Assignment of receivables – An assignment of receivables constitutes a transfer of rights only, not obligations. Subject to any contractual restrictions, the assignment of receivables can be done without the consent of the debtor (but an assignor is obliged to notify the debtor, without undue delay, of the assignment of the receivables). Accessory rights and all other rights connected with the receivables shall be transferred together with the assigned receivables.

The form and content of the transfer documentation will depend on the nature of the loan which is being transferred. For complex transactions, a more bespoke form of transfer agreement shall be used.

Last modified 6 Dec 2019

South Africa

South Africa

There is no formal market for the buying and selling of loans. Rather, these transactions are negotiated between the lender looking to sell all or part of its participation in a loan and a financial institution interested in buying that particular interest. This process may need to be performed in consultation with the borrower, unless the facility agreement provides otherwise.

The most common ways of selling loans are:

  • Assignment – Both the rights and obligations of a lender are transferred; assignment generally requires the consent of the borrower.
  • Cession – All or a portion of the rights of the existing lender are transferred to the new lender; this may be done without the consent of the borrower, but notice should be provided.

Most finance documents cater for an ability of the finance parties to transfer with or without consent or to any persons listed on agreed list of transferees. The general market position is that no consent is required to transfer all or a portion of a loan following the occurrence of a default.

Last modified 5 Dec 2019

Spain

Spain

Buying and selling loans is very common.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are:

  • Novation – A novation is a full legal transfer of the party's rights and obligations. It is a tripartite arrangement between the existing parties and the transferee and results in a fresh contract being formed between the continuing party and the transferee and the transferor being released from its obligations.
  • Assignment – An assignment is a transfer of rights only, not obligations. Subject to any contractual restrictions, assignment can be done without the consent of the debtor. An assignment can be effected as either an equitable assignment or legal assignment depending on whether certain statutory requirements have been satisfied.
  • Sub-participation – A sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the buyer taking on double credit risk, both on the seller as well as the borrower.

Loan transfers are commonly documented using standard form contracts made available by the Loan Market Association. For more complex transactions, a more bespoke form of sale and purchase agreement would tend to be used. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 5 Dec 2019

Sweden

Sweden

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are:

  • Assignment – The normal way of selling loans is by way of an assignment of the rights and obligations under the loans. Subject to any contractual restrictions, assignment can be done without the consent of the debtor but it is normally prudent to ask for consent if the contract is silent on this issue.
  • Sub-participation – A sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the buyer taking on double credit risk, both on the seller and the borrower.

Loan transfers are commonly documented using standard form contracts made available by the Loan Market Association and adopted for Swedish purposes as applicable. For more complex transactions, a more bespoke form of sale and purchase agreement would tend to be used. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 22 Jan 2020

Thailand

Thailand

Buying and selling loans is very common.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are:

  • Novation – A novation is a full legal transfer of the party's rights and obligations. It is a tripartite arrangement between the existing parties and the transferee and results in a fresh contract being formed between the continuing party and the transferee and the transferor being released from its obligations.
  • Assignment – An assignment is a transfer of rights only, not obligations. Subject to any contractual restrictions, assignment can be done without the consent of the debtor. However, the assignee is able to claim such assignment against the debtor only if such transfer is notified to the debtor in writing; and if the debtor consents in writing to such transfer, the debtor will not be able to use any defense it has over the assignor against the assignee.

Under Thai law, the security will not automatically transfer with the loan which it secures. An amendment to the security agreement or a new security agreement (as the case may be) must be done to secure the transferred loan.

Please note that there is no specific provision on sub-participation under Thai law. However, commercial banks will be subject to requirements and criteria under the risk participation regulations of the Bank of Thailand. 

Last modified 4 Apr 2020

Ukraine

Ukraine

The Civil Code of Ukraine sets out the grounds for selling and buying loans.

The most common ways of selling loans are:

  • assignment; and
  • novation.

A loan transfer is commonly documented under a factoring contract. However, note that a loan purchaser shall be an authorized entity (being a factoring company and holding a license from the National Commission for Regulation of Financial Services Markets of Ukraine).

Loan Market Association (LMA) secondary market documentation is used by Ukrainian banks for transferring commitments under loans with foreign parties.

Last modified 24 Jan 2020

UK - England and Wales

UK - England and Wales

Buying and selling loans is very common.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are:

  • Novation – A novation is a full legal transfer of the party's rights and obligations. It is a tripartite arrangement between the existing parties and the transferee and results in a fresh contract being formed between the continuing party and the transferee and the transferor being released from its obligations.
  • Assignment – An assignment is a transfer of rights only, not obligations. Subject to any contractual restrictions, assignment can be done without the consent of the debtor. An assignment can be effected as either an equitable assignment or legal assignment depending on whether certain statutory requirements have been satisfied.
  • Sub-participation – A sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the buyer taking on double credit risk, both on the seller as well as the borrower.

Loan transfers are commonly documented using standard form contracts made available by the Loan Market Association. For more complex transactions, a more bespoke form of sale and purchase agreement would tend to be used. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 6 Dec 2019

UK - Scotland

UK - Scotland

Buying and selling loans is very common.

A loan can be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are:

  • Novation – A novation is a full legal transfer of the party's rights and obligations. It is a tripartite arrangement between the existing parties and the transferee and results in a fresh contract being formed between the continuing party and the transferee and the transferor being released from its obligations.
  • Assignation – An assignation is a transfer of rights only, not obligations. Subject to any contractual restrictions, assignation can be done without the consent of the debtor. An assignation must be notified ('intimated') to the debtor to become effective.
  • Sub-participation – A sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the buyer taking on double credit risk, both on the seller as well as the borrower.

Loan transfers are commonly documented using standard form contracts made available by the Loan Market Association. For more complex transactions, a more bespoke form of sale and purchase agreement would tend to be used. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Last modified 20 Oct 2017

United Arab Emirates

United Arab Emirates

The most common ways of selling loans are:

  • Novation – A novation is a full legal transfer of the party's rights and obligations. It is a tripartite arrangement between the existing parties and the transferee and results in a fresh contract being formed between the continuing party and the transferee and the transferor being released from its obligations.
  • Assignment – An assignment is a transfer of rights only. There is some doubt as to whether an assignment can be done without an acknowledgment of the debtor and case law varies from Emirate to Emirate. For this reason, it is good practice to ensure that the debtor consents to and acknowledges any assignment.
  • Sub-participation – A sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the buyer taking on double credit risk, both on the seller as well as the borrower.

Similar to other jurisdictions, loan transfers are commonly documented using standard form contracts made available by the Loan Market Association. However, as mentioned in Giving and taking guarantees and security, as the concept of trust does not exist in the UAE, it will be necessary to consider any security arrangements governed by UAE law and it would be usual for a transferee to accede to any security agency arrangements.

Last modified 23 Jan 2020

United States

United States

Buying and selling loans is customarily done in an over-the-counter market. The most common ways of selling loans are by assignment and participation.

Assignment

An assignment is a transfer of rights and obligations and creates direct contractual rights between the borrower and the assignee. Credit agreements typically require the consent of the borrower to effectuate an assignment.

Participation

A participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Credit agreements typically permit participations without the consent of the borrower. Loan transfers are commonly documented using standard form contracts made available by the Loan Syndications and Trading Association.

Last modified 24 Jan 2020

What are common ways of buying and selling loans?

Buying and selling loans is very common in Australia.

A loan may be sold on an individual basis or packaged up with other loans and sold as a portfolio pursuant to overarching terms.

The most common ways of selling loans are novation, assignment and sub-participation, as described below.

Novation

 A novation is a full legal transfer of the party's rights and obligations. It is a tripartite arrangement between the existing parties and the transferee. It results in a fresh contract being formed between the continuing party and the transferee, with the transferor being released from its obligations.

Assignment

An assignment is a transfer of rights only, not obligations. Subject to any contractual restrictions, an assignment may occur without the debtor's consent. An assignment may be effected as either an equitable assignment or legal assignment, depending on whether certain statutory requirements have been satisfied.

Sub-participation

A sub-participation is a transfer of the economic interest in a loan without the legal relationship between the existing parties changing. Sub-participations involve the buyer taking on double credit risk, on both the borrower and the seller.

Transfer Mechanics 

The facility agreement and the security trust deed will usually include transfer mechanics. These will specify the way in which the rights and obligations of an existing lender are novated or assigned to a transferee lender and any conditions that may apply, such as consents or restrictions on the nature of the transferee. The loan transfer itself is commonly based on the Loan Market Association recommended form documents made available by the Asia Pacific Loan Market Association. For more complex transactions, a more bespoke form of sale and purchase agreement will usually be used. The form and content of the transfer documentation will depend on the nature of the loan assets being sold.

Where security interests are transferred, registration may be required either on the Personal Property Securities Register or elsewhere (depending on the nature of the asset).

 

What are the main considerations when transferring a loan and related security?

There are a number of issues to consider before transferring a loan or portfolio of loans. These issues are often considered in the due diligence undertaken by the seller's legal advisors. Some of the key issues are:

  • Confidentiality: whether the seller of the loan is allowed to disclose information relating to the loan to a potential purchaser;
  • Data protection: whether there is any personal data or other restricted information in the loan that should not be disclosed to a potential purchaser (in particular, the Privacy Act 1988 (Cth) and the National Credit Code should be considered);
  • Lender eligibility – whether there are any restrictions considering the type of entity to which the loan may be transferred;
  • Undrawn commitments: whether there are any continuing obligations for further funding or other material obligations of the lender that may bind the transferee or reduce claims made by the transferee;
  • Transfer mechanics: whether there are any steps that need to be taken to transfer the loan in accordance with its terms;
  • Consent: whether a transfer requires the consent of, or notification to, any other parties; and
  • Voidable transactions: if the seller is insolvent, whether certain transactions may be declared voidable under the Corporations Act 2001 (Cth).
Onno Bakker

Onno Bakker

Partner
DLA Piper Australia
[email protected]
T +61 2 9286 8260
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