What is Assignment of Rights?

Assignment of rights involves the transfer of a claim or right by deed of assignment and notification to the debtor. Once the notification is given, the debtor can only make a valid payment to the assignee.

In practice there are two main forms. Financial assignment: invoice receivables are transferred to a factoring company as part of credit financing. The debtor receives a notice that payment must henceforth be made to the bank or financier rather than the original supplier. Contractual novation is broader: a third party steps fully into the legal position of a contracting party, including all rights and obligations. Novation requires the counterparty's consent.

Many contracts contain a prohibition on assignment or a consent requirement: transfer of rights is not permitted without the counterparty's prior written consent. This protects the counterparty from an unwanted third party as new creditor. For suppliers using factoring or supply chain finance, it is essential to verify whether the contract permits assignment, a prohibition on assignment blocks the financing arrangement.

In mergers and acquisitions, contract assignment plays a central role: existing contracts do not automatically transfer in an asset deal. Each counterparty must consent, which for a large contract portfolio represents a significant undertaking.

Be alert to assignment notices arriving unexpectedly by email: always verify authenticity before paying into a new account.

Unexpected assignment of rights can fundamentally change a contractual relationship. A supplier that assigns its receivables to a collection agency or financier introduces a third party into the relationship that may be less flexible in case of payment difficulties. A prohibition on assignment gives you as counterparty control over who your creditor is.

In mergers and acquisitions, contract assignment is a critical concern: without the explicit consent of all counterparties, contracts cannot be automatically transferred, which can delay or complicate the transaction.