What is an assignment of contract?

Most commercial rights can be assigned unless the contract or the law says otherwise. The assignor and assignee sign a written assignment agreement or, for stronger protection, a deed of assignment that identifies the rights assigned, the effective date, any consideration, warranties and indemnities. The counterparty (the obligor) is then sent a notice of assignment telling it who to pay from what date.

Until that notice arrives, the obligor can pay the assignor in good faith and discharge the debt. A legal assignment usually needs written form and notice and lets the assignee sue in its own name; an equitable assignment arises where the intent is clear but the formalities are missing, so enforcement may rely on equitable remedies. Whatever the form, set-offs, counterclaims and other defences the obligor had against the assignor survive and can be raised against the assignee.

Check three things before assigning. An anti-assignment clause may forbid assignment outright or only without consent; assigning in breach of an absolute prohibition can be void and expose you to damages. A consent clause means getting written consent, and in many commercial contracts it cannot be unreasonably withheld. Contracts involving personal services, confidentiality, fiduciary duties or personal licences are often non-assignable, and regulated financial or consumer contracts may carry licensing or regulator considerations.

Two traps are worth naming. Assigning the same right twice creates priority disputes, so include a warranty that the right has not previously been assigned. And drafting that appears to transfer obligations, or seeks fresh promises from the counterparty, can accidentally amount to a novation and change who is liable.

Where an assignment creates or transfers a security interest in receivables or contractual rights, lodge a financing statement on the Personal Property Securities Register promptly. The Personal Property Securities Act also deems a transfer of an account, meaning a receivable, to be a security interest whether or not it secures payment, so an assignee should register even on a genuine outright sale. Separately, the Act looks at substance over label: if a receivables purchase is in substance a security interest rather than a true sale, an unregistered assignee can end up unsecured and behind later secured creditors.

The sale of receivables or the assignment of contract rights can have GST and income tax consequences, and state or territory stamp duty may apply to assignments or deeds. Assignments involving personal information can also trigger privacy obligations. Check the ATO's guidance and the relevant revenue office, or ask your accountant, before signing.