Behind every debt sale there is a long-established legal concept in Australian law: the assignment of debt. Understanding it is key both for sellers and buyers of debt.
Definition and legal framework
An assignment of debt is the transaction by which the original creditor (assignor) transfers to a third party (assignee) their right to collect from the debtor. A legal assignment must meet the requirements of the state assignment-of-debt provisions (e.g. s.12 Conveyancing Act 1919 NSW): it must be in writing, signed by the assignor, absolute, and written notice must be given to the debtor.
Does the debtor have to consent?
No. This is the most frequent question. The debt can be assigned without the debtor's consent, unless the underlying contract expressly prohibits assignment. However, the assignment must be notified to the debtor in writing: until they receive notice, any payment they make to the original creditor validly discharges the debt.
The debtor keeps all their rights intact: they can raise against the new creditor the same defences they had against the original one, and the terms of the debt cannot get worse because of the assignment.
What is transferred with the debt?
Unless agreed otherwise, the assignment carries the principal debt and its accessories: contractual interest, guarantees and enforcement rights. That is why debts with a court judgment or with security tend to be valued higher.
Is the seller liable if the debtor doesn't pay?
As a general rule, the assignor warrants that the debt exists and is legitimate at the time of the sale, but does not guarantee the debtor's solvency, unless expressly agreed. In other words: the buyer takes on the collection risk — which is precisely why they pay a discounted price.
Legal or equitable assignment?
If any of the formalities of the state assignment provisions are missing (for example, no written notice to the debtor), the assignment may still be valid as an equitable assignment — the main practical difference is that the assignee may need to join the assignor in any court proceedings. For a clean sale, always use a written deed of assignment and notify the debtor.
Assignment of debt in practice
In practice the process is simple: agree the price, sign the deed of assignment with the debt documentation annexed, pay the price and give notice to the debtor. On debtalia.com/au we connect sellers and buyers so they can close the deal directly and confidentially.
