Those transactions generally follow the same process, irrespective of the commercial terms of any particular deal. In very general terms, there is usually a loan (or mortgage) sale agreement and a series of transfer documentation. The loan sale agreement usually deals with the assignation/assignment of loans and the transfer documents typically deal with the transfer of the collateral documentation, such as guarantees and security documents, in accordance with local law requirements. When Scottish loans (being loans which arise under Scots law governed loan agreements or English law agreements where the borrower or an obligor is Scottish) are involved, notice of the assignation of the loan and collateral security documents must be given to the borrower (or, if different, the grantor of each guarantee or security document) so as to properly transfer the creditor's interest in the relevant loan(s) and security documentation to the purchaser under the loan sale agreement in accordance with Scottish requirements. Scots law does not recognise the concept of equitable assignations - an assignation either takes effect or it does not so intimating (giving notice of) the assignation is crucial when a portfolio involves Scottish loan assets.
I read with interest the recent English High Court case of Nicoll v Promontia (Ram 2) Ltd. Amongst various other points, that case considered whether a notice of assignment of a debt which referred to an unverifiable effective date of the assignment could be valid. The case is an English case from below the Court of Appeal so does not carry quite the same authority as may otherwise be the case in Scotland had the case been considered in the Inner House of the Court of Session. It is worthy of consideration in the context of loan portfolio sales and purchasers all the same.
In Nicoll v Promontoria (Ram 2) Ltd, the borrower had failed to repay the underlying loan facility to the Co-operative Bank when due. The Co-operative Bank then assigned the loan to Promontoria and notice of the assignment was given to the borrower. The notice issued to the borrower referred to the debt having been assigned to Promontoria "on and with effect from 29 July 2016". The debtor made some repayments to Promontoria before Promontoria eventually served a statutory demand for the repayment of the outstanding borrowings. The borrower questioned the validity of the demand on the basis that prior English case law had set a precedent that an incorrect date in a notice of assignment rendered that notice invalid and, as the date specified in the notice which had been served on him was unverifiable, the effect must be that Promontoria had not yet acquired good title to sue the borrower.
The documentation which Promontoria had provided to the borrower after the date of the notice of the assignment had cross referred to various other documents which included conditions for completion. The court therefore agreed with the borrower that the documentation given to the borrower was insufficient to enable the borrower to verify when the assignment had actually become effective. The notice had also been dated a day ahead of the assignment. However, the court took the view that the notice clearly demonstrated an intention from each of the Co-operative Bank and Promontoria that the debt was to be sold and assigned to Promontoria because the notice which had been served on the borrower was a joint notice from each of the creditors.
So what does the case mean for lawyers and those involved in the sale of loan portfolios? Perhaps a few things:
- the case has limited weight in terms of setting any form of precedent but, arguably, it demonstrates that mistakes as to the effective date of an assignment in a notice to the relevant debtor might not be fatal to the effectiveness of that assignment if evidence is available which demonstrates that the debt has been properly assigned
- clearly, it is vital that any notice which is given is accurate and, if documents are to be dated in manuscript, a degree of thought must be applied before dates are simply added to key transaction documentation - there is always a risk of human error in those circumstances so steps should be taken to minimise that risk
- it is not uncommon for notices to be given unilaterally (often to avoid the need to have additional documents signed unnecessarily by all parties to the loan sale agreement). Perhaps there is merit in ensuring that notices are signed by both parties, even if that creates an additional administrative burden ahead of deal closing?