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ARTICLE · 10 AUGUST 2016

Buying Debt - Factoring In More Diligence

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Companies purchasing debt must now ensure they undertake even more thorough due diligence of the debt they purchase before going ahead with such transactions.

United KingdomFinance and Banking
Robert Cooke
Robert Cooke

Companies purchasing debt must now ensure they undertake even more thorough due diligence of the debt they purchase before going ahead with such transactions.

In Bibby Factors Northwest Limited v HFD Limited and another [2015] EWCA Civ 1908, the Court of Appeal held that ordinarily there is no duty on a company whose debt has been purchased to inform the purchasing company of any pre-existing contractual arrangements it has with the company assigning the debt. If the purchasing company wants this information it must directly request it.

The Case

The facts of the case (illustrated below) are interesting in understanding the court's process in coming to this conclusion, and providing warning for anyone considering buying debt. Bibby Factors ("Bibby") bought a debt owed to Morleys Limited ("Morleys") by debtors HFD Limited ("HFD") and MCD Group Ltd ("MCD").

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