<p>Once such receivables are assigned to the lenders, these receivables  are &lsquo;ring fenced&rsquo; thereby securing the cash flows from the asset for  servicing the payments under the loan provided in connection with the  asset.</p>
<p>Generally, an assignment is a process of transferring rights and/or  obligations held by one party&mdash;the assignor to another party&mdash;the  assignee.&nbsp; Assignment agreements relating to assignment of rights (or  receivables) are typically bilateral agreements between the assignor and  the assignee with a notification sent to the debtor.&nbsp; The assignment  agreement, relating to an assignment of obligations in general is a  tri-party agreement, between the debtor, the creditor and the assignee. &nbsp;</p>
<p>There are two types of assignments; an assignment of rights and an  assignment of debt also known as an assignment of obligations.&nbsp; Under  the assignment of rights, the assignee is a third party who assumes the  rights to collect the receivables accruing to the creditor, while under  the assignment of debt; the assignee replaces the debtor and the  debtor&rsquo;s obligations to repay its debt to a creditor.</p>
<p>Although assignments are permitted under the Qatari Civil Code, Law  No. 22 of 2004 (the &ldquo;Civil Code&rdquo;), some contracts may include a clause  stipulating that &ldquo;assignments are not permitted&rdquo; or that &ldquo;any assignment  is subject to the consent of all the parties to the agreement&rdquo;.&nbsp; Where  such a restriction is included in the contract and a contracting party  attempts to assign the contract such an assignment will not only be  ineffective, but also, the assigning party will be in breach of the  relevant contract.&nbsp; However, where a contractual restriction relating to  assignment is present and all the contracting parties accept the  assignment, the assignment will be deemed effective and enforceable.</p>
<p>The Civil Code sets out the process by which an assignment can be  executed.&nbsp; The law differentiates between the assignment of rights and  the assignment of debts. Article 324 to Article 336 of the Civil Code  relates to assignment of rights, while Article 337 to Article 353  regulates the assignment of debts.</p>
<p><strong>Process&nbsp;</strong></p>
<p>The procedures to effect an assignment of rights is different form  that of the assignment of debts.&nbsp; Assignment of rights does not require  the debtor&rsquo;s approval, however, the debtor must be notified and the  debtor&rsquo;s acknowledgement is required.&nbsp; If the acknowledgment is signed  by the debtor, it should be date certified from the Ministry of Justice  in Qatar, as opposed to the notary&rsquo;s office in some legal systems.&nbsp; In  the event the debtor refuses to sign the acknowledgment, an official  court notification can be served upon the debtor, which shall be deemed  an &ldquo;acknowledgment&rdquo; under the law.&nbsp; The court notification in many civil  law jurisdictions is made through a court bailiff. However, since court  bailiffs do no exist in Qatar, the court undertakes the notification  process through an internal postal system.</p>
<p>According to the Civil Code, an assignment of rights can include the  rights under the corresponding security provided by the debtor to secure  payments and other related rights.&nbsp; Having said that, it is advisable  to clearly specify the security being assigned to the assignee.</p>
<p>Another significant factor is that the contracts being assigned must  be identified.&nbsp; In other words, it is not permitted to assign the rights  or receivables from an asset generally.&nbsp; The assignment agreement must  include a description of the contracts and receivables that are being  assigned by the assignee to the assignor.</p>
<p>An assignment of debt requires the prior approval of the creditor,  and not merely acknowledgment of the creditor.&nbsp; If the creditor received  a notification of the assignment of debt and does not respond within  the deadline stipulated under the notification, the assignment will be  deemed rejected by the creditor.&nbsp; However, the assignment shall be  effective between the original debtor and the assignee, even if the  creditor rejected the assignment, hence, the assignee shall be obliged  to pay the debt, when due, to the creditor.</p>
<p>The creditor does not guarantee the solvency of the debtor at the  time of the assignment of rights while the debtor must guarantee the  solvency of the assignee at the time of the assignment of debt, unless  otherwise agreed.</p>
<p>The Civil Code does not recognize the concept of &ldquo;assignment as a  security&rdquo;, the assignment under the Civil Code is an absolute  assignment.&nbsp; However, in practice, assignment of rights is typically  used as security, where the bank has no right to enforce the assigned  rights except in case of the occurrence of a default by the creditor.</p>
<p>In general, there are some assets that may not be subject of an assignment.&nbsp; Those types of assets are:</p>
<p>(a)<span>&nbsp;</span>Real Estate, as there are certain laws which provide  for specific formal procedures and registration requirements to assign  title relating to real estate assets;</p>
<p>(b)<span>&nbsp;</span>Movables, in respect of which a mortgage or pledge  over movables is created by following specific formal procedures with  the relevant competent authorities, depending on each type of asset;  and&nbsp;</p>
<p>(c)<span>&nbsp;</span>A business enterprise or &ldquo;Fonds de Commerce&rdquo;, where a  security interest shall only be valid and enforceable vis-&agrave;-vis any  third party provided the procedures set out under Qatar Commercial Code  No. 27 for 2006 are followed. &nbsp;</p>
<p>It is also recommended that the assignee takes possession of the  assigned rights to facilitate enforcement if the assignment is taken as a  security.&nbsp; For example, where the assignment relates to receivables,  the receivables can flow into an account pledged to the assignee.</p>
<p><strong>Assignment and Novation</strong></p>
<p>The Civil Code recognizes two ways of transfer of rights or  obligations, one is by assignment, which has been explained above and  the other is by novation.</p>
<p>Articles 381 to 386 of the Civil Code deal with the novation.  Novation is defined under the law as &ldquo;a change of the debt when the two  parties agree to substitute a new obligation for the original  obligation.&nbsp; The new obligation differs from the original obligation in  respect of its object or as regards its source by a change of the  debtor, when a creditor and a third party agree that such third party  shall take the place of the original debtor and that the original debtor  shall be released of the debt without his consent being necessary, or  when the debtor has procured the consent of the creditor to substitute  the debtor by a third party who consents to be the new debtor; also by a  change of the creditor, when the creditor, the debtor and a third party  agree that his third party shall be the new creditor.&rdquo;</p>
<p>It is recommended to advise banks to obtain assignment as a security  rather than novation, as the significant difference between assignment  and novation under the Civil Code is that the security associated with  the debt is not automatically transferred under novation, unlike the  assignment, where security is automatically transferred to the assignee.  &nbsp;</p>
<p><strong>Conclusion</strong></p>
<p>While assignment of receivables is a very popular form of security  among lenders in the region, it is essential to ensure that the nuances  relating to creation of such security are diligently followed.&nbsp;</p>
<p>Lenders should pay special attention to the transferability of  collateral associated with the rights or obligations being assigned.&nbsp;  Specifically, lenders should consider the benefits of an assignment or  rights over a novation.&nbsp; This is especially significant as under an  assignment of rights there may not be a need to re-execute security  documents.&nbsp;</p>
<p>Lenders should also be aware that when assigning receivables, the  receivables should be identifiable and quantifiable at the time of  executing the assignment agreement.</p>