Cross-Border Claim Assignment: Practical Legal Guide

Introduction

Imagine you run a company in Turkey and one of your customers in Germany owes you money. Instead of waiting months for payment, you decide to assign the claim (the debt owed to you) to a finance company in London. But here’s the question: Which country’s law governs this transaction? If a dispute arises—perhaps the debtor refuses to pay—knowing which law applies can make or break your deal.

Cross-border claim assignments are increasingly common in global trade and finance. Businesses use them for cash flow, securing loans, or financing major projects. Yet, they carry risks: conflicting laws, enforceability issues, and protection of debtor rights. This guide explains the practical aspects of foreign claim assignments, especially under Turkish law and EU frameworks, so you can avoid costly mistakes.

1. Key Rules Under Turkish Law

• No Specific Rule in PILA: Turkey’s Private International Law (PILA No. 5718) does not have a dedicated rule on claim assignments. Instead, general conflict-of-law principles apply.

• Freedom of Contract: Assignor (creditor) and assignee can agree on which law governs their contract. For example, a Turkish company and a UK factoring firm may agree that English law applies.

• If No Choice of Law: Courts will apply the law most closely connected to the contract—often the law of the assignor’s habitual residence.

Practical Tip: Always include a choice of law clause in your assignment agreement to prevent uncertainty.

2. Steps to Assign Claims Safely Across Borders

1. Draft a Clear Assignment Agreement

   • Specify the receivable(s) being transferred.

   • State whether the transfer is for payment, security, or another purpose.

   • Include the applicable law and jurisdiction clause.

2. Check Debtor Notification Rules

   • In Turkey, written notice to the debtor is usually enough.

   • In France or Japan, formal notification is required.

   • In the U.S. or Canada, registration in a public registry may be necessary.

3. Confirm Assignability of the Claim

   • Some claims cannot be assigned (e.g., personal claims, employment-related debts).

   • Review the underlying contract—many commercial contracts include “no assignment” clauses.

4. Protect Against Double Assignments

   • If the creditor assigns the same debt to multiple parties, priority rules differ by jurisdiction.

   • In Turkey, the “first in time” principle applies: the earliest valid assignment prevails.

5. Consider Third-Party Impacts

   • Bankruptcy administrators, other creditors, or competing assignees may challenge the assignment.

   • Clarify priority rules in advance.

3. Common Pitfalls and How to Avoid Them

• No Applicable Law Specified: Leads to uncertainty and costly disputes.
  → Solution: Always agree in writing which law governs.

• Failure to Notify the Debtor: The debtor may validly pay the original creditor instead.
  → Solution: Notify promptly and in writing.

• Different Formalities Across Jurisdictions: What’s valid in Turkey may not be valid in France, Germany, or the U.S.
  → Solution: Check local requirements where the debtor is located.

• Assumption That Assignment Covers Everything: Some rights (like interest or security rights) may not automatically transfer.
  → Solution: Spell out exactly what is included.

• Overlooking Insolvency Rules: If the assignor goes bankrupt, the assignee may lose priority.
  → Solution: Ensure your assignment is enforceable against third parties under the chosen law.

4. Case Examples for Clarity

• Example 1 – Turkish Exporter & German Buyer
  A Turkish textile exporter assigns its receivable against a German buyer to a Dutch factoring company. If the debtor disputes payment, the law governing the original sales contract (German law) may control the debtor’s obligations. Meanwhile, the law chosen in the assignment contract (Dutch law) governs the relationship between the assignor and assignee.

• Example 2 – Bank Loan Backed by Assigned Claims
  A Turkish contractor pledges future receivables from a Middle Eastern project as collateral to a London bank. If the contractor defaults, enforceability of the assignment depends on both Turkish law (assignor’s residence) and the governing law agreed in the financing contract.

5. Checklist for Businesses Assigning Claims Internationally

• Draft a written assignment agreement.

• Include a choice of law and dispute resolution clause.

• Verify the receivable is assignable under the debtor’s local law.

• Notify the debtor according to required formalities.

• Register the assignment if the jurisdiction requires it.

• Check bankruptcy and insolvency rules in all relevant jurisdictions.

Conclusion

Assigning claims internationally can be an excellent tool for financing, securing credit, or improving cash flow, but it is full of legal traps. The applicable law for foreign claim assignment is not always straightforward, and overlooking local rules can render an assignment ineffective.

At Tenha Law Firm, we help businesses and individuals navigate the complexities of cross-border receivables, ensuring compliance with Turkish, EU, and international standards. If you are considering assigning or acquiring claims internationally, contact us for tailored legal advice.