Debt Sales: A Change of Creditor Does Not Alter the Obligation

The assignment of claims has long become a standard instrument used by banks, financial institutions, and investors operating in the non-performing loan market. Whereas several years ago the sale of loan portfolios was primarily associated with bank liquidations, today it serves as a fully-fledged mechanism for managing credit risk and distressed assets. At the same time, companies that become debtors often perceive the transfer of their debt to another creditor as the beginning of an entirely new legal relationship, a misconception that frequently leads to strategic mistakes at the very outset of a dispute.

In reality, the assignment of a claim neither creates a new obligation nor alters the terms of the existing one. Pursuant to Article 514 of the Civil Code of Ukraine, the new creditor acquires all rights previously held by the original creditor to the extent and under the conditions existing at the moment of the transfer, unless otherwise provided by law or by agreement. In other words, the assignment agreement changes only the identity of the creditor while leaving the substance of the obligation intact.

For that reason, once a business receives notice that its debt has been transferred, its primary focus should not be the fact of the creditor's replacement itself but rather a comprehensive legal assessment of the consequences of such transfer.

A Notice of Assignment Should Neither Be Ignored Nor Accepted Uncritically

One of the most common mistakes businesses make is to disregard notifications informing them that the creditor has changed. In practice, companies often assume that because the original agreement was concluded with a bank or another financial institution, any correspondence received from an unfamiliar company carries no legal significance. Such an approach is mistaken both from a practical and a legal perspective.

The legal significance of notifying the debtor does not lie in creating the new creditor's rights, since those rights arise from the assignment agreement concluded between the creditors themselves. Rather, notification determines the proper manner in which the debtor must perform its obligation. Accordingly, Article 516(2) of the Civil Code of Ukraine provides that if the debtor has not been duly notified of the replacement of the creditor, the risk of adverse consequences rests with the new creditor, while performance rendered to the original creditor is deemed proper performance.

However, this provision should not be interpreted as relieving the debtor of its obligation to repay the debt. The Supreme Court has repeatedly confirmed this position. In its judgment of 30 November 2023 in case No. 916/3711/20, the Court held that failure to notify the debtor of the assignment does not extinguish the obligation itself but merely entitles the debtor to continue performing in favour of the original creditor until proper notification has been received. The same legal approach was previously expressed in the Supreme Court's judgments of 6 February 2018 (case No. 278/1679/13-ц) and 19 August 2021 (case No. 442/933/13-ц).

Consequently, a passive response on the debtor's part effectively deprives the business of the opportunity to verify the relevant documents, assess the legality of the assignment, and formulate a legal strategy before the dispute escalates into litigation.

Verifying the Amount of the Debt Is as Important as Reviewing the Assignment Agreement Itself

Experience in corporate dispute resolution demonstrates that once a claim has been assigned, the central issue often shifts from the existence of the debt itself to the correctness of its calculation. At this stage, debtors frequently make another fundamental mistake by accepting the amount claimed by the new creditor without conducting an independent legal and financial review.

Such an approach carries considerable risks because the claimed amount may include penalties, default interest, inflation adjustments, contractual interest, and other ancillary charges whose calculation does not always comply with statutory requirements or established judicial practice.

For example, in its judgment of 26 June 2020 in case No. 905/21/19, the Supreme Court clarified that inflation losses must be calculated on the basis of official inflation indices and that each subsequent calculation period should be based on the debt amount already increased by inflation adjustments accrued during previous periods. Errors in applying this methodology inevitably affect the final amount claimed.

Practical experience shows that once an independent recalculation of the debt is performed, the claimed amount is often reduced by 10–30% due to inaccuracies in calculating penalties or inflation losses. Such a recalculation serves not only as a procedural defence in court but also as a powerful negotiating instrument capable of significantly strengthening the debtor's position before a final judgment is rendered.

Settlement Agreements Are Increasingly More Economically Efficient Than Lengthy Litigation

Until relatively recently, many businesses viewed settlement agreements as an admission of weakness or even an acknowledgment of liability. Modern commercial practice, however, demonstrates the opposite trend. Where a thorough legal assessment has been conducted beforehand, negotiations frequently produce an outcome that is economically more beneficial for both parties than years of litigation.

Particularly significant in this respect is the legal position adopted by the Supreme Court in its judgment of 6 June 2025 in case No. 917/141/24, where the Court confirmed that a settlement agreement may establish a payment schedule extending beyond one year. The Court specifically emphasized that such an arrangement represents an expression of the parties' autonomy and procedural discretion rather than a judicial deferral of enforcement.

In effect, the Supreme Court reaffirmed that parties remain free to determine commercially reasonable methods of resolving their dispute, provided such arrangements comply with the law and do not infringe the rights of third parties.

Security Interests Require Independent Legal Assessment

One of the most underestimated consequences of debt assignment concerns security interests. For corporate borrowers, these issues are often of particular importance because the collateral may consist of production facilities, commercial real estate, equipment, or corporate rights. Under Article 24 of the Law of Ukraine "On Mortgage", the assignment of the principal claim automatically entails the transfer of the mortgagee's rights without requiring the mortgagor's consent, unless the mortgage agreement provides otherwise.

This approach was also confirmed by the Grand Chamber of the Supreme Court in its judgment of 22 May 2024 in case No. 754/8750/19, where the Court concluded that the transfer of rights under a credit agreement necessarily results in the transfer of all related security rights previously held by the original creditor.

Conclusions

Recent Supreme Court jurisprudence demonstrates a consistent approach to disputes involving the assignment of claims: while a change of creditor does not affect the substance of the underlying obligation, it fundamentally alters the procedural landscape of the dispute and requires the debtor to conduct a timely legal assessment of all related circumstances.