Do your due diligence before you purchase debt

In the case of Bibby Factors Northwest Limited v HFD Limited and MCD Group Limited the Court of Appeal has ruled that there is ordinarily no duty on a company whose debt has been purchased (the Debtor) to inform the purchasing company (the Funder) of any pre-existing contractual arrangements it has with the company assigning the debt (the Assignor).  If the Funder wants this information it must directly request it.


The case is a reminder that Funders should ensure that they undertake thorough due diligence in relation to a debt before purchasing it and not solely focus on enquiring about disputes. If a Funder wants to know about rebates or set-off arrangements it needs to ask the Debtor or Assignor if there are any such arrangements in place or specifically deal with them in the contractual terms.


Bibby Factors Northwest Limited (Bibby) entered into a factoring agreement with Morleys Limited (Assignor) under which Bibby purchased debts owing to the Assignor by HFD Limited and MCD Group Limited (the Customers). The contractual arrangements between the Assignor and the Customers entitled the Customers to certain rebates of repayments. When Bibby brought a claim against the Customers for unpaid invoices, the Customers claimed in their defence and counterclaim that they were entitled to set off the rebate against the sum claimed by Bibby.

Bibby had sent a "take-on letter" to the Customers, advising them of the debt purchase and stating that "any right of set-off in respect of any sale you make to our client is not permitted". Bibby argued that this letter meant that the Customers were obliged to tell Bibby of the rebate and set-off arrangements. The Court of Appeal rejected this and held that the fact that Bibby sought to prevent set-off (which they didn't have the power to do except by agreement with the Customers), did not give rise to an obligation on the Customers to volunteer information about the rebates. If Bibby had wanted to be told of the rebates it could have contracted on terms that required the Assignor to give them that information or Bibby could have asked the Assignor or the Customers if there were any rebate arrangements in place.

If you would like further information on this subject please contact Helen Corner »

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Helen Corner


I am a partner specialising in corporate banking and a leading member of the firm’s national banking team.