It is becoming common for financial institutions to assign parcels of loans to each other.

But is the assignment effective?

It will depend on the terms of the loan agreements being assigned, the terms of the transfer and the assignment process.

And any enforcement rights exercised by the transferee will be restricted by the terms of the loan agreements.

In Goodridge v Macquarie Bank Limited [2010] FCA 67 Judge Rares of the Federal Court decided that one borrower’s loan which was part of a complex transfer of about 18,500 margin loans for nearly $1.5 billion from Macquarie Bank to (ultimately) Leveraged Equities Limited (part of the Bendigo and Adelaide Bank) was not validly assigned.

The borrower had sued for return of his investments which were forcibly sold as the result of a margin call.

After examining the specific circumstances Judge Rares decided that:

• the borrower had not in fact been in default,
• the demands were not made in accordance with the loan agreement,
• there was no power to sell the borrower’s investments,
• the sales were in breach of the loan agreement, and
• the investments should be returned to the borrower and he should be compensated for any loss after payment of his liabilities.

As well as deciding there was no valid assignment, the Judge decided that no proper notice of the assignment had been given and that Leveraged Equities had acted unconscionably.