Drafting an Assignment of Proceeds Agreement

Parties sometimes wish to assign all or part of the proceeds they will receive from an investment or other interest.  Individuals often seek to accept a lump sum in cash in exchange for payments they will receive over time in order to invest in other projects or to create liquidity in their operations.  However, there are a few considerations that should be kept in mind when drafting an assignment of proceeds agreement.

Scope of the Proceeds

Perhaps the most important issue to keep in mind when drafting an assignment of proceeds agreement is the scope of the proceeds to which the Agreement applies.  Sometimes, parties wish to assign all of the proceeds related to an investment or other interest.  This includes reimbursement of any original investment made, dividends, rental income if applicable, and other monies.  However, sometimes the parties wish to assign only part of the proceeds that the assignor may realize from an investment or other interest.  The scope of the applicable proceeds is often the biggest source of disputes in assignment of proceeds agreements, so it is important that parties carefully consider and list all of the types of monies that will be applicable to the agreement.

Further Assignment

Another important consideration when drafting an assignment of proceeds agreement is whether such an agreement may be further assignable.  Assignees often wish for assignment of proceeds agreements to be further assignable without obtaining prior consent from the assignor.  The assignee may wish to sell their interest in the proceeds at issue in the assignment agreement to generate income or liquidity for themselves.  However, assignors may not want such an agreement to be further assigned, or at least require the Assignee to obtain the Assignor’s consent before the agreement is further assigned.  Assignees often may not wish to be involved with parties to which they do not have a pre-existing relationship, so they may wish to negotiate safeguards to the unconditional further assignment of an assignment of proceeds agreement.

Termination Right

Another critical factor to keep in mind when drafting an assignment of proceeds agreement is whether there should be a termination right.  Some such agreements permit the assignor to terminate the agreement to assign proceeds at some future time so long as they refund the purchase price for the assignment and make some other concession.  This gives the parties flexibility in case they wish to stop following an assignment of proceeds agreement.  However, the duration after the closing date that a termination right vests may be a point of contention between the parties.  Moreover, the amount of the concession that must be paid to terminate such an agreement is often negotiated between the parties.  Each party to an assignment agreement needs to carefully evaluate their situation and determine which negotiation right is best for their circumstances.

Bill of Assignment

A bill of assignment may be important when drafting an assignment of proceeds agreement.  After a sale, sometimes parties execute a shorter document simply relating that the sale took place and conveying some important information about the transaction.  This document is usually called a “bill of sale.”  In an assignment of proceeds transaction, it might also be important to have a similar document known as a “bill of assignment.”  This document lists all of the parties to the assignment and the purchase price of the assignment.  The document may also note whether or not the assignment is further assignable, and this document may reference the longer assignment of proceeds agreement.  A bill of assignment may go a long way toward making a further assignment possible and can be useful for other legal, tax, or accounting purposes.

Right to Audit

The ability to audit where proceeds are coming from is an important part of drafting an assignment of proceeds agreement.  Parties often cannot be trusted to fairly and accurately calculate the proceeds which will be conveyed to a third party under an assignment of proceeds agreement.  Sometimes, the amount of the proceeds may be difficult to calculate, and the sum of the money may be subject to different interpretations.  In order to ensure that they will be treated fairly, parties to which proceeds are assigned may wish to audit the party who is paying the proceeds.

It is important to list all the books, records, and other materials that can be inspected about any audit under an assignment of proceeds agreement.  In addition, the cost of such an audit may also be a point of contention between the parties.  Normally, the party conducting the audit will bear any expenses accruing as a result of the audit.  However, if discrepancies are found in the amount of proceeds paid to a party, that other party may be held responsible for the cost of an audit.  It is also important that audits only occur at a certain frequency and requests for audits are reasonable so that parties are not unreasonably burdened because they need to participate in an audit under an assignment of proceeds agreement.

Drafting an assignment of proceeds agreement can be a difficult process, and it is important to choose an experienced attorney who knows all of the issues that may arise from a transaction involving the assignment of proceeds.  If you are looking for an experienced New York and New Jersey attorney to handle your assignment of proceeds agreement or other legal issue, please feel free to contact The Rothman Law Firm to request a free consultation.