Title to assign: a cautionary tale for lenders taking security over group receivables

Briefing

Introduction

The High Court has held that an assignment by way of security granted by the "wrong" company was nevertheless valid by reason of estoppel by convention. Whilst estoppel should not be seen as a reliable fallback for defective security arrangements, the January 2026 judgment in Abraaj Investment Management Ltd (in liquidation) and other companies v Kes Power Ltd and others [2026] EWHC 65 (Comm) illustrates the limited circumstances in which the courts may apply the doctrine where there is clear legal justification for doing so. The case also examined the requirements to establish an implied assignment.

Background

The proceedings concerned a disputed debt of approximately US$41.5 million (the Disputed Debt) said to be due from KES Power Limited (KESP) to one of several competing claimants. As the court noted, these proceedings appeared to form one front of a much wider commercial war.

Abraaj Investment Management Limited (AIML) was the principal investment manager of the Abraaj Group, a Middle East-focused private equity group. Its principal investments included KESP, a Cayman SPV holding investments in a strategically important Pakistani energy supply company. On 18 May 2009, AIML and KESP entered into a consultancy services agreement under which KESP was obliged to pay AIML an annual service fee. Certain fees were deferred which, together with other sums that had accrued, formed the basis of the Disputed Debt.

Mashreqbank PSC (Mashreq) provided secured lending to the Abraaj Group including an AED 275m facility to the group's holding company, Abraaj Holdings (AH), with AIML as guarantor. The facility was not repaid at maturity in May 2017. Whilst negotiating an extension, Mashreq indicated it would require additional security, specifically seeking the "assignment of receivables in the books of Abraaj Holdings from KES Power Ltd aggregating US$37.03m in favour of Mashreq."

On 23 July 2017, three agreements were signed: (1) a second amendment extending the facility (between AH as borrower, AIML as guarantor, and Mashreq as lender) (the Second Amendment), (2) an assignment agreement between AH as assignor and Mashreq as assignee (the Assignment Agreement) and (3) a notice of assignment to which AH and Mashreq were parties, with KESP signing to acknowledge receipt (the Notice of Assignment).

On 18 June 2018, AH and AIML were placed in provisional liquidation by orders of the Cayman courts, triggering an event of default under the Mashreq facility. A dispute then emerged between the liquidators and Mashreq as to whether the Assignment Agreement had been effective to transfer the Disputed Debt to Mashreq. The liquidators' position was that AH had had no title to assign the debt which, in law, was owed to AIML rather than to AH. The liquidations were made official by the Cayman courts on 11 September 2019. On 3 August 2022, AIML sold the majority of the Disputed Debt to SAGE Venture Group Limited (SAGE), with the transaction sanctioned by the Cayman courts on 22 October 2022. SAGE subsequently sold the entirety of its interest to K Power Holdings Limited (KPHL) on 28 May 2024.

The issues

The court identified two broad issues: first, whether the Disputed Debt was due and payable and, if so, in what amount; and second, if it was, whether it was due and payable to AIML, SAGE, KPHL or Mashreq. The first issue turned on points of construction which were resolved in Mashreq's favour and are not the focus of this article. The more interesting question - and the focus of what follows - is who was entitled to the Disputed Debt.

The difficulty for Mashreq was that the Assignment Agreement identified AH as the assignor of the KESP receivable - not AIML, which was in fact KESP's creditor. In other words, the wrong group company had purported to assign a debt it did not own. Mashreq argued that the assignment was nonetheless effective by reason of estoppel by convention (and, in the alternative, estoppel by acquiescence).

Estoppel by convention arises where two parties have conducted themselves on the basis of a shared assumption, that assumption has crossed the line between them, and it would be unconscionable for one party to resile from it. Estoppel by acquiescence arises where a party with knowledge of a mistake fails to correct it and, in the circumstances, was under a duty to speak.

The legal framework: estoppel by convention

The requirements for estoppel by convention, taken from Blindley Heath Investments Ltd v Bass [2015] EWCA Civ 1023, were not in dispute and were as follows:

It is not enough that the common assumption is merely understood by the parties in the same way; it must be expressly shared between them.
The expression of the common assumption by the party alleged to be estopped must be such that they may properly be said to have assumed some element of responsibility for it, in the sense of conveying to the other party an understanding that they expected them to rely upon it.
The person alleging the estoppel must in fact have relied upon the common assumption to a sufficient extent, rather than merely upon their own independent view of the matter.
That reliance must have occurred in connection with some subsequent mutual dealing between the parties.
Some detriment must have been suffered by the person alleging the estoppel, or some benefit conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position.

Application to the facts

The court held that each of the requirements was met. Three features of the factual matrix were determinative.

Firstly, the group operated as a single unit. The same individuals held directorships and signatory authority across multiple group companies, used shared "@abraaj.com" email addresses, and the principal director himself acknowledged at a creditors' meeting that "historically AH and AIML existed as one group ... loaned money on the strength of the collective group."

Secondly, the assignment was a condition precedent to the extension. The assignment of the KESP receivable by way of security was expressly a condition precedent to the Second Amendment - the agreement to which both AH and AIML were parties and which AIML needed in order to avoid its immediate liability as guarantor.

Thirdly, it would have been contrary to common sense and commercial propriety for AH to offer security as a condition for obtaining the extension whilst holding back the fact that the security was ineffective because the correct assignor was not AH but its subsidiary, AIML. The individuals representing AIML and AH were, in all relevant respects, the same individuals, and they believed that effective security was being granted - an understanding that crossed the line, as AIML, AH, and their solicitors at all times conducted themselves on the basis that AH was in a position to grant effective security over the KESP receivable. Mashreq's reliance was clear: the security was specifically sought in circumstances where Mashreq needed assurance of alternative recovery, and the Assignment Agreement was a condition precedent to the Second Amendment.

As to unconscionability, the court held that it would be "wholly inequitable" for AIML, having secured an extension of the Facility Agreement for the benefit of the Abraaj Group and itself as guarantor on the basis of the common assumption, to deprive Mashreq of the very security which it was commonly assumed it had obtained as the price of the extension.

This conclusion finds close support in Rivertrade Ltd v EMG Finance Ltd [2015] EWCA Civ 1285, where a security assignment executed by the wrong group entity was similarly held effective through estoppel by convention.

Estoppel by acquiescence

The court also considered that, if estoppel by convention had not been available because the directors of AIML had known about the mistake, the conditions for estoppel by acquiescence would have been made out. Given AIML's close relationship to AH and the extensive overlap of directors, Mashreq would have been entitled to assume that AIML's directors would have spoken up had they known that the security being offered to Mashreq was ineffective.

The implied assignment argument

Mashreq also argued for an implied assignment from AIML to AH prior to AH's assignment to Mashreq. The test for an implied assignment derives from Fisher v Brooker [2009] UKHL 41. The respondents must show that, at the time of the alleged assignment, (a) it would have been obvious to both parties that the interest was being, or had to be, assigned, or (b) the commercial relationship between the parties could not sensibly have functioned without such an assignment.

Applying this test, the court held that there had been no implied assignment. The test was whether a reasonable person observing the conduct of the putative assignor (AIML) would understand it to be exercising the power of equitable assignment - conduct that is inconsistent with there being no assignment at all. That threshold was not met: the way the group was run, as a single economic unit with common directors, meant that it was more likely that the directors had simply made a mistake as to who actually owned the receivable.

The notice of assignment - was there an independent debt obligation?

Mashreq sought to argue that KESP's execution of the Notice of Assignment - in which KESP confirmed that it owed US$37.03m "to the Assignor in respect of the Receivables" - gave rise to an independent contractual debt obligation in Mashreq's favour. The court rejected this. The notice had as its most obvious purpose the notification of a legal assignment under section 136 of the Law of Property Act 1925. Whilst this would change the identity of the party to whom KESP would need to discharge its debt, it would not otherwise alter or add to KESP's substantive obligations. The language of 'notice', 'acknowledgement' and 'confirmation' did not suggest the assumption of a separate US$37.03m debt obligation with a life independent of the assigned debt.

The court also declined to apply the so-called "principle of acknowledgement" - a historical common law doctrine under which a debtor's promise to pay a third party might in certain circumstances give rise to a direct claim - holding that it does not extend beyond cases involving a specific fund held by a third party, and does not apply to ordinary debt cases. The court's view was that the established regimes of equitable and statutory assignment provide well-defined mechanisms for the transfer of debts and that there is no need to stretch established doctrines of private law to permit this process.

Outcome

Mashreq's claim against KESP succeeded in the sum of US$37,030,000 plus interest, being the amount specified in the Assignment Agreement. AIML retained a separate claim against KESP for US$4,416,114 plus interest, representing expenses it had funded on KESP's behalf after the date of the assignment - a sum that had never formed part of what was assigned to Mashreq and so remained AIML's own debt to recover. The Claimants' other claims failed.

Lord Justice Foxton remarked that but for the greater focus on separate legal personality which the liquidations inevitably engaged, "I do not believe that this is a point which would ever have been taken." He noted that AIML's lead liquidator, when asked in cross-examination what he would have done had he been aware of the Notice of Assignment signed by KESP, gave the "impressively candid" answer that "it would have caused me to pause, and I would have looked probably for more certainty."

Key takeaways

The judge was careful to emphasise that a court will not imply an assignment when there is no supporting evidence and that estoppel is not a general cure for defective security. The facts here were exceptional: identical individuals controlled both the assignor and the true creditor, the common assumption went to the heart of the transaction, and Mashreq relied on it by extending a facility that was already in default.

The following practical points arise for lenders taking assignments of receivables as security:

Verify the assignor's title. Always confirm that the entity executing the assignment agreement is in fact the legal owner of the receivable being assigned. Where the debt appears in a group's consolidated accounts, it does not follow that the holding company is the legal creditor - the debt may sit in a subsidiary.
Ensure the correct entity executes. Where multiple group entities are involved in a transaction, check that the assignment is executed by the correct company.
Estoppel is a last resort. The outcome in this case turned on an exceptional fact pattern which lenders should not assume will always be replicated.
A notice of assignment does not create new liabilities. A debtor's acknowledgement in a notice of assignment confirms an existing payment obligation; it does not create an independent debt obligation in the lender's favour.