What Is an Anti-Assignment Clause? What to Check for Transfers of Contractual Position, Assignments of Claims and Business Transfers

Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.

In legal due diligence for M&A, we open each of the material contracts the target company has entered into, one by one, and compile a list of whether they contain anti-assignment clauses or change of control (COC) clauses. Depending on the acquisition structure chosen, this list turns into "a list of counterparties whose consent must be obtained by closing." If there is even one contract for which consent cannot be obtained, the parties may be forced to reconsider the structure or postpone the schedule.

Because anti-assignment clauses are common provisions found in many contracts, they tend to be skimmed over in the review at signing. However, when the company faces future M&A, business transfers or fundraising, these clauses have the power to determine whether the transaction can proceed at all. If the scope is drafted too broadly, it constrains the company's own business development; if drafted too narrowly, it fails to achieve its original purpose of locking in the counterparty. The practical starting point is to review the clause with both of these conflicting aspects in mind.

The Difference Between a Transfer of Contractual Position and an Assignment of Claims

The basic approach when examining an anti-assignment clause is to distinguish between the transfer of contractual position and the assignment of claims.

A transfer of contractual position means moving one's position as a party to the contract to a third party. A typical example is where a service provider hands over its position as provider to another company; from the counterparty's perspective, the contracting party itself is replaced. Under the Civil Code, the individual transfer of a contractual position in principle requires the counterparty's consent (Article 539-2 of the Civil Code).

An assignment of claims, by contrast, means assigning to a third party individual monetary claims or other claims arising under the contract. A typical example is the assignment of accounts receivable to a financial institution or factoring company; the payee changes, but the contracting entity providing the services does not. Because the nature of the impact on the counterparty differs, the contractual treatment is also examined separately.

A point to note in practice is that, following the amendments to the Civil Code, even a claim subject to a special agreement restricting assignment can in principle be validly assigned (Article 466, paragraph 2 of the Civil Code). However, against an assignee or other third party who knew of the special agreement or did not know of it due to gross negligence, the debtor may refuse performance and may assert payment to the assignor and other defenses (paragraph 3 of the same Article). There is also an exception under which, if the assignee demands that the debtor perform to the assignor within a reasonable period and the debtor does not do so within that period, the debtor can no longer refuse performance (paragraph 4 of the same Article). The special rules on deposit claims (Article 466-5 of the same Act) and the perfection requirements of notice of or consent to the assignment (Article 467 of the same Act) also operate as separate rules. It is essential not to conclude the effect of an assignment immediately just because the contract says "assignment prohibited," but to examine it separately from its legal effect.

For companies raising funds, a blanket prohibition on assigning claims or providing them as security (such as by creating a pledge) narrows the options for managing cash flow. Early monetization of accounts receivable and factoring presuppose that claims can be validly assigned, so keep in mind the perspective of securing flexibility in financing as well.

How the Clause Operates in M&A and Reorganizations

In M&A and reorganizations, the way an anti-assignment clause operates varies greatly depending on the structure adopted.

In an acquisition by share transfer, only the shareholders of the target company change; the legal entity that is the party to the contract does not. Accordingly, the anti-assignment clause itself usually does not apply directly. On the other hand, where a change of control clause exists, notice, consent and termination on the grounds of a change of control become issues.

Where individual contracts are taken over through a business transfer, the contractual position under each contract is transferred, so the counterparty's consent must be obtained (Article 539-2 of the Civil Code). A company split, in contrast, is a universal succession under the Companies Act (Articles 759 and 764 of the Companies Act), so the legal mechanism of succession differs from individual assignments of claims or transfers of contractual position. The validity of special agreements restricting transfers by company split, and the interpretation of clauses that make a split a ground for termination, require individual examination.

Is the clause drafted so as to extend to business transfers and company splits? Does it also capture share transfers and changes of control? Are transfers between group companies permitted as an exception? Does a failure to obtain consent lead directly to a ground for termination? In due diligence, these points are checked one by one while comparing against the original contracts. By accurately recording the content of clauses in a register from the signing stage and negotiating exceptions for material contracts, it becomes easier to identify the necessary consents and adjustments when considering a transaction.

Similar care is also needed for changes in day-to-day operations. When transferring operations to a group company or outsourcing customer support or system operations, check whether this conflicts with an anti-assignment clause or a prohibition on subcontracting. Whether the transferee is a group company or an outside company does not by itself determine the legal nature. Check whether the contracting party is being replaced, or whether the original party remains responsible while subcontracting part of the work.

Practical Adjustment Methods and Making the Consent Procedure Concrete

In negotiating an anti-assignment clause, it is realistic to avoid the extreme binary choice between a complete prohibition and unconditional freedom. In contracts that place weight on the counterparty's creditworthiness or technical capability, it is natural to require prior consent for the transfer of contractual position, but restricting across the board even the assignment of monetary claims and intra-group reorganizations would interfere with ordinary business operations.

As a practical adjustment, one option is to make the transfer of contractual position subject to prior written consent, while making the assignment of claims subject to notice or permitting assignments to financial institutions and factoring companies. Other methods include excluding from the consent requirement transfers between group companies and transfers accompanying reorganizations such as mergers and business transfers, adding a reservation that "the counterparty may not refuse without reasonable grounds," and limiting the cases in which consent may be refused to "where there is a risk of serious disadvantage to the counterparty." Decide how far to seek changes based on the difference in bargaining power and how replaceable the business partner is. Even after signing, it is possible to obtain consent, renegotiate the clause or revise the method of transfer, but allow for the time such adjustments take.

At the same time, organize the relationship with the change of control clause. Not every change in shareholder composition resulting from a share transfer, third-party allotment of shares or a future initial public offering (IPO) is automatically subject to termination or consent. By excluding in advance, in the definitions in the clause, listings, pure fundraising rounds, intra-group reorganizations and the like, you can reduce the practical burden of having to notify or seek consent from the counterparty at every fundraising round.

It is also useful to write the consent procedure itself into the clause in advance. Set out to whom, by when and with what materials the request is to be made, within how many days of receiving the request the counterparty must respond, and whether to include a provision deeming consent to have been given if there is no response within the deadline (deemed consent). If the procedure remains vague, once consent becomes necessary you end up renegotiating even the method of application, which delays completion of the transaction.

For material contracts, record the following items in the register:

• Whether there is an anti-assignment clause and its scope
• Whether there is a prohibition on assigning claims or providing security
• Exceptions for transfers to group companies
• Exceptions for reorganizations (business transfers and company splits)
• Whether there is a change of control clause and its triggering events
• The procedure for obtaining consent, documents to be submitted and the response deadline

Even when using AI tools to extract clauses from contracts, you can assist with entering data into the register by having them read not only whether a clause exists but also whether consent is required for M&A or a business transfer and how many days are allowed for consent. However, AI extraction results are checked against the original contracts, and the scope of clauses and whether consent is required are judged by the legal staff. Rather than processing all contracts at once, it is realistic to proceed in order of priority, starting with contracts that rank high based on transaction value and replaceability. We handle acquisitions involving the review of contract registers, including anti-assignment clauses, in M&A Support.

Frequently asked questions

What is the difference between a transfer of contractual position and an assignment of claims under an anti-assignment clause?

The difference lies in whether the contracting party changes. A transfer of contractual position moves the status of a contracting party to a third party and, in principle, requires the counterparty's consent. An assignment of claims, on the other hand, transfers monetary or other claims that have arisen; the payee changes, but the contracting party itself does not. Because the nature of the impact on the counterparty differs, it is likely necessary to consider their treatment in the agreement separately.

How does an anti-assignment clause affect M&A or a business transfer?

The impact differs depending on the acquisition structure adopted. In a business transfer, individual contractual positions are transferred, so the counterparty's consent must be obtained, whereas in a share transfer, the legal entity that is the contracting party does not change, so there is usually no situation in which the anti-assignment clause applies directly. However, it is understood that even in a share transfer, if there is a change of control clause, consent or termination on the ground of the change in control becomes an issue.

How should an anti-assignment clause be adjusted so that it does not restrict our own business development?

Avoid a blanket prohibition and include exceptions suited to the actual transactions. Uniformly prohibiting both transfers of contractual position and assignments of monetary claims would hinder early monetization of accounts receivable and future reorganizations. A practical adjustment is likely to make transfers of contractual position subject to prior written consent, while allowing assignments of claims on a notice basis or to financial institutions, and excluding intra-group reorganizations from the consent requirement as an exception.