CG53535 - Securities: debts: substitution of debtor

Sometimes the original debtor under a debt agreement is replaced by a substitute debtor, who takes on the original debtor’s liabilities.

If this takes place in accordance with a `substitution of debtor’ clause which was included in the terms of the debt instrument at the time it was originally issued, you may accept the substitution simply as performance of the original terms. Essentially, in these cases, the original debt continues. The person holding the debt (the creditor) does not make any disposal of the debt at the time of substitution.

If there was no such clause in the debt as originally issued, or the substitution was outside the terms of the clause, a change of debtor may amount to a novation - that is, the creation of a new debt at the time of the change. In such cases, the creditor would be treated as having disposed of the original debt asset at that time, see CG65995 for further details on novation.