Deeds of Novation: Consent, Balances and Handover

What a Novation Replaces

Novation replaces the old contractual relationship with an agreed new one. Identify the outgoing party, the incoming party and each continuing party by legal name and capacity. Identify the original agreement and every amendment incorporated into the replacement terms.

In ALH Group Property Holdings v Chief Commissioner of State Revenue, the High Court examined the agreement’s effect as a whole. At paragraph 12, the Court explained that novation requires agreement to substitute a new contract and discharge the obligations under the old agreement. A document’s label does not settle that question.

A deed of assignment transfers identified rights without, by itself, substituting the person responsible for contractual obligations. A deed of variation addresses agreed changes to terms where the contracting parties remain. Keep those distinctions clear when choosing the instrument.

Incorrect: the outgoing supplier sends a notice naming a replacement, and the customer is treated as bound to the new supplier automatically.

Correct: establish the required consent to the substitution. If relying on an advance-consent mechanism, satisfy its requirements and record the replacement relationship on its agreed terms.

Establish Consent and the Existing Position

Establish who must consent and what remains outstanding before negotiating the release. Australian Government Solicitor’s novation briefing explains that novation requires consent from the original parties and the incoming party.

Read the original agreement’s transfer provisions alongside the proposed transaction. A permission to subcontract does not necessarily authorise substitution of the contracting party. If relying on advance consent, identify the clause and the steps that make it effective for this transaction.

Check the incoming party’s ability to perform and the authority of each proposed signatory. Where a party is under external administration, establish who can exercise its powers. Identify any lender consent, head-contract approval or other third-party permission the transaction requires.

Create a snapshot of the contract immediately before the proposed effective event. Record the evidence for each item and mark disputed figures separately. The snapshot needs to cover:

• Completed work, accepted deliveries and performance still outstanding.
• Unpaid invoices, deposits, credits and any proposed set-off.
• Existing breaches, notified disputes and contingent claims such as an unresolved warranty demand.
• Guarantees, security and related contracts that depend on the existing relationship.

Use the underlying contract review to identify how those items interact with payment, termination and liability terms. A ledger balance alone cannot tell you whether an amount is legally due.

Allocate Accrued and Future Obligations

Specify which earlier rights and liabilities the parties preserve, release or recreate in the replacement arrangement. Separate that decision from the incoming party’s future performance obligations.

Draft the operative substitution, the outgoing party’s release and the incoming party’s assumption so they work together. Identify preserved claims expressly and state who can enforce them against whom. An indemnity between the suppliers allocates loss between them. It does not itself give the customer a direct claim against the incoming supplier.

General release wording needs to be read in context. In Grant v John Grant & Sons, the High Court considered the release against the disputes and purpose recorded in the deed. Do not assume a broad release necessarily extinguishes every earlier claim, or that every accrued claim automatically survives.

Fictional Supplier Handover

Suppose Harbour Supplies is the outgoing supplier, Basin Supply is the incoming supplier and Orchard Retail is the continuing customer. These names and amounts are fictional. All amounts are final contract amounts, with no additional tax calculation assumed.

Orchard owes Harbour $8,000 for an accepted earlier delivery. Harbour also holds Orchard’s $3,000 deposit for a future order priced at $12,000. The parties choose to preserve the earlier debt and apply the deposit to Basin’s future delivery.

Agreed Responsibility Schedule

Item	Chosen treatment in the deed	Completion evidence
Earlier $8,000 invoice	Orchard remains liable to Harbour under an expressly preserved payment obligation	Invoice, acceptance record and later payment to Harbour
$3,000 deposit held by Harbour	Harbour must remit it to Basin; Basin must credit Orchard once received	Harbour payment, Basin receipt and customer credit
Future $12,000 order	Basin must deliver; Orchard pays Basin the remaining $9,000 after the agreed deposit credit	Delivery acceptance and Basin invoice showing the credit
Earlier defective-work claim	The identified claim against Harbour is expressly preserved; Basin assumes no liability for it under this chosen arrangement	Claim description and preservation terms

For this example, make receipt of the deposit by Basin a condition of completion. Specify what happens if the condition fails. That prevents the handover proceeding while each supplier assumes the other holds the customer’s money.

The future order reconciles as $3,000 credited plus $9,000 payable, totalling $12,000. The earlier $8,000 debt is separate. Orchard’s remaining payments total $17,000, and its earlier deposit brings the total customer outlay to $20,000. Harbour’s $3,000 remittance is an internal transfer of the deposit, not another customer charge.

Review each guarantee and security instrument separately. Identify the secured obligations and any consent, confirmation, replacement instrument or registration work required. Record the legal conclusion under the actual terms and governing law before treating protection as continuing or discharged.

Execute and Complete the Novation

Complete the agreed signing and conditions process before switching the operational contract record. Work through the following steps in order.

1. Settle one final text with the original agreement, amendments and responsibility schedule clearly identified. Resolve conflicting release and preservation provisions before circulation.
2. Confirm each signatory’s authority and execution method. Retain the relevant company, delegation, attorney or external-administration evidence.
3. Apply the execution rules for each party. Confirm the governing law, deed formalities and any witnessing or delivery requirement before choosing electronic signing.
4. Collect the executed counterparts and complete the agreed conditions. Retain evidence of required consents, deposit movements and any agreed completion confirmation.
5. Record the effective event and distribute the operative instrument. Give accounts staff and delivery teams instructions identifying the responsible entity, payment destination and remaining tasks.

For Australian companies executing without a seal, section 127 of the Corporations Act specifies the officer combinations. Two directors can sign together. Alternatively, a director can sign with a company secretary. A proprietary company’s sole director can sign if also its sole secretary or if the company has no secretary.

Sections 110A and 127 permit electronic execution subject to their requirements. The document must be expressed as a deed. Section 127 also removes witnessing and delivery requirements for the specified execution methods.

Do not apply the company method to every individual signatory. For example, NSW’s Conveyancing Act permits electronic deeds under section 38A, while section 38 addresses signing and attestation. Resolve each party’s applicable requirements before sending signing instructions.

Retain the former contract as part of the history. Store the deed and incorporated replacement terms together, with a clear record of what governs future performance.

Verify the Balances and Performance Handover

Compare actual payments and performance with the agreed responsibility schedule after completion. Match receipts to the paying entity, receiving entity and invoice or deposit they discharge.

In the fictional example, match Harbour’s $3,000 deposit remittance to Basin’s receipt. Basin’s customer account must show the $3,000 credit and $9,000 remaining balance. Harbour’s earlier invoice must remain separate from that order.

If Basin invoices $12,000 without crediting the deposit, compare its invoice with the deposit receipt and agreed allocation. Correct the invoice or credit record before treating the order balance as settled. If Orchard sends the $8,000 to Basin, resolve the mistaken receipt against the deed and document any onward payment. Do not count it as both suppliers’ revenue.

Where many statement PDFs obscure the payment history, FinTrace saves professionals hours of manual statement review by producing a searchable ledger and source-backed findings. Each finding identifies the source PDF filename and page, so the supporting payment evidence is at hand for the reconciliation.

Close the handover only when the file contains the required consent, execution and completion evidence. Record the replacement relationship and assign every outstanding obligation to a responsible person. A changed customer name in bookkeeping software proves an administrative edit. The deed and completion evidence must establish the agreed legal substitution.