When Asset Finance Goes Wrong: Why the Best Protection Starts With the Agreement

For an asset finance provider, an agreement is far more than a simple ‘take on’ form and administrative step at the beginning of a transaction. It determines the funder’s rights and liabilities and the customer’s obligations. Critically, it should offer clarity and assurance if circumstances change, payments stop or the asset itself becomes difficult to locate or recover.

Whilst most funders will have agreements in place, these will typically be standard agreements that may or not provide legal certainty when things go awry. 

The key questions surround when those documents were last reviewed, whether they reflect the transactions being funded today and, crucially, whether they have been tested against the arguments that arise when a deal goes wrong.

Weaknesses often become apparent only when a contentious lawyer has to rely on the document to recover an asset or pursue an outstanding liability. Applying that experience at the drafting stage can help lenders identify gaps – such as those considered below – before they are tested in a dispute.

1. Do the termination triggers highlight risks?

The right to repossess is governed by the lease or hire purchase agreement and will generally arise following an event of default. Non-payment is the most obvious example, but insolvency, a failure to insure or an unauthorised disposal may be equally important.

A change of control of the Hirer can also alter the risk. A lender may have assessed a business on the basis of its existing owners and management. If they are replaced, the lender may want to reassess the arrangement. Unless the agreement treats that change as a relevant event, its options may be limited.

The contractual process matters as much as the trigger. Once a default has occurred, the funder will usually need to serve a formal notice terminating the agreement. Attempting to recover the asset without terminating correctly can expose it to claims for wrongful interference with goods or trespass.

2. Recovery is not always as simple as collecting the asset

Under an unregulated commercial agreement, an asset may sometimes be recovered without a court order if this can be done peaceably and lawfully. A funder or its agent cannot use or threaten force, breach the peace or force entry onto locked private property. If recovery would involve confrontation or trespass, a delivery-up order may need to be obtained from the Court.

Third-party premises create further complications. A landlord may require reasonable notice and a repairer may have a valid lien for unpaid work, potentially requiring the funder to settle the costs before seeking reimbursement from the hirer.

The asset itself also matters. Equipment can become fixed to a property or incorporated into a larger asset, while vehicles and mobile plant can cross borders. Landowner waivers, access and removal rights, monitoring technology and regular inspections should therefore be considered at the outset.

If an asset is about to be hidden, dismantled, sold or moved out of the jurisdiction, urgent remedies may include an interim injunction or delivery-up order. Exceptional cases may justify a freezing or search order, making swift specialist advice essential.

3. Due diligence must extend to the asset itself

Strong documentation is only one part of risk management. Funders should be confident that the asset exists, is accurately described and is located where the customer says it is. Where appropriate, that means arranging an independent inspection rather than relying solely on information or photographs supplied by others.

In some cases, apparently separate transactions are later found to be connected, with the same equipment potentially financed more than once. Lawyers and recovery specialists may then have to compare photographs, inspection records and mapping imagery to establish whether different funders were shown the same asset.

No agreement can turn a fundamentally poor transaction into a good one. Effective due diligence at the outset, supported by searches of asset registries and documentation requiring full and accurate disclosure, can nevertheless reduce exposure and give the lender clearer remedies if information proves false or incomplete.

4. Plan for insolvency, sale and any shortfall

If a corporate customer enters administration, the statutory moratorium under the Insolvency Act 1986 can prevent repossession without the administrator’s written consent or the court’s permission. The funder should promptly notify the administrator of its ownership, seek assurances about care and insurance, and establish whether the asset is required for continued trading.

The agreement should also anticipate what happens after recovery: how the asset will be valued and sold, how sale proceeds will be applied and whether the customer or a guarantor can be pursued for any remaining shortfall. Clear provisions covering ownership, access, disposal, indemnities, guarantees and outstanding liabilities can materially affect the options available.

Bring contentious experience into the conversation early

The central lesson is simple: involve specialist advisers before the agreement is finalised, not only after a default. Lawyers who regularly litigate asset finance agreements see the defences, practical complications and drafting weaknesses that can undermine a claim.

That experience can be fed back into the non-contentious process through regular reviews of standard documentation and transaction-specific advice where a deal, asset or customer presents unusual risks. It may not prevent every dispute, but it can help a funder respond more quickly, protect its position and avoid discovering a gap in its documentation at the moment it matters most.