Cession of Rights for Investment Agreements

In investment relations, such a situation may arise in which an investor who has already invested money into a startup loses interest in the project. What does one do in such a situation, especially if the investment agreement does not envisage their ability to get their investment back prior to the project's implementation?

In such situations, a cession of rights (demands) agreement can be concluded for the investment agreement.

According to the terms of a cession of rights (demands) agreement, the investor cedes its rights to a third party for compensation. Following the moment of an agreement's entering into legal force, all the rights and obligations transfer to the new investor and it becomes an independent party to the investment agreement.

As a general rule, a startup's consent is not required to conclude a cession of rights (demands) agreement for an investment agreement.

One also reserves the right to cede their rights (demands) for an investment agreement in the case that the startup is not making the investment worthwhile and such a return is obligatory under the terms of the investment agreement. For payment in the amount of part of the cost of the investment, the investor can cede the right to demand the entire sum of the investment to a third party which will engage in demanding repayment of the debt in court.

Thus, cession of rights (demands) for an investment agreement entails the ability both to replace the investor in the event of the latter’s loss of interest in the project as well as “sell” the startup’s debt in order to abandon a failing project at least with partial return of the funds.

Are you considering concluding (or amending) an investment agreement? Then obtaining qualified legal counsel is a must for you. Get in touch with us today!