Clifford Chance

Recourse to Seller Upheld in Claims Trading: The Longacre Case

18 October 2012

A recent decision by the U.S. Court of Appeals for the Second Circuit should reassure purchasers of bankruptcy claims that recourse protections commonly negotiated into claim transfer agreements are enforceable.  In Longacre Master Fund v. ATS Automation,  the Second Circuit vacated a decision by the District Court for the Southern District of New York in which the District Court declined to enforce a provision in the agreement permitting the buyer to put the claim back to the seller if the debtor objected to the claim.  The District Court reasoned that because the claim objection was without merit, it did not trigger the put right.  On appeal, the Second Circuit looked at the plain language of the transfer agreement and concluded that there was no requirement that a debtor’s claim objection be meritorious to trigger the put right.

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