The purchase and sale of claims held by creditors against debtors in a bankruptcy proceeding has become a big business. The motivations for the buyer are varied. They include making a profit on any distributions in the debtor’s case above the price paid to the seller, obtaining the right to vote on the debtor’s plan of reorganization, and participating more generally in the debtor’s case. The seller gets a guaranteed return without having to wait for the bankruptcy to run its course.

In a recent bankruptcy case, In re Woodbridge Group of Companies, Case No. 17-12560 (KJC), 2018 Bankr. LEXIS 1904 (Bankr. D. Del. June 20, 2018), Bankruptcy Judge Kevin J. Carey considered three issues in connection with the sale of a bankruptcy claim: whether an anti-assignment clause in a promissory note was a valid restriction on assignment rights under Delaware law; whether a nonbreaching party to a promissory note in payment default was still bound by an anti-assignment clause while also seeking to enforce the note in bankruptcy through a proof of claim; and whether the Uniform Commercial Code (UCC) overrode and nullified an anti-assignment clause in a promissory note. Carey held that the anti-assignment clause in the note was enforceable under Delaware law, the tenets of contract law, and the UCC, and sustained the debtors’ objection to the assignee’s claim.

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