On September 11, 2019, the Delaware district court affirmed the bankruptcy court’s decision to expunge a proof of claim filed by a claims trader in the Woodbridge Group of Companies, LLC bankruptcy case. The court’s holding was based on three primary legal conclusions: (1) the anti‑assignment provisions in the underlying loan agreements and promissory notes were enforceable under Delaware law; (2) the debtors’ pre-petition breach of the loan agreements did not bar the debtors from relying on the anti-assignment provisions; and (3) the Uniform Commercial Code (“UCC”) did not render the anti-assignment provisions unenforceable. This decision could have a major impact on the claims trading business and should be closely examined and analyzed by claims traders.
Prior to the petition date, the debtors executed three promissory notes and loan agreements in favor of Elissa and Joseph Berlinger, each of which contained anti-assignment provisions. Specifically, the provisions held that none of the documents could be assigned without the debtors’ written consent and that any assignment without the debtors’ consent would be null and void. Approximately two months after the debtors filed their voluntary petitions, Contrarian Funds, LLC (“Contrarian”) purchased the notes and loan agreements, executed a transfer of claim agreement and filed a transfer notice in the bankruptcy cases. Approximately two weeks later, Contrarian filed a proof of claim in the amount of the outstanding notes. Soon thereafter, the debtors filed an objection to Contrarian’s claim, which was sustained by the bankruptcy court without prejudice to the right of the Berlingers to file a proof of claim related to the notes. Contrarian timely appealed the decision to the district court.