Second Circuit Decision Reassures Bankruptcy Claim Purchasers on Enforceability of Recourse Against Sellers

The United States Court of Appeals for the Second Circuit recently vacated a decision by the District Court for the Southern District of New York, which had declined to enforce the contractual allocation of claim impairment risk between a bankruptcy claim buyer and its seller. Relying on the plain language of the documents, the Second Circuit held in Longacre Master Fund, Ltd. v. ATS Automation Tooling Systems Inc. (Longacre) that the debtors’ objection to the claims had triggered the seller’s repurchase obligation.