July 06, 2018

MONTH-IN-BRIEF: Bankruptcy & Finance

Penny Christophorou, Taryn Darling

Electronic Contracting

Colorado Enacts Law to Create Electronic Certificate of Title Process

By Paul Hodnefield, CSC

On May 29, 2018, the Colorado governor signed House Bill 18-1299 establishing a system for electronic certificates of title, including for recording ownership of vehicles, filing liens and releases, and registering motor vehicles and special mobile machinery. This bill eliminates the notary requirements from the certificate of title process. The new law takes effect in Colorado on July 1, 2019.

Bankruptcy Law

Delaware Bankruptcy Court Holds That Promissory Note Cannot Be Assigned to Claims Purchaser

By Michael Enright, Robinson & Cole LLP

U.S. Bankruptcy Judge Kevin J. Carey recently held that an anti-assignment clause in a promissory note was enforceable under Delaware law and the UCC, and sustained a claim objection filed by the debtors to a proof of claim filed by the purported assignee of the note. In re Woodbridge Group of Companies, LLC, Case No. 17-12560 (June 20, 2018). The note in question contained clear and explicit language providing that the note was not assignable, and that any attempted assignment would be null and void. Nonetheless, after the debtors entered bankruptcy, the noteholders entered into an agreement to sell the note to an assignee, who then filed a proof of claim against the debtors based on the note. Judge Carey explained away prior holdings requiring Delaware courts to construe such clauses narrowly, concluding that “there is a big difference between narrow construction and ‘wholesale obliteration’” of the anti-assignment provision. The inclusion of clear language in the note that any assignment would not only be a breach but would be null and void distinguished Delaware state court decisions that rejected enforcement of non-assignability provisions in notes without the “null and void” language. Judge Carey went on to hold that Section 9-408 of the UCC did not override the anti-assignment provision of the note. Instead, the impact of that section was to permit attachment of a security interest to the note, despite the anti-assignment provisions. If the effect of 9-408 was broad enough to make ineffective altogether a clear anti-assignment provision in a note, it would render Section 9-406 superfluous, because that section endorsed the enforceability of anti-assignment provisions pertaining to transfer of promissory notes. Although Judge Carey noted in a prior decision in In re KB Toys, Inc. that claims purchasers are highly sophisticated and fully capable of performing diligence before acquiring claims, it may be worth reminding any potential purchaser of a claim that provisions in debt instruments regarding non-assignability ought to be scrutinized carefully prior to an acquisition.

Penny Christophorou

Counsel; Cleary Gottlieb Steen & Hamilton LLP

Penelope L. Christophorou’s practice focuses on commercial financing, including secured transactions and bankruptcy law, derivative products, and structured finance. She represents leading financial institutions, corporate borrowers, private investment funds and sovereign clients on these matters.

Taryn Darling

Board Member, William H. Dwyer Inns of Court

Taryn began her career as a bankruptcy lawyer almost ten years ago. Her practice includes reorganization, insolvency, receivership, work-outs, and bankruptcy and all related litigation. Taryn has litigated at the trial level and appellate level on behalf of her clients in a number of adversary proceedings and in consumer protection litigation. Taryn’s clients include individuals, business owners, and closely held corporations and businesses. Her breadth of experience in the area of bankruptcy and insolvency enables her to take a preventive approach when clients come to her at the outset of a problem. Taryn develops creative solutions to mitigate the impact or consequences when it becomes clear that a bankruptcy or receivership is the best course of action.