Champerty Clarified

Participants in the secondary distressed debt and bankruptcy claims markets rely heavily on the notion that assignments of distressed bank debt or claims include the rights to enforce the underlying obligation and to bring litigation against any previous owner(s) (i.e. the upstream seller(s)) of the debt or claims for breach of a representation or warranty that impairs the purchaser's recovery. This concept is formalized in both the standardized distressed bank debt purchase and sale agreement, promulgated by the Loan Syndication & Trading Association, Inc. (“LSTA”), and typical bankruptcy claims assignment agreements, which provide that the purchaser succeeds to all of the seller's rights against the original borrower and any upstream sellers.