This isn't a code issue but a design issue.
What is downstream of the ATS? What I mean is if there is just one load and it has shorted on you, then the fact the ATS is going to switch sources and then fail again is immaterial, as the load is still busted and will never work until you fix it. Though Bob is correct; you dont really want to close a contactor onto a short; it wont like that, but a single downstream breaker coordinated with the upstream breakers will fix that problem.
But it introduces a second problem; ifyou get a transient short on the load then one upstream source will open, the ATS will flip, and then everything continues as it should. The dual source breakers and no downstream breaker improves the chances the load will come back on strong. It doesn't solve the problem of why the short occured in the first place, of course. Overall though, this may be a better outcome, when balanced against reducing the service life of the ATS contactor.
However... if there are multiple downstream loads then the downstream panelboard breakers should (be set to) discriminate correctly so that the one faulty load is isolated, leaving everything else running.