Sep 18, · D. Del. ) (noting that nonconsensual third party releases are not barred in the Third Circuit). Similarly, although the First and Eighth Circuits have not addressed the issue, bankruptcy courts in these circuits have permitted nonconsensual third party releases. See, e.g., In re Chi. Invs., LLC, B.R. 32, 95 (Bankr. D. Dec 14, · Third-party releases can greatly expand the scope of a bankruptcy case by affecting parties who might not even have a claim against the debtor in the first place. In the example above, approving the non-consensual release of Company B could severely limit the Miami hotel's ability to recover on losses it otherwise would have been fully entitled. It may also be a harbinger for future chapter 15 cases in which foreign representatives seek recognition of nonconsensual third-party releases. Procedures and Recognition Under Chapter 15 Under section of the Bankruptcy Code, the representative of a foreign debtor may file a petition in a U.S. bankruptcy court seeking "recognition" of a.
Horne and, perhaps more ominously, that a chapter 13 confirmation order is not binding on a creditor who does not object to confirmation but has filed a stay relief motion and that state forfeiture laws may remove property from the estate while the case is pending Title Max v.
A rehearing motion has been filed in the latter case. The First Circuit has diverged from the Seventh Circuit, holding that rejection of a trademark license deprives the licensee of future use of the license. Physiotherapy Holdings. Many chapter 11 plans include nonconsensual third-party releases that preclude certain non-debtors from pursuing claims against other non-debtors as part of a restructuring deal in which such releases are a quid pro quo for financial contributions made by prepetition lenders or old equity holders.
Several court rulings handed down in addressed these concerns. In addition, in In re SunEdison, Inc. This quarterly summary of recent developments in bankruptcy law covers cases reported during the third quarter of The Second Circuit adopted the use of a market rate to determine cram-down interest rates in a chapter 11 case.
In re Ultra Petroleum. The Delaware bankruptcy court clarified its jurisdiction to approve a third-party release in a settlement implemented through a confirmed chapter 11 plan, holding that plan confirmation is a core proceeding, so Article III limits do not apply. In re Energy Future Holdings, Inc.
And the Ninth Circuit has ruled that for the trustee to pursue an avoidance claim against the United States, section b does not require a separate sovereign immunity waiver. For further information regarding the issues described above, please contact Lance P.
This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney. Law firm web design by New Media Campaigns. Here are the factors: Do the debtor and the third party share a unity of interest? If there is an indemnity relationship between the third party and the debtor whereby the debtor would be obligated to reimburse the third party for any claims the third party has to pay to the creditor, a release of the third party may be appropriate because a suit against the third party may be tantamount to a suit against the debtor by virtue of the indemnity.
Has the third party contributed substantial assets to the debtor company's reorganization? The debtor must prove that the third party whose release is sought made a substantial, cognizable, and valid contribution of assets to the debtor as part of the reorganization.
Merely serving as an officer or director of the company will not be enough. The third party needs to provide funding or other asset to the debtor. Is the release of the third party essential to the debtor company's reorganization? The debtor must establish that successful reorganization hinges on it being free and clear from indirect suits against parties who would have indemnity or contribution claims against the debtor. Like the first factor, a debtor will be more likely to secure a third-party release if it can prove that there is a risk of significant litigation against the third parties that will directly impact the debtor's reorganization efforts.
Have the creditors that would be affected by the release overwhelmingly voted in favor of the plan including the release? To determine if the creditors who will be affected by the third-party release approve of it, the Fourth Circuit decision suggests that a debtor should implement a procedure allowing each creditor the right to vote on the release separately from the vote of that creditor's class on the plan as a whole.
In other words, courts should be reluctant to presume acceptance of a third-party release by creditors who are not impaired under the plan and deemed to accept it without voting. Does the debtor's reorganization plan provide a mechanism to consider and pay substantially all claims of the creditors affected by the third-party release? Here, the debtor must establish that it encouraged the affected creditors' participation in the bankruptcy process and provided a mechanism to ensure that their claims are not extinguished by the third-party release.
Does the debtor's reorganization plan provide an opportunity for those who choose not to settle to recover in full? This factor overlaps with the previous factor and reiterates the point that a debtor must create a mechanism to pay the creditors affected by the third-party release outside of the bankruptcy—such as through a separate settlement fund.