Do Bankruptcy Courts Have Constitutional Authority to Approve Nonconsensual, Third-Party Releases?

By Shmuel Vasser and Cara Kaplan (Dechert)

Shmuel Vasser
Cara Kaplan

The Third Circuit, applying the Supreme Court’s decision in Stern v. Marshall, recently held that the Bankruptcy Court has the authority to confirm a chapter 11 plan containing nonconsensual, third-party releases when such releases are integral to the debtor’s successful reorganization.

In Stern, the Supreme Court examined the scope of the bankruptcy court’s constitutional authority and found, among other things, that the bankruptcy court can resolve a matter that is integral to the restructuring of the debtor-creditor relationship.  Analyzing Stern, the Third Circuit in In re Millennium held that the Bankruptcy Court could confirm a plan that included non-consensual, third party releases because the releases were the result of “highly adversarial” and “extremely complicated” negotiations and without the releases, the debtor would not have been able to successfully reorganize.

The full article is available here.

The Changing Landscape of Consensual Third-Party Releases in Chapter 11 Plans: Does Silence = Consent?

By Kathrine A. McLendon and Lily Picón (Simpson Thacher & Bartlett LLP)

There has been increasing focus on what evidences implicit consent to a third-party release in a chapter 11 plan.  This article examines the statutory framework underlying consensual third-party releases and then discusses recent cases in which consensual releases have been challenged by the Office of the United States Trustee and by courts sua sponte. Although various forms of implicit consent were often approved in the past with little or no scrutiny, these cases highlight trends toward stronger indicia of consent and greater attention to the factual context of the particular case.  These developments also underscore the importance of making the appropriate evidentiary record to support approval of consensual third-party releases. We conclude with practice pointers to support the case for confirmation of chapter 11 plans containing consensual third-party releases.

The full article can be found here.