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The Supreme Court has spoken by not hearing case on broad nonconsensual third party releases

The United States Supreme Court opted not to hear a dispute regarding broad third party releases contained in a plan of reorganization which releases were held by lower courts to be binding on nonconsenting creditors.  In the Third Circuit bankruptcy case of Millenium Lab Holdings II LLC, the bankruptcy court approved a plan containing such releases, a decision upheld on appeal by the District Court in Delaware and thereafter by the Third Circuit Court of Appeals.  The Third Circuit's decision was largely based on its interpretation of the Supreme Court's decision in Stern v. Marshall wherein the Supreme Court found that bankruptcy courts do not run afoul of their jurisdiction by exercising authority that is integral to the restructuring of the debtor. However, the Third Circuit's decision did not give bankruptcy courts a blank check to approve third party releases in plans where the releases are opposed.  Instead, the Court noted that such releases be considered with caution.  It appears that the Supreme Court will not be disturbing that decision. 

The Third Circuit's December opinion affirmed rulings in Delaware's bankruptcy and federal district courts allowing the 2015 confirmation, in a decision that eased bankruptcy practitioner anxiety over the potential loss of a key bargaining chip — nonconsensual third-party releases — for use in negotiating contributions to the resolution of difficult cases.


restructuring & insolvency