Changes to Third-Party Releases in Chapter 11

In June 2024, a Supreme Court decision found that nonconsensual third-party releases for nondebtors were not allowed in Purdue Pharma’s Chapter 11 plan. Law360 spoke with bankruptcy practitioners about potential workarounds to these third-party releases, which, according to Law360, had been “a tactic used by debtors for decades and made bankruptcy courts a popular venue for debtors facing mass tort litigation.”

Morris Nichols bankruptcy and restructuring partner Derek Abbott spoke with Law360 about the implications of the Purdue decision, noting that, “Lawyers as a species are creative and inventive and industrious, so I’m sure we’ll see some workarounds.” He anticipates that, “If there’s a way to do it that’s consistent with the black letter of the law, I have found judges, for the most part, will be creative themselves as long as they can say they’re complying with the law to get to a result that makes sense and is practical and keeps jobs and keeps companies alive.”

Asking bankruptcy courts to make rulings on derivative claims may be one trend to emerge following the Purdue decision, as well as increased focus on what constitutes a nonconsensual release. “They only overruled nonconsensual releases,” Derek observed. “So I think we’re headed for a number of cases — and there are a number of cases already — that talk about what constitutes a consensual release versus a nonconsensual release.”

Read the full article, “Purdue Release Ruling May Spur Creative Ch. 11 Workarounds,” from Law360‘s Bankruptcy Authority.