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Bankruptcy Litigation

Fifth Circuit Weighs In on Scope of Releases and Exculpation

In an important recent U.S. Court of Appeals for the Fifth Circuit decision, the court explored whether exculpation provisions protecting more than just the debtor and committee are appropriate.

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The scope of releases obtainable within a Chapter 11 plan remains a hot issue, as evidenced by high-profile cases such as the Boy Scouts and Mallinckrodt. A standard and noncontroversial form of release often found in a plan involves exculpation provisions that typically hold debtor personnel, committee members and their professionals harmless for actions taking in connection with the prosecution of the bankruptcy case itself. In an important recent U.S. Court of Appeals for the Fifth Circuit decision, the court explored whether exculpation provisions protecting more than just the debtor and committee are appropriate. In the same decision, the scope of equitable mootness was considered, and limited to allow the appeal of an order confirming a substantially consummated liquidating plan that was argued (and found) to contain overly broad exculpation relief. See, Highland Capital Management v. NexPoint Advisors, No. 21-10449 (5th Cir. Aug. 19, 2022).

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