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This two-part article will examine the role of third-party releases in successful Chapter 11 reorganizations. This part will address the factors considered in each Circuit where such releases have been deemed permissible within the confines of the Bankruptcy Code, evaluate several recent cases highlighting the uncertainty created by the current Circuit split, and consider options for creating a clear, nationwide standard.
For nearly three decades, courts have wrestled with whether and to what extent the U.S. Bankruptcy Code authorizes non-debtor, third-party releases in a Chapter 11 plan of reorganization. The results over that time have yielded continuing confusion and uncertainty. While three of the 11 Circuit Courts are united in disallowing third-party releases entirely, the other eight provide separate justifications for allowing them, and their differing standards are often disjointedly applied. Although such releases are supposed to apply only in “rare and unique” cases, as one judge observed, “almost every proposed Chapter 11 Plan that I receive includes proposed releases.” In re Aegean Marine Petroleum Network, 599 B.R. 717, 726 (S.D.N.Y. 2019).
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Lease Terminations As Fraudulent Transfers
By Michael L. Cook
Is an insolvent debtor’s pre-bankruptcy termination of a commercial lease a fraudulent transfer? The circuit courts seem to be split, however a close reading of cases in the Third and Seventh Circuits shows that the reasoning of both courts can be reconciled on their facts.
Fourth Circuit: Corporate Subchapter V Debtors Subject to Discharge Exceptions Under Bankruptcy Code
By Lawrence J. Kotler and Elisa Hyder
In a matter of first impression not yet addressed by any circuit court, the Fourth Circuit addressed whether the discharge exceptions under Section 523(a) apply to corporate debtors under Subchapter V of Chapter 11 of the Bankruptcy Code.
Appellate Court Reverses Chapter 11 Confirmation Order Based on Faulty Tax Ruling
By Michael L. Cook
The Northern District of California recently issued two blistering opinions on appeals by the IRS and California Franchise Tax Board from a bankruptcy court’s Chapter 11 plan confirmation order and a tax determination order.
Corporate Bankruptcies and the Restructuring Solution
By Brian Wanat
Recent, big-name Chapter 11 filings have brought to the light the importance of insurance solutions for companies in financial distress, as companies in this situation face oftentimes new and uncharted issues.