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In Part Two, we continue the analysis by evaluating two constitutional issues arising from third-party releases: whether creditor consent to be bound by a third-party release is required to satisfy the due process clause of the Fifth and Fourteenth Amendments; and whether bankruptcy courts have constitutional authority to issue final orders granting third-party releases in a plan of reorganization under Stern v. Marshall.
In the April 2023 issue, we published Part One of this article examining the role of third-party releases in successful Chapter 11 reorganizations. That article evaluated whether and to what extent third-party releases are permissible to release nondebtors from liabilities that are intertwined with the debtor’s liabilities. That analysis revealed an important circuit split in which the majority of circuits allow third-party releases in limited circumstances based on factual findings supporting a different multi-factor analysis in each jurisdiction. However, a minority of courts — specifically, the Fifth, Ninth and Tenth Circuits — disallow nonconsensual third-party releases entirely. We noted that the U.S. Supreme Court has not yet weighed in on this issue, and suggested that either the Supreme Court or the U.S. Congress should intervene to resolve the confusion and uncertainty surrounding the use of third-party releases as a tool for resolving complex Chapter 11 restructurings.
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Seventh Circuit Applies Safe Harbor to Private Securities Transaction
By Michael L. Cook
“… [T]he term ‘securities contract’ as used in [Bankruptcy Code] §546(e) unambiguously includes contracts involving privately held securities,” The Seventh Circuit held in Petr v. BMO Harris Bank, N.A.
By Lawrence J. Kotler and Elisa Hyder
In Lafferty v. Off-Spec Solutions, the U.S. Bankruptcy Appellate Panel of the Ninth Circuit held that the discharge exceptions under Section 523(a) do not apply to corporate debtors under Subchapter V of Chapter 11 of the Bankruptcy Code.
Merchant Cash Advances Could Be More Trouble Than They’re Worth
By Joseph Pack and Jessey Krehl
As small-business owners have continued to struggle in an uncertain economy, a growing number have begun the dangerous practice of relying on merchant cash advances — essentially seeking financial shelter in a lion’s den.
Biotech Industry Bankruptcy Case Update: ‘Zymergen’ and ‘Humanigen’
By Edward E. Neiger, Marianna Udem and Joo Hee Park
This Bankruptcy Case Update focuses on the recent biotech industry bankruptcy cases of Zymergen and Humanigen.
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