There may be numerous ingredients that go into a workable and successful Chapter 11 reorganization plan. In some plans, one of those ingredients is non-consensual third-party releases. For some debtor businesses, the potential long-term viability of the business itself may hinge upon obtaining those releases and forever closing the door on certain creditor claims. Given how important these releases can be to the long-term success of your business, they serve as one more example of just how vital it is to have the right Florida Chapter 11 bankruptcy lawyer on your side to help you develop a plan with all the right ingredients, and then see that plan through all the way to a successful end.
Non-consensual third-party releases appear in Chapter 11 cases when the reorganization plan, in order to be viable, requires the court to sign off on the release of certain non-debtor third parties from claims by the debtor’s creditors. Recently, it was the Third Circuit Court of Appeals that was asked to address this topic.
In that case, the debtor was a Delaware-incorporated specialty laboratory that, in 2014, entered into a $1.825 billion credit agreement with multiple lenders. In 2015, the lab filed for bankruptcy. The debtor’s restructuring plan involved “broad releases, including ones that would bind non-consenting lenders.” One of those non-consenting lenders was one of the major lenders in that 2014 credit agreement. The bankruptcy court approved the plan, despite the lender’s objection.