Vol 20 (2023) - Issue 1

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The ‘Great Unsettled Question’ and the Future of Non-consensual Third-Party Releases in Cases Filed under Chapter 15 of the Bankruptcy Code

Synopsis
US bankruptcy courts regularly grant foreign representatives' requests to enforce orders approved in foreign insolvency proceedings, including when such orders impose non-consensual third-party releases.
Under the confines of the Bankruptcy Code court analysis of the permissibility of third-party releases in the chapter 15 context traditionally has been guided by principles of comity.
A recent opinion by the United States District Court for the Southern District of New York (the 'SDNY') may introduce a level of complexity into the analysis of future requests for relief pursuant to Bankruptcy Code section 1506, which provides that a bankruptcy court may refuse to grant relief under chapter 15 if such relief is manifestly contrary to US public policy.
In In re Purdue Pharma L.P., the SDNY concluded that bankruptcy courts lack statutory authority to approve non-consensual third-party releases in the chapter 11 context. The decision, which currently is awaiting resolution on appeal to the United States Court of Appeals for the Second Circuit (the 'Second Circuit'), implicates issues surrounding whether public policy considerations may temper the scope of future relief available to foreign representatives under chapter 15.