Recent years have witnessed a surge in businesses facing mass tort claims filing for bankruptcy, primarily due to nonconsensual nondebtor releases. The aim behind this strategy is for Chapter 11 to facilitate an expedited and more budget-friendly resolution as compared to class actions or multi-district litigation. This has been the subject of an elaborative piece authored by Pillsbury Winthrop Shaw Pittman LLP, accessible here.
In the past, such nonconsensual nondebtor release provisions have been controversial and the courts’ decisions were far from consistent. Some permitted them while others outrightly rejecteddue to concerns of jurisdiction or fairness. However, the recent surge in businesses resorting to this route has yet again thrust the topic into the limelight driving renewed focus and debate within the legal fraternity.
Given the turbulent history and recent developments, it is becoming increasingly clear that the restructuring community needs to take note of, and be prepared to navigate, this contentious area. A potential alternative suggested by some legal experts to nonconsensual nondebtor releases is the incorporation of “gatekeeping provisions” in Chapter 11 plans. These provisions could serve as a mechanism to determine the claim eligibility of various parties, thereby augmenting the fairness aspect associated with such nonconsensual releases.
However, the effectiveness of gatekeeping provisions as an alternative is something that will be influenced by how companies, legal professionals, and the courts manage this shift. Embedding such a significant change in the established bankruptcy procedures would necessitate ample preparation, wide-scale acceptability, and sustained refinement. Considering the complexities associated with nonconsensual nondebtor releases, it would be prudent for legal professionals to follow this evolving landscape closely, exploring other potential solutions while adapting to these new developments.