In an ongoing story on one of the latest bankruptcy law issues, the US Supreme Court will address the contentious subject of non-consensual third-party releases in bankruptcy cases, according to the information from JD Supra.
Earlier this year, the Southern District of New York, referred to as the District Court, nullified the confirmation given by the US Bankruptcy Court for the Southern District of New York, otherwise known as the Bankruptcy Court, for the Chapter 11 Bankruptcy Plan by pharmaceutical company Purdue Pharma, which has been seen as controversial by some.
To further the matter, the District Court’s decision concluded that the Bankruptcy Code does not allow the use of non-consensual third-party releases other than in lawsuits regarding asbestos. The contentious ruling of the District Court was then appealed, sparking a series of legal examination of current bankruptcy laws' adaptation to complex corporate structures.
The handling of third-party non-consensual releases in bankruptcy cases has long created debates on the reach and limits of a bankruptcy court’s authority. There is a historical tendency to allow such releases in areas with complex corporate structures, to facilitate the reorganization process and maximize the debtor’s estate for the benefits of creditors. Equally, some argue that it undermines the rule of law by potentially absolving non-debtors from liabilities without consent.
By taking on this case, the Supreme Court will likely provide critical commentary and establish a more concrete legal precedent for such cases in the future. It would be wise for legal professionals, in both corporation law departments and law firms, to keep an eye on how this case unfolds.