The U.S. Supreme Court’s recent decision in Purdue Pharma has ended the use of permanent plan injunctions in the form of nonconsensual third-party releases as a reorganizational tool in Chapter 11, at least for now. However, the Supreme Court did not address the propriety of temporary injunctions, known as 105(a) injunctions, that halt third-party litigation pending the formulation of a Chapter 11 plan. The rationale for a 105(a) injunction is to stay litigation that could impede the debtor’s reorganization by depleting insurance assets or distracting debtor principals from their responsibilities in Chapter 11.
With the prohibition on nonconsensual releases in Chapter 11 plans now established, a pertinent question arises: will debtors find it more challenging to obtain a 105(a) injunction? The future viability of these injunctions remains to be seen. For more details on this issue, read the full article on Law.com.