> The parties are directed to brief and argue the > following question: Whether the Bankruptcy Code authorizes a > court to approve, as part of a plan of reorganization under > Chapter 11 of the Bankruptcy Code, a release that extinguishes > claims held by nondebtors against nondebtor third parties, > without the claimants’ consent.

ChatLaw's answer:

The Bankruptcy Code does not explicitly authorize a court to approve, as part of a plan of reorganization under Chapter 11, a release that extinguishes claims held by non-debtors against non-debtor third parties, without the claimants’ consent. However, courts have interpreted certain provisions of the Bankruptcy Code to permit such non-consensual third-party releases under certain circumstances.

The relevant provisions of the Bankruptcy Code include Section 105(a), which empowers the court to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title, and Section 1123(b)(6), which allows a plan to include any other appropriate provision not inconsistent with the applicable provisions of this title.

In the case of In re: Mallinckrodt PLC, (District of Delaware, 02/08/2022), the court noted that while Section 524(e) of the Bankruptcy Code should be read to preclude non-debtor releases, releases are not the equivalent of a discharge. The court also noted that the Third Circuit has recognized that bankruptcy courts do have statutory and constitutional authority to approve a plan of reorganization that contains non-consensual third-party releases, albeit, only in extraordinary cases.

In the case of In Re: 18-13374-mew Aegean Marine Petroleum Network Inc. (Southern District ofNew York, 2019-04-08), the court noted that some Circuit Courts of Appeal have held that bankruptcy courts lack the power to grant nonconsensual third-party releases of the kind that the Debtors seek here. However, other Courts of Appeal, including the Second Circuit Court of Appeals, have held that bankruptcy courts have the power to impose involuntary releases, but that such involuntary releases should be imposed only in rare cases.

In the case of 22-110 In re: Purdue Pharma L.P. (Second Circuit Court of Appeals, 5/30/2023), the court concluded that two sections of the Bankruptcy Code, 11 U.S.C. 105(a), 1123(b)(6), jointly provide the statutory basis for the bankruptcy courts authority to approve a plan that includes nonconsensual releases of third-party claims against non-debtors. The court further held that the bankruptcy courts inclusion of the releases is equitable and appropriate under the specific factual circumstances of this case.

In the same case, in a concurring opinion, Judge Richard C. Wesley agreed that a bankruptcy court has the authority to approve a Chapter 11 reorganization plan that includes nonconsensual nondebtor releases, based on the court's precedent in In re Drexel Burnham Lambert Grp., Inc., 960 F.2d 285, 293 (2d Cir. 1992). However, he expressed concerns about the lack of explicit statutory basis for such releases in the Bankruptcy Code.

In conclusion, while the Bankruptcy Code does not explicitly authorize non-consensual third-party releases, courts have interpreted certain provisions of the Code to permit such releases under certain circumstances. The permissibility of such releases often depends on the specific facts and circumstances of the case, and courts have cautioned that such releases should be approved only in rare cases.

[1] https://www.cnn.com/2023/08/10/politics/supreme-court-purdue...