Andrew Currie and Dan O’Brien published “In re Millennium Lab Holdings II, LLC: Third Circuit Upholds Nonconsensual Third-Party Releases Over Stern Constitutional Challenge” in Norton Bankruptcy Law Adviser’s February 2020 issue. The following is an overview:
Chapter 11 plans often propose to release non-debtors from direct claims held by creditors or other third-party stakeholders. Commonly referred to as “third-party” or “non-debtor” releases, these provisions often release and/or enjoin claims (present or future, known or unknown) against the debtor’s principals, officers, directors, affiliates, guarantors, insurers, lenders, and other stakeholders when those parties could assert post-confirmation indemnification claims against the debtor, or the non-debtor party is a potential source of funding for the plan of reorganization. While increasingly common in corporate reorganizations (overriding constitutional challenges), the Bankruptcy Code provides no explicit authority to issue third-party releases, and case law across the country is split on the issue.