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SDNY Bench Split on CH. 11 Release Consent Issues


Bankruptcy reorganization plans often include provisions that allow executives, advisers and others involved with the company to ditch their own potential liabilities. Determining whether these releases have the required consent of affected stakeholders can be tricky, and New York bankruptcy judges appear to have conflicting views.


Blank Rome LLP attorney Ira Herman says third-party releases “are virtually in every case now” because corporate capital structures have grown more complex, leaving more groups of stakeholders fighting for recoveries. Multiple constituencies in a Chapter 11 case are only willing to compromise and accept impaired treatment “if they know they’re getting a release,” he said.


To head off uncertainties, lawyers need to keep a list outlining how each judge views the application of third-party releases and standards of creditor consent, Herman said. Different judges have different views of what constitutes enough notice and the opportunity to act, and at times, it can come down to the “luck of the draw” whether parties seeking broad application of releases will get a more amenable judge assigned to the case, Herman added.

“It’s a process issue,” he said. "I think it will sort itself out with the passage of time."

"SDNY Bench Split on CH. 11 Release Consent Issues," by Alex Wolf was published in Law360 on April 15, 2019.