Bankruptcy Can Establish True Peace: The Importance of Non-Consensual Third-Party Releases in Purdue Pharma's Chapter 11 Case
Introduction
Third-party releases are a common topic of discussion within the bankruptcy community—so common that whenever a court issues a ruling that deviates from the jurisdictional norm, a host of new articles on the topic are quickly added to the already extensive literature. Nonetheless, plans involving third-party releases in higher-profile cases garner wide attention, like those releases recently proposed in the chapter 11 cases (the “Chapter 11 Cases”) of Purdue Pharma L.P. and its debtor affiliates.1
While the national press has suggested that the third-party releases proposed in the Purdue chapter 11 plan of reorganization (the “Plan”)2 are extraordinary,3 this type of release is actually now fairly standard in large chapter 11 cases, especially when, as in the Chapter 11 Cases, the released parties have agreed to contribute significant consideration to channeling trusts that will fund recoveries for creditors.
At the time of writing of this article, the United States Bankruptcy Court for the Southern District of New York had approved the adequacy of the disclosure statement filed in connection with the Plan (the “Disclosure Statement”).4 Importantly, however, the Court has not yet approved the releases proposed in the Plan; rather, it entered its order approving the Disclosure Statement, ruling that the Debtors have (among other things) provided sufficient information and transparency to allow creditors to make an informed decision on the financial merits of the Plan, including the details of the consideration being provided in exchange for the proposed third-party releases.5 The Court has scheduled a confirmation hearing to consider approval of the Plan, including the third-party releases, for August 9, 2021.
In light of the ongoing solicitation of the Plan, it is naturally difficult to speculate how the Court will rule at the confirmation hearing. No matter the outcome, this article emphasizes the importance of third-party releases to the success of cases like Purdue. Without such releases, at best, the Chapter 11 Cases would have been significantly more protracted and expensive. And at worst, the Chapter 11 Cases would be culminating with liquidation instead of confirmation.