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To Release or Not to Release? Courts Remain Split on Release Provisions

Scale and Gavel

Third-party release provisions are a common feature of almost every chapter 11 plan in large bankruptcy cases. Despite this, there has long been a split among bankruptcy courts and Circuit Courts of Appeal on the scope and permissibility of such third-party release provisions. With the recent wave of large, high-profile chapter 11 cases filed to address mass tort liabilities, a number of prominent courts have recently weighed in on the validity and propriety of third-party releases.

In addition to this new precedent, pending appeals and proposed legislation could impact the ability of parties in complex chapter 11 cases to use third-party releases as a tool in a plan of reorganization. This article focuses on the recent case law addressing consensual and non-consensual third-party releases, as well as the proposed legislation that, if passed, would impact the permissibility of such releases.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.