Third-Party Releases in Plans

Summary

This practice note discusses third-party releases in plan of reorganizations under Chapter 11 of the Bankruptcy Code. Under the Bankruptcy Code, a confirmation order discharges the debtor but does not discharge non-debtors. For years, debtors have argued that the binding effect of a confirmed plan on all creditors and equity security holders means that third-party releases may be included within a plan. However, the Supreme Court upended most of these arguments when it held that the Bankruptcy Code does not authorize a release that, as part of a plan of reorganization under Chapter 11, seeks to discharge claims against a non-debtor without the consent of affected claimants.