Third-Party Release

A third-party release is a provision in a bankruptcy plan that wipes out claims against companies or people who are not themselves in bankruptcy, such as a parent company, affiliates, insurers or officers. In 2024 the Supreme Court held that the Bankruptcy Code generally does not allow such releases without the consent of those whose claims are released.

Origin

Bankruptcy courts in some circuits had approved non-consensual third-party releases for years, often in mass tort cases. In Harrington v. Purdue Pharma L.P., decided in June 2024, the Supreme Court held that the general Bankruptcy Code provisions do not authorize them. The decision did not address Section 524(g), the provision Congress wrote specifically for asbestos cases.

Significance in Asbestos Context

Asbestos bankruptcies have their own route: Section 524(g) lets a channeling injunction protect certain related parties, such as insurers and affiliates, when strict conditions are met, including a trust funded in part by the company's stock and a 75 percent vote of asbestos claimants. That authority survived the Purdue decision. The live questions are elsewhere: plans that try to protect parties beyond what Section 524(g) allows, talc and other cases that may not fit Section 524(g), and how "consent" is obtained, for example whether failing to return an opt-out form counts as agreeing. For a claimant, the release language in a plan can determine whether a lawsuit against a solvent parent, insurer or related company can go forward. These issues are still being worked out in the courts after 2024.

Example Sentence

After the Purdue decision, the debtor revised its plan so that claimants could opt out of the third-party release protecting its parent company.

Related Terms

Channeling Injunction, 524(g) Trust, Plan of Reorganization, Texas Two-Step, Successor Liability, Release

Notes

• Read any bankruptcy notice or ballot carefully and give it to your lawyer; an opt-in or opt-out form can affect your rights against other companies.
• Do not assume a company is protected just because a related company is in bankruptcy; ask your lawyer to check.