Plain-English summary
Court rules bankruptcy law does not allow plan to extinguish others’ claims against third parties without consent
In a 6–3 decision, the Supreme Court held that the Bankruptcy Code does not permit a Chapter 11 plan to release and enjoin claims that nondebtor claimants hold against nondebtor third parties unless those claimants consent. The Court reversed the Second Circuit’s approval of such releases in Purdue Pharma’s restructuring and sent the case back for further proceedings.
Why this matters
The decision limits the power of bankruptcy courts to use reorganization plans to shield third parties from liability for claims they did not personally file into bankruptcy. That affects how large multi‑party bankruptcies—often involving mass torts, corporate groups, or related third parties—can be structured and how victims can recover from parties alleged to have caused harm.
Who may feel it
- Victims and plaintiffs with claims against nondebtor third parties
- Debtors and related third parties (e.g., corporate owners, officers, or families) seeking releases in reorganizations
- Creditors and municipalities pursuing recovery in mass‑tort bankruptcies
- Bankruptcy courts, trustees, and restructuring professionals
Key questions
- Does the Bankruptcy Code allow a Chapter 11 plan to include a release and injunction that extinguish claims nondebtors hold against nondebtor third parties without those claimants’ consent? (Answered: No.)